Falling metal prices hurt commodity index (December 31, 1990)

Hurt by declines in three of its four sub-indices, the all-commodity price index of Scotiabank fell by 3.6% in November compared with the previous month. The metals and minerals sub- index tumbled by 5.2%. Base metal prices moved lower in November and December but they remain at profitable levels for most producers, said senior economist Patricia Mohr.

“The current price of nickel at US$3.76 per lb. is well below the third-quarter average of US$4.71 but compares favorably with average break-even costs (including depreciation and interest expense) of US$2.90 in the Western World,” she said.

Mohr notes nickel demand held up this year; in particular, stainless steel production strengthened in Japan and Western Europe.

“The easier tone to markets in recent months probably reflects some inventory reduction by distribution centres in the U.S. and prospects for a slowdown in world demand for capital goods next year,” Mohr said.

Of the four sub-indices, only oil and natural gas prices improved during November. The overall decline in commodity prices, Mohr said, “reflects deteriorating economic conditions in North America, prospects for a slowdown in demand in some offshore markets (for example, Japan) next year and global capacity expansion for a number of key products.”

The all-commodity index tracks export prices of a variety of Canadian commodities, which are weighted according to their 1984 export values, except crude oil where the value of net exports is used.