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Our Materials Price Index (MPI) rose 2.2% last week, continuing
the rally that began early in the second quarter. Commodities
prices have now risen for 11 straight weeks, recording a cumulative
gain of 30.4% over this span. Prices are still down 6.1%
year-to-date. As has been the case since early April, the increase
in our index was broad-based -- only two of the MPI's ten
sub-indices fell, illustrating the underlying strength of the
rally.
For a second week ferrous prices helped lead the MPI higher,
rising 2.8% as benchmark iron ore prices reached $112 per metric
ton. Ore prices were supported by higher Chinese finished steel
prices and June Chinese iron ore imports, which were the second
highest on record. Non-ferrous prices rose 3.0% in another strong
weekly gain; copper prices increased 4.2% (to a 15-month high),
with zinc jumping 5.2%. Mine supply disruptions and optimism over
Chinese demand continued to be the story in base metals. Lumber
prices maintained strength, rising 9.9% as rebounding demand
collides with the tight inventory position at Canadian mills. Pulp
prices rose 2.3% though underlying demand remains weak. Even with
last week's gain, pulp prices are still languishing near recent
lows. Rubber prices have been improving since the end of May helped
higher by Chinese automotive production, which grew 23% y/y in
June.
Commodity prices chugged higher again last week even after we
raised the question about how much longer they can continue doing
so given the alarming rise in COVID-19 case counts and its
implication for the global recovery. For the moment, markets are
brushing aside any concerns. Instead prices are reflecting a heady
combination of good Chinese data, continuing supply disruptions, a
softer US dollar, the promise of yet more policy stimulus, and
hopeful news on a possible vaccine. Still, our caution remains. The
effect on labor markets is not temporary, nor will consumer
spending return to normal soon, fundamentals which commodity
markets cannot ignore forever.
Posted 22 July 2020 by Mr. William May, Senior Economist Pricing and Purchasing