Commodities posted a precipitous decline in 2008, according to Scotiabank's latest Commodity Price Index.
The index, which measures price trends of 32 major Canadian exports, dropped 39% from the cyclical peak of commodity prices in July 2008 to the end of the year. It's the fastest decline in commodity prices since the index began measuring prices in 1972.
For the year, commodity prices fell 16.9%, falling 5.5% in December alone.
Patricia Mohr, Scotiabank's vice-president of economics and commodity market specialist, said the latest figures don't suggest commodity prices have bottomed, but the pace of decline is slowing and the indiscriminate asset selling is subsiding.
She noted, however, that prices for many commodities are approaching average world cash costs of production, which is triggering substantial production cuts and deferrals of new project development.
Some of the hardest hit commodities in December included oil and gas, which were down 10.6% from prices in November. Oil prices averaged US$41.77 per barrel due in part to a drop to US$30.87 on December 19. Scotiabank predicts that world oil consumption will fall 1% before levelling out in late 2009.
Mohr said that because of high oil inventories and declining demand, it will take time before Organization of Petroleum-Exporting Countries (OPEC) oil production cuts will have a significant impact on prices. She said project development will decline in the next couple years. The Canadian Association of Petroleum Producers said capital spending will fall almost 50% to $11 billion in 2009 from $20 billion in 2008.
The forest product index fell a further 5.4% as lumber prices fell to February 1986 levels. With further declines in new home sales in the U.S. and continued de-leveraging by American households, Mohr said the forest sector is likely to see even more mill closures in the next couple years.