- 'Geopolitical risks' and tight supplies lift crude oil prices to record
    highs.
    - U.S. dollar weakness spurs gold prices and renews interest by
    investment funds in commodities as an 'asset class'.

    TORONTO, Oct. 24 /CNW/ - After declining for three consecutive months
(-6.1 per cent from the May 2007 cyclical peak), Scotiabank's Commodity Price
Index, which measures price trends in 32 of Canada's major exports, edged up
by 0.3 per cent month-over-month in September. Overall commodity prices remain
8.5 per cent above a year earlier.
    "The Agricultural Index led the rebound in September, surging 6.7 per
cent month-over-month, alongside soaring prices for wheat, barley and canola,"
says Patricia Mohr, Vice-President, Economics and commodity market specialist
at Scotiabank. "The Canadian Wheat Board's asking export price for No. 1 grade
milling wheat climbed further in early October, rising to C$401 per tonne -
close to the record C$416 during the week of May 24, 1996. Drought in
Australia and the projected lowest 'world ending stocks' since 1975-76
propelled U.S. wheat prices to new heights in early October (US$9.64 per
bushel in Minneapolis) - pushing up Canadian export prices. U.S. wheat stocks
at the end of the 2007-08 crop year are expected to plunge to the lowest level
since 1948-49 alongside strong exports. However, increasing buyer resistance
has moderated prices in the past several weeks."
    The Oil and Gas Index also inched ahead in September, as strong rallies
in Edmonton light crude oil and propane prices more than offset further
slippage in Canadian natural gas export prices. With West Texas Intermediate
(WTI) moving to a new record high of US$90.07 per barrel in pre-access trading
on the Nymex on October 19, the Oil and Gas Index will strengthen further in
coming months.
    "International oil prices have skyrocketed alongside the perception of
limited global supplies - with OPEC maintaining production restraint through
this fall and project delays contributing to much lower-than-expected gains in
non-OPEC output in both 2006 and 2007. Concern that the confrontation between
Turkey and Kurdish rebels in Iraq might unsettle 'geopolitics' across the
Middle East, which pumps one-third of the world's oil, has added to upward
speculative pressure. As a result, we have increased our price forecast for
WTI oil to an average of US$71 in 2007 and US$79 in 2008 - close to the US$80
mark," says Ms. Mohr.
    Gains in agriculture and energy were offset in September by a further
edging down in the Metal and Mineral Index, as a mixed performance in base
metals and lower spot uranium prices just countered stronger precious metal
and potash prices. Meanwhile, U.S. dollar weakness spurred gold prices and
renewed interest by investment funds in commodities as an 'asset class'.
    Gold prices (London PM Fix) have recently been a star performer for
investors, moving above the US$700 mark in early September. Prices climbed as
high as US$764.15 per ounce on October 18 - a level not seen since January
1980 - as the U.S. dollar fell to a record low against the euro. The peak in
gold prices was set on January 21, 1980 at US$850 per ounce.
    "The Federal Reserve Board will likely ease monetary policy further over
the next six months to preempt any dramatic slowdown in the U.S. economy,
linked to tightening lending standards and falling home prices," adds Ms.
Mohr. "The Fed is likely to cut the funds rate another three times (25 basis
points each), while the European Central Bank holds rates steady or nudges
rates up. In this environment, the U.S. dollar will weaken further, with gold
likely to reach US$800 in 2008."
    Signs also point to a significant 2008 price hike for coking coal exports
to Japan. Judging from soaring spot market prices for hard coking coal, annual
contract prices for premium-grade coal from Western Canada to Japan could jump
from today's US$94 per tonne (FOB Vancouver) to US$119 in JFY 2008 (beginning
next April). Tighter supplies of hard coking coal reflect reduced exports of
metallurgical coal from China to Japan (-68% yr-yr through May), likely due to
China's strong domestic demand and rapid growth in steelmaking capability.

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