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Commodity prices, as measured by our Materials Price Index
(MPI), fell 4.7% last week, in yet another large broad-based
retreat tied to the deepening global recession. The MPI is now down
22.1% since the start of the year with no sign of a bottom forming
as the first quarter ends.
Nine of the MPI's ten sub-components declined last week.
Chemicals, fiber, and rubber were the biggest movers, all falling
more than 8% week-to-week. Benzene prices, which are heavily
influenced by moves in crude oil, plunged 29%, driving a 10.9%
decline in the MPI's chemicals sub-index. Oil prices fell another
9%, though nearly flat natural gas prices and an increase in coal
prices meant the energy sub-index declined by only 2.0%. Both
cotton and polyester prices fell by at least 8.0% to send the fiber
sub-index sharply lower. Plunging car sales and worldwide cuts in
auto production triggered an 8.5% decline in natural rubber prices
even though a fungal disease threatens production in East Asia.
Nonferrous metal prices declined 4.1% for the week with all six
base metals in the sub-index falling. Lumber prices were the one
exception to the rout in commodity prices last week, rising small
0.3% in a dead cat bounce -- prices had fallen more than 30% in the
previous four weeks even with US mortgage rates at historic
lows.
Data releases are now beginning to chronicle the severity of the
downturn on a global scale evident in China during January and
February. Outside of China, virtually every market in every country
is now recording historic downturns. Even the reboot of Chinese
economy is being hampered by waves of cancelled export orders as
the pandemic brings the rest of the global economy to a halt. While
production cuts now being made should begin to put a floor under
prices 'soon', a substantial downside remains. The MPI, for
instance, is still 18% above its previous cyclical low of January
2016, when conditions were not anywhere near as dire as they are
now.
Posted 01 April 2020 by Thomas McCartin, Senior Economist, Pricing & Purchasing, IHS Markit
