The MPI accelerates at its fastest rate all year
August 11, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) rose 3.6% last week, its strongest gain of the year. The index has now increased in five of the last six weeks. Iron ore and steel scrap prices jumped last week, sending the ferrous index up a strong 6.2%. Higher oil prices and better prospects for the dry bulk cargo market pushed up the chemicals and freight indexes by 5.0% and 6.4%, respectively.
Record Chinese steel production and growing confidence around Chinese industrial activity are behind the recent rally in iron ore prices. This rise is something of surprise, chiefly because it is hard to see Chinese steel production at its current elevated level persisting for long. The recent rise in oil prices, which has helped lift chemical prices and freight rates, is tied to a decline in US inventories and a dip in the Baker-Hughes rig count for North America.
The change in commodity markets since late June is consistent with the steady stream of good economic reports, the latest being the July US employment report and July IHS Markit Purchasing Manager reports. The July US employment report beat expectations, showing an increase of 209,000 jobs. Meanwhile, the IHS Markit Purchasing Managers’ Index (PMI) for global manufacturing improved slightly in July. Although recent optimism in markets is not unwarranted, we would caution against extrapolating the current rally too far into the future. Oil markets look well supplied in 2018, financial markets are slowly tightening, while Chinese growth will be stable at best (not accelerate)—all factors that will check strong continuing increases in prices.
IHS Materials Price Index
Industrial Materials: Prices
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