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Strong moves in crude oil, chemicals and iron ore prices last
week helped commodity prices to rise 3.2% last week as measured by
the IHS Markit Materials Price Index (MPI). This takes the recent
commodity price rally to 10.4% from the late-April low, though
prices are still down 20.7% year-to-date.
Brent crude hit a high of $36 /bbl last week as oil notched
another strong gain supported by growing supply-cuts and improving
demand. The increase sent the MPI's oil sub-index rose 21.3% for
the week. Thermal coal prices also rallied 5.6%, due to a 7.1% rise
in Asian coal prices on hopes that Indian demand will soon rebound.
Together, these moves in oil and coal propelled the MPI's energy
index 9.7% higher. Chemicals rose 6.9% on 10.5% and 6.6% increases
in ethylene and benzene respectively, due to crude price gains.
Iron ore prices rose 2.3% to an eight-month high on supply concerns
from Brazil. COVID-19 has been spreading rapidly through the state
of Para, home to 33% of Brazil's iron ore supply. Meanwhile Chinese
steel mills came close to a daily production record, setting up a
demand pull, supply push scenario for iron ore prices, which now
threaten to top $100 /t again. Lumber continued its recent tear,
rising another 6.5% last week. Prices are now up 32.4% from the
end-March low on hopes that the building season may be salvaged in
the US and elsewhere.
Commodities and equity markets around the world are taking
comfort from the growing list of countries that have, in some way,
eased lockdown restrictions. The "return to normal", however, is
being hampered by the growing acrimony between the US and China,
which threatens trade relations at a time when global trade is
already contracting. Markets also seem to be pinning hopes on a
strong stimulus led rebound in China even though proposals put
forward during the National People's Congress suggest relatively
modest efforts to support growth. Hence, while there is a clear
sense that the worst of the pandemic may have passed, markets may
be viewing the near future a bit too optimistically.
Posted 27 May 2020 by Mr. William May, Senior Economist Pricing and Purchasing, IHS Markit
