Scotiabank’s Commodity Price Index lost ground again in January, declining 5.1% month-over-month (m/m), pushed down by financial market volatility and heightened concern over the outlook for China and global growth. The All Items Index has now dropped 26% below the April 2009 bottom during the last recession and is lower than a decade ago.

The Oil & Gas Index once more led commodity prices lower in January (-15.9% m/m & -38.1% yr/yr). As prices approach the bottom of the world cost curve, Saudi Arabia and Russia have agreed to a tentative oil output freeze.

“Today’s battle for oil market share — not only between Saudi Arabia and the U.S. shale producers, but also between Saudi Arabia and Iran/Iraq — has prevented a rebalancing of excessive world supplies despite generally favourable demand prospects,” said Patricia Mohr, Vice President of Economics and Commodity Market Specialist at Scotiabank. “The tentative agreement between Saudi Arabia & Russia (at the urging of Venezuela & Qatar) is a step in the right direction towards steadying world oil prices, though actual production cuts are probably needed.”

Other highlights from the report include:

1. An outline of the pre-conditions for a lasting rebound in oil prices.
2. A number of base metals (zinc and copper) were ‘over-sold’ in January, with actual supply & demand conditions better than feared. LME zinc prices have snapped back in February, with traders realizing that zinc is in a ‘deficit’ position (both for refined metal and concentrates). As supplies tighten, zinc prices are likely to shoot up to US$1.25 per pound by 2017.
3. Gold has regained its lustre, climbing to a 12-month high of US$1,241 per ounce on February 11, amid equity market & currency volatility and negative interest rates adopted by some central banks. The World Gold Council reports that global output dropped in 2015:Q4, with further declines expected in 2016-17.

    

    

   Read the full Scotiabank Commodity Price Index online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.

    

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