Scotiabank’s Commodity Price Index climbed by 4.7% month-over-month in May — the second consecutive monthly gain — though the All Items Index remains -26.5% below a year earlier.

“While global economic conditions remain lacklustre, international oil prices have lifted off bottom and supply disruptions in Western Canada’s oil patch have pushed up domestic netbacks,” said Patricia Mohr, Vice President of Economics and Commodity Market Specialist at Scotiabank. “May and June have witnessed an extraordinary narrowing of the discounts on Western Canada’s light and heavy crude oil off West Texas Intermediate (WTI) — the North American benchmark — a trend which will continue into July.

“The Forest Product Index edged down in May by -0.2% m/m and is still -11.5% below a year earlier. However, strong U.S. housing permits in May and a growing backlog of sold, but not yet started units, points to stronger residential construction in coming months. The basic supply of shelter in the U.S. is tightening, with apartment vacancy rates at a mere 4.2% — propelling multiple-unit building permits to an annualized 592,000 units in May, the highest level since January 1990. Western Spruce-Pine-Fir 2×4 lumber prices have jumped back to US$300 per thousand board feet from US$262 in April and US$256 in May.

“The Agricultural Index also edged down by -0.4% m/m in May to a level -16.8% below a year earlier. Topsoil moisture conditions in Saskatchewan and Alberta are the poorest for this time of year since 1988, a year of drought. Additionally, El Nino weather patterns around the world, including dryness in Australia and excessive moisture in the U.S. Midwest, may bring to an end the period of progressively lower grain and oil seed prices of recent years.”

Other highlights from the report include:

• After investors bid up LME zinc prices as high as US$1.09 per pound in early May, zinc prices have unwound alongside copper to the US$0.92 mark in late June. However, closure of the Century mine in Australia and Lisheen in Ireland in 2015:Q3 will tighten world supplies, sending prices significantly higher by year end.
• Chinese interest in copper and other mining investments remains strong — a sign that the ‘bull run’ in base metals is expected to return later in the decade.

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

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