Scotiabank's commodity price index falls in September amid lower metal prices

TORONTO – Scotiabank’s monthly commodity price index fell in September, declining nearly three per cent from the previous month on widespread weakness led by metals and minerals.

The forest product index was the only sub-component to rise in September, up 2.7 per cent from August and up 2.3 per cent from the same month last year on higher lumber prices.

The metal and mineral index fell by 1.9 per cent from August and by 7.1 per cent from September 2012, the sharpest year-year decline of any sub-component of the commodity index.

Scotiabank economist Patricia Mohr said junior mining companies, traditionally important contributors to mineral exploration in Canada, were the most affected by the declines, and were “in near-crisis.”

“Many small exploration companies (are) now in survival mode, having limited working capital to maintain their TSX Venture listings,” Mohr said in the report.

Junior miners for years attracted the interest of large producers, because they were the ones that would find and delineate deposits before selling them to the big players for development.

But those senior companies have shifted their focus from growing production to boosting shareholder returns through reduced spending amid a fall in metal prices, and their interest in buying assets from junior mining companies has declined.

Equity capital raised by junior mining companies on the TSX Venture plunged in 2012 and has moved even lower in 2013 year to date, Mohr said.

Private equity is starting to step in, she added, but an actual turnaround for the sector will require a rebound in prices as well as improved investor sentiment for senior producers.

Among the other sectors, the oil and gas index lost 4.6 per cent after two months of strength, as Western Canadian Select heavy crude eased to US$83.40 per barrel from over US$90 in July and August. West Texas Intermediate oil prices were largely flat in September at US$106 per barrel.

The agricultural index was down 3.5 per cent, led by lower barley prices.