Scotiabank’s Commodity Price Index has plunged by 10.5% month-over-month in August, to 91.3, which placed it 13.9% below the April 2009 bottom during the last recession and the lowest level since early 2005.

While many commodity prices including key base metals remain well above the 2008/09 recessionary lows, current commodity market weakness is broader based. The financial market turbulence in China touched off fears of a hard landing in August and opened up queations over the medium-term outlook for China as a growth market for raw materials – especially for oil and metals, Scotiabank VP of economics and commodity market specialist Patricia Mohr stated.

The banking group’s Metal $ Mineral Index lost ground in August, declining by 1.6% month-over-month, or 19.3% year-over-year. China dominated world demand for the four key base metals – copper, zinc, nickel and aluminium – acconting for an estimated 48.6% of world demand in 2015, compared with only 9% from the US. According to the report, zinc prices had been pressured by fund selling, however, prices were still expected to show considerable strength over the medium term.

Scotiabank now expected that monetary and fiscal policy stimulus would allow China’s economy to grow by 6.8% in 2015, but growth would slow to 6.4% in 2016. Despite slowing growth, China’s potential to significantly lift world raw material demand in the medium term were expected to remain intact, even as it transitioned to a consumer- and service-led economy.

Meanwhile, gold prices had rallied to $1146/oz in the past week, up from a low of $1080/oz in mid-July. Safe haven demand had returned alongside global economic uncertainty and the decision by the federal reserve to delay its first rate hike, given the potential for an even stronger US dollar and weaker emerging-market currencies.

While anticipation of monetary policy tightening by the fed was expected to check gold prices through 2016, gold could rally around 2017, as recent mine development deferrals tightened physical supplies. World gold mine output edged up to 786.6t in the second quarter. However, the SNL Metals and Mining’s Pipeline Activity Index indicated that gold exploration and development had peaked in the first quarter of 2012, and had fallen to early 2009 levels. Silver prices would follow suit, Scotiabank reported.

In September, the fed’s decision to delay its first interest rate hike and a renewed decline in US oil-targeted drilling activity, after a massive short covering rally on the NYMEX late last month, has lifted West Texas Intermediate oil back to $45, Mohr noted.

In August, oil and gas led the commodity price downturn, being 25.1% lower month-over-month, and down 56.7% over 2014. West Texas Intermediate oil prices dropped to $42.89/bl, reaching an intra-day low of $37.75/bl on August 24 – close to the $32.40/bl bottom on December 31, 2008, at the depth of the Great Recession.

Scotiabank noted that given a widening in the discount, the price of Western Canadian Select heavy oil fell to a mere $29.33/bl – close to the 2008 low of $22.91/bl – and just above average cash costs for Alberta oil producers. Light, sweet crude oil at Edmonton also plummeted to $39.08/bl in August, natural gas export prices edged down to $2.33/mcf and propane also lost ground.

The Commodity Price Index also included the Forest Product Index, which fell by 3.5% over July, or 13.2% over 2014. The seasonal decline was unusual – normally a late-summer rally in the price of lumber lifted the index, the report noted.

The Agricultural Index dropped significantly in August. China continued to underpin world grain markets, especially soybeans, an important driver of Canadian canola prices, despite its slower gross domestic product growth.

• [Editor:Juan]