Western provinces to be hard-hit by price slump

Led by gains in ten commodities, including lumber, natural gas and nickel, the 18-item TD Commodity Price Index (TDCI) in U.S. dollar terms rose by 1.1 per cent between October and November.

"In spite of the modest rally, there is no guarantee that commodity prices have hit bottom yet," says Teresa Courchene, Director of Economic Research at TD Bank Financial Group. "With worldwide economic growth expected to remain weak well into next year, commodity prices will continue to face downward pressure."

"We expect Canada's resource-based industries to face another difficult year in 1999," says Courchene. "In particular, the oilpatch in Alberta and the agriculture sectors in Saskatchewan and Manitoba will be badly hit," she adds. "And in beleaguered British Columbia, the important forest products and metals industries will face yet another year of low prices."

"This will likely mean that economic growth in the western provinces, which are more commodity-dependent, will lag behind the national pace next year," says Courchene.

Low oil prices to slow oilpatch activity

Crude oil prices, which fell to 12-year lows of just above U$$11 per barrel in late November, show no promise of firming in the near term, especially in light of OPEC's recent decision to wait until next March to decide on additional production cutbacks. If crude oil prices remain at their current low levels, exploration and drilling activity in the oilpatch will be cut back further in Alberta next year.

Poor outlook for farm income

Hog prices fell by a sharp 20 per cent in November in reaction to the news that the U.S. herd would increase to a record high -- worsening the current oversupply situation. Hog prices have fallen by more than half from their 1996-97 average levels -- to less than 30 U.S. cents per pound -- the lowest level recorded in decades. Wheat prices regained some ground in November on signs that weather-related problems will reduce this year's harvest in Australia. Nonetheless, farmers in Saskatchewan and Manitoba, who have suffered a steep drop in realized net income this year as a result of falling agricultural prices, are expected to face further declines in income in 1999.

Movements in other commodity prices in November

• Lumber prices rallied on the news that two large British Columbia producers plan to extend year-end holiday shutdowns.
• Nickel prices were bolstered by a short-lived strike at mines in New Caledonia in the South Pacific and by speculation that two of the three new Australian nickel projects scheduled to start early next year might be delayed.
• Steady declines in London Metal Exchange warehouse stocks lifted zinc prices in November, while aluminum and copper prices continued their decline.