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Materials Price Index (MPI) fell 0.8% last week, building on the
1.3% decline in the previous week. Prices declined in eight of the
ten subcomponents of the index, highlighting widespread weakness
around growing recession fears. The general direction of commodity
prices has been down since their recent peak in early March, though
the MPI is still up 15% year-to-date, and 5.1% year-over-year.
Energy and lumber prices were the only subcomponents to register
increases. The 9% climb in energy prices was driven by large
increases in natural gas prices in Europe and Asia. Both regions
are scrambling for LNG imports to make up for the loss of Russian
supply or deal with surging demand. Coal prices were also up due to
strong power demand. Lumber prices jumped 10.1%, with the market
continuing to show week to week volatility. This said, the market
is on a downward trend - lumber prices peaked in February at $1,400
per 1000 board feet (mbf); they stood at just $612 mbf even after
last week's increase. Across subcomponents, fiber prices registered
the largest decline in last week, falling 7%. The decline was
driven by a steep drop in cotton prices; the US market gave up
three months of gains in a week, dropping 14.4% amid poor demand
sentiment. Another noteworthy mover was the 5.5% decline in ferrous
metals prices, driven by both iron ore and scrap prices. Weak
demand for steel is weighing on the upstream inputs. Ferrous metals
prices have generally turned lower since the first week of April as
demand globally has deteriorated.
Aside from energy prices, the developing theme continues to be
weakening demand and the growing fear that central banks worldwide
will not be able to avoid recessions as they work to tame
inflation. The early flash PMI data indicated slowing economic
growth in the US, Europe, and UK, with manufacturing output in
these large economies slipping slightly into contraction territory
for the first time since May 2020. The good news in the recent
correction in commodity markets is that these price declines are
now migrating downstream in supply chains, promising to slow goods
price inflation in the second half of the year. The open question,
however, is whether this slowdown in manufacturing activity and
goods prices will be enough to begin to slow top-line consumer
price inflation before year-end.
Posted 01 July 2022 by Thomas McCartin, Senior Economist, Pricing & Purchasing, S&P Global Market Intelligence
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
