BY JOANNE PAULSON, THE STARPHOENIX Commodity prices bounced back five per cent from May to June, bringing the gain up 7.5 per cent from the bottom reached in April, Scotiabank's economics arm reported Thursday. The improvement was broadly based, with all sectors rising. Oil and gas led the indexes with an increase of 12.2 per cent over May, said the report. Metals and minerals improved 4.7 per cent, with gains in precious metals and uranium offsetting declines in potash and cobalt. "Despite financial market jitters in early July, global economic indicators are turning positive for oil and base metal demand," said Patricia Mohr, a Scotia Economics vice-president and commodity market specialist, in her report. Spot potash prices slipped to $710 US per tonne from $712.50 at the port of Vancouver. Scotia Economics predicts prices will likely drop further in the next month, considering the recent potash contract between Russian company Silvinit and India at $460 US, well below expectations of $623 to $635 US. That view was bolstered Wednesday with the Canpotex announcement of a contract at $460 US with India. Canpotex is the overseas marketing agency for Potash Corp. of Saskatchewan, Mosaic Co. and Agrium Inc. "The price agreement was disappointing in view of India's low potash inventories, strong demand and the importance of food security in India," said Mohr. But even the forest products index, which has been under pressure for some time, rose 1.6 per cent month over month on news U.S. housing starts seem to have bottomed out. After just 479,000 housing starts in April, starts recovered slightly to 582,000 units in June. Mohr said China's recovering economy -- which has posted an eight per cent increase in GDP, year over year -- is adding optimism to the commodities market. Industrial activity in the U.S. remains weak, but economic indicators tracked by the Conference Board are up 12.8 per cent over the past three months. "I think we're going to see in the next several months a modest revival in U.S. industrial activity and that will be very good news," Mohr said in an interview. "That will be driven by a scheduled pickup in motor vehicle production." Mohr added financial and equity markets are starting to recover, driven by improving confidence in market fundamentals. Oil prices were volatile in June and early July. The West Texas Intermediate price, one of the benchmarks, rose to $69.71 US per barrel in June from $59.21 in May. While the price retreated to $58 on July 17, it rallied to $65.40 a week later. Mohr is forecasting a price of $63 US per barrel for 2009 and $90 for next year. "Demand in China is moving ahead quite well now and I expect China to build a larger strategic stockpile of crude, and that will be a tremendous support for oil price and demand. "Also in the U.S., it seems that while their petroleum demand is well below year ago levels, about 4.5 per cent, the negative gap is closing." Natural gas prices will remain low, at about $4 US per million BTUs, because of new, low-priced domestic capacity in the U.S. Mohr forecasts the price will rise to $5.25 in 2010.

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