Rubber and lumber slump as market exuberance finally begins to crack following strong gains over the last four months

March 9, 2017 - Weekly Pricing Pulse

The IHS Materials Price Index (MPI) rose fractionally last week, following the first fall in more than four months the week before. The headline index was up 0.1% as strong falls in rubber and lumber, down 5.3% and 4.2% respectively, were offset by gains in the ferrous and pulp markets.

Rubber markets had been on an exceptional run over the past three months, with supply worries the reason for much of the gains. However, following the announcement that the Thai government, taking advantage of high prices, is to sell off inventory, supply fears have eased with prices slipping. In contrast, ferrous markets gained last week, up 1.5%, as strong demand for steel scrap pushed prices higher following a lull in buying during February.

Last week's macroeconomic releases provided a boost for commodities, with strong data recorded in several regions. In the Eurozone, the February IHS Markit Composite purchasing managers' index (PMI) rose to 56.0, closed in on a six-year high, with confidence in future business activity reaching a new record. US data were also robust, with the February IHS Markit Manufacturing PMI maintaining an expansionary level at 54.2, while the US president reaffirmed his call for a large infrastructure spending package. In China, the Caixin Manufacturing PMI climbed to 51.7 during February, still only slightly above the neutral mark of 50 but an increase from January. The one fly in the ointment was more hawkish comments from the US Federal Reserve (Fed), which clearly put a March interest rate increase on the table. It will be interesting to see how commodity markets react should the Fed indeed raise rates next week.

IHS Materials Price Index

Industrial Materials: Prices

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