-  A better-than-expected outcome likely for Western Canadian premium
       hard coking coal prices for JFY2009.

    -  Oil prices lift off bottom.TORONTO, March 25 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends in 32 of Canada's major exports, declined by 3.1 per
cent month-over-month (m/m) in February, after edging up in January, as
China's State Reserves Bureau took advantage of bargain prices to stock grains
and base metals. The All Items Index has plunged by 40.1 per cent from its
peak in July 2008 and is down 27.1 per cent year-over-year (y/y).
    "Comments by the Chairman of the Federal Reserve Board that the U.S.
recession might end by late 2009, better-than-expected earnings at several
well-known U.S. and U.K. banks and Fed initiatives to lower long-term interest
rates and breathe life back into the U.S. mortgage market significantly
improved sentiment over the potential for economic recovery last week," says
Patricia Mohr, Vice-President, Economics and Commodity Market Specialist at
Scotiabank.
    "The net result, West Texas Intermediate (WTI) oil prices have climbed
back to US$53-$54 per barrel, after bottoming at US$32.40 on December 19,
2008, and some base metal prices (copper, zinc and aluminium) have rallied
significantly on expectations that the worst of the U.S. banking & credit
crisis and the decline in commodity prices might be over," added Ms. Mohr.
"While positive, Scotiabank's Commodity Price Index is unlikely to bottom
until a number of key contract prices (especially for coking coal) are
adjusted down this spring."
    The Oil & Gas Index, down 9.1 per cent m/m, led the All Items Index lower
in February. While Alberta light, medium and heavy crude oil prices continued
to edge up from an oversold position in December, Canadian natural gas export
prices plunged to an estimated US$4.99 per thousand cubic feet (mcf) in
February, a level not seen since October 2006.
    WTI oil prices have bottomed. Prices have climbed from a low of US$32.40
on December 19 to US$53.98 in late March and are expected to average at least
US$65 in 2010. U.S. petroleum products supplied, an indicator of demand,
remain 3.2 per cent below a year earlier, though gasoline consumption may be
edging up in response to low prices, up 1.1 per cent in the four weeks ending
on March 13. The OPEC-11 (excluding Iraq) has likely cut sufficient production
to rebalance world supply/demand conditions in the second half of 2009.
    Only the Metal & Mineral Index managed a small gain in February, up 0.2
per cent m/m, alongside a strong rally in precious metals and copper prices.
After profit-taking in mid-March, gold prices (London PM Fix) jumped back to a
lucrative US$956 per ounce on March 20 on renewed weakness in the U.S. dollar
against the euro on concern over the longer-term inflationary consequences of
the Fed's additional quantitative easing.
    In annual contract negotiations with Japanese Steel Mills, the BHP
Billiton Mitsubishi Alliance and Nippon Steel, the world's number two
steelmaker, have reportedly settled the price of Peak Downs and Saraji premium
hard coking coals at about US$128-$129 per tonne for Japanese fiscal year
(JFY) 2009 (beginning in April) - 57 per cent below the US$300 of JFY2008, but
higher than the market expected. This suggests a price of about US$126-127 per
tonne for Western Canada's premium hard coking coal such as Elk Valley's
Elkview Standard brand, still above the previous peak of US$125 in JFY2005.
    Iron ore prices in Asian and European markets are also expected to
decline by 20-35 per cent in JFY2009, depending upon the grade. Interestingly,
after liquidating inventories in late 2008, China's steelmakers increased
their imports of iron ore to record levels in February, anticipating a big
pick-up in domestic steel demand for infrastructure projects associated with
Beijing's massive fiscal stimulus package.
    China's record iron ore imports in February contributed to a noticeable
rally in the Baltic Dry Index, a freight index for bulkcarriers. China
accounts for almost half of world iron ore imports. Canadian iron ore exports
to Europe and the United States are likely to decline in 2009, but will be
boosted later next decade with the eventual development of the massive
Baffinland iron ore project in Nunavut.
    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.