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Scotiabank sees rebound in prices

February 21, 2014, Toronto - Scotiabank's Commodity Price Index rallied back by 3.3% month-over-month (m/m) in January, after dropping sharply in late 2013.

"Commodity prices are in the process of bottoming," said Patricia Mohr, Scotiabank's Vice President of Economics and Commodity Market Specialist. "Prospects for a pick-up in the U.S. economy in 2014 and a slow recovery in Europe -- in the context of a Chinese economy still growing by more than 7% -- point to reasonable demand growth going forward, offsetting the challenges faced by some emerging markets in dealing with capital outflows linked to U.S. Fed tapering."

After easing in December, the Forest Products Index rallied in January (+1.5% m/m, -0.6% yr/yr). NBSK pulp prices advanced US$20 per tonne to US$1,010 in the U.S. market. Western Spruce-Pine-Fir 2x4 lumber prices -- the bellwether for North America -- also rebounded from US$364 per mfbm in December to US$373 in January, though prices have lost steam in mid-February to US$362. Difficult winter conditions curbed housing starts to 880,000 units annualized in January. Prices are, nevertheless, expected to average a stellar US$390 in 2014 -- a 9.6% gain over 2013 and the highest level since 2004 -- as a further recovery in U.S. housing starts hits a wall of limited supplies.

This forecast is consistent with the findings of a recent report from Forest Economic Advisors. Of roughly 207 sawmills shut down since 2006 across the U.S. and Canada --partly due to the prolonged downturn in U.S. building activity -- 49 have resumed production. However, 111 have or will be permanently closed (a loss of 9.5 bbf or 12% of peak sawmill capacity at 80.4 bbf in 2005).

Read the full Scotiabank Commodity Price Index below or find a copy online at http://www.scotiabank.com/ca/en/0.