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Our Materials Price Index (MPI) rose 5% last week, its fourth
consecutive increase and its largest one-week gain since June. More
significant, last week's move lifted the MPI to its highest level
since November 2014.
Metal markets grabbed center stage for the week, with steel
making raw materials sub-index jumping 7.1% and the nonferrous
metals index rising 3.2%. Iron ore prices climbed to a seven-year
high as major producer Vale announced lower production targets for
2021. Nonferrous metals were supported by across the board
strength, with copper also hitting a seven-year high and aluminum
breaching $2,000 per metric ton for the first time since 2018.
Chemicals prices were another major contributor to last week's MPI
gain, increasing 5.4%. The chemicals sub-index was boosted by
strong price increases for US and European benzene. US supply
chains have been challenged sending prices higher in North America.
In Europe, low levels of the Rhine river have constrained cargo
traffic and tightened supply across the continent. Energy markets
also showed comparative strength, with the MPI's energy sub-index
rising 4.8%. Oil prices rose by almost 9% on news of a supply
agreement between OPEC and Russia. Both parties agreed to increase
supply by 500,000 barrels a day from January, significantly lower
than previously agreed. This eased fear of oversupply and sent the
price of Brent crude oil to a nine-month high figure of $49.87.
Markets have become energized by the continuing strength being
exhibited by mainland China's economy and by hopes that multiple
vaccines may be widely available in some countries during the first
half of 2021. The likelihood of additional fiscal stimulus in the
US also seems to have improved sentiment. On the supply-side,
continuing disruptions in supply chains are creating tight
conditions and raising costs. This combination of demand and supply
factors has created bullish conditions in commodity markets. How
quickly supply bottlenecks are resolved and how badly a COVID-19
second wave impacts Europe and North America will determine how
long the commodity price rally can be sustained.
Posted 08 December 2020 by Michael Dall, Associate Director, Pricing and Purchasing, IHS Markit
