No bottom yet for falling commodities, Scotiabank finds

No bottom yet for falling commodities, Scotiabank finds

Globe and Mail Update

January 29, 2009 at 11:02 AM EST

Global commodity prices have not yet hit bottom, but they are not falling as fast as they have been, Bank of Nova Scotia said Thursday.

“The pace of decline is slowing and the forced, indiscriminate asset selling by funds – triggered by investor redemptions and tight credit – appears to be subsiding,” Patricia Mohr, vice-president of economics and commodity market specialist at the bank, said in a monthly report.

“Many prices are approaching average world cash costs, triggering substantial production cuts, new project deferral and tighter supplies.”

The report showed that Scotiabank's commodity price index fell in December for the fifth month in a row, this time dropping to 164.5 from 174.1 in November, a decline of 5.5 per cent.

This means the index, whose baseline value is 100 in 1997, has now plunged by 39 per cent from its cyclical peak.

Ms. Mohr said in the report that the shift from boom to bust in many commodities have been the most rapid in the index's history. It has been magnified by the funds' rush for the exits along with ongoing problems in the U.S. and British financial services industries and “rapidly worsening economic conditions.”

In particular, economic growth in China, which had been a key driver of soaring commodity prices, slowed to 6.8 per cent in the last quarter of 2008, about half the 2007 rate of 13 per cent, the report noted.