Scotiabank’s commodity price index up rises in May on strong potash shipments

TORONTO – Scotiabank says its commodity price index rebounded sharply in May, climbing 2.3 per cent month-over-month, thanks in part to higher prices for Alberta heavy crude as well as higher demand for potash.

Western Canadian Select heavy oil prices jumped to US$80.90 in May, up from US$69 per barrel in April and the highest in 15 months.

West Texas Intermediate, a North American benchmark for lighter crude, only crept up to US$94.80 per barrel from US$92 per barrel over the same period.

Scotiabank credits the higher WCS price to additional pipeline capacity from Oklahoma to Texas, where international oil prices prevail.

The bank also said China’s potash imports jumped by almost 19 per cent from January to April, while Brazilian imports have surged 53 per cent year over year as buyers took advantage of lower potash prices and high grain prices.

Scotiabank economist Patricia Mohr says the bank’s commodity index has inched up this year and is now 1.9 per cent above where it was in May 2012 but still remains below where it was two years ago.

“The decline in commodity prices from the April 2011 near-term peak — just prior to the negative economic fallout from excessive euro zone sovereign debt — has narrowed to -14.2 per cent from -19.9 per cent in late 2012.”

She also notes that global commodity prices have all come under renewed pressure from last week’s comments by Federal Reserve chairman Ben Bernanke, who indicated that a stronger U.S. economy may lead the Fed to withdraw some economic stimulus my mid-2014.

Bernanke’s comments have driven up the yield on 10-year U.S. Treasuries, resulting in a stronger U.S. dollar. Since sales of many commodities are denominated in U.S. currency, the stronger American dollar could depress the global price for such things as oil, gas, potash, and copper.

On the other hand, a stronger U.S. economy could increase demand for those commodities as well as finished goods in the longer term.