The end of the commodity boom?

While the Reuters Jefferies CRB Index remains quite firm into mid-March, crude oil prices have retreated modestly from 2005 highs. Front-month crude futures spiked to a high of $70.85 per barrel in September 2005, but have recently been trading around $60 to $64 per barrel region. Meanwhile, in early 2006 gold futures pushed above the $500 mark for only the third time since the early 80s. Amodest pullback has occurred since the yellow metal topped $575, with the front-month futures dropping to 534 before rebounding to the $555 area in mid March.

Looking at the global cycle, Buskas says “the global commodity cycle is showing signs of fatigue, which could keep a lid on sustained major gains in the Canadian dollar. Demand is drying up Canada’s major resources cycle is slowing.”

Buskas believes export activity will slow in lumber and the base metals, including copper and iron. A global commodity cycle, she explains, is generally a multi-year affair.

“Typically, a lot of base metals and input commodities get bid up earlier in the cycle as they are needed to help build up the infrastructure,” she explains.

“The strength of the commodity cycle has been a blessing to the Canadian economy, but commodities are cyclical. It raises red flags because growth has been so dependent on commodities.”