Commodities fall as scrap prices suffer the largest weekly drop in two years

November 20, 2014 - Weekly Pricing Pulse

The IHS Markit Materials Price Index (MPI) softened 3.4% last week, led by declines in scrap, oil, and chemical prices.

Scrap prices fell 8.8% on mounting pressures from the stronger dollar and weaker demand as steel mills have increasingly been incentivized to use less of the material. Scrap has been partially undercut by iron ore prices, which last week dropped to $75 per dry metric ton—down 43% year to date. Meanwhile, crude oil prices fell again, as the Brent global benchmark settled below the psychologically important $80/barrel mark. Markets are anxiously awaiting next Thursday's OPEC meeting in light of the International Energy Agency's latest report, which highlighted the scale of the supply glut. However, those hoping for an unequivocal decision from the cartel are likely to be disappointed, as it is our projection that a cut of more than 1 million barrels per day is necessary to return the market to balance.

Last week, Chinese data left much to be desired as industrial production fell short of expectations and output prices continue to reflect the depth of overcapacity—though the pass-through of lower energy costs was also a contributing factor. As a barometer of growth, the mostly uninterrupted and widespread plunge in commodity prices since September offers a fairly pessimistic view of aggregate demand. Globally, the lack of momentum continues to limit potential growth and, in our opinion, the near-term outlook for commodities.

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