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Our Materials Price Index (MPI) fell 0.4% last week, its fifth
consecutive decline. Declines were not universal with six out of
the MPI's ten subcomponents down. Notwithstanding their recent
consolidation, commodity prices as measured by the MPI are still up
20% since the beginning of 2021.
Lumber prices were the largest contributor to last week's
downward move. The lumber index fell by 16.7%, one of the largest
weekly declines ever recorded. Lumber prices have retreated to $875
per thousand board feet from $1,686 in early May. This decline is
attributed to homeowners delaying renovation because of soaring
lumber prices and the economy reopening shifting focus away from
home improvements. Nevertheless, prices still have room to fall
with current levels around three times the historical average.
Nonferrous metals were another notable faller last week, with the
index down 1.9%. All metals in the index declined with copper and
nickel seeing the largest drops. Copper prices fell 3.7% to $9,206
per tonne having been as high as $10,724 per tonne last month.
Nickel prices fell to $17,287 per tonne, a 1.5% weekly decline.
Industrial metal prices were sent lower after an announcement by
the Chinese National Food and Strategic Reserves Administration to
release inventory from the country's strategic stockpile to combat
high prices. It is the latest in a series of interventions by
Chinese authorities to ease the commodity price inflation that has
squeezed profit margins for domestic manufacturers.
It was a volatile week for equity, commodity and currency
markets, with equities enduring their worst performance in almost
four months. The US dollar, in contrast, had its best week in
months. The realignment in markets was triggered by a slightly more
hawkish stance by the US Federal Reserve (i.e., at some point soon
it would begin discussing tapering asset purchases, while interest
rate increases will now begin in 2023 not 2024). The prospect of
inflation controlling measures starting sooner sparked a broad sell
off in commodity markets. Commodities are often used as a hedge
against inflation so market expectations of lower inflation in the
future and a higher US dollar reduced buyer interest. To be sure,
commodity prices remain elevated but improved supply conditions,
buyer resistance and weaker investor sentiment means a price
correction is now underway. Expect prices to collectively record a
modest decline over the rest of the year. Semiconductors are likely
to be an exception, while cracks in finished steel prices will be
an affirmation that the year-long rally in commodities is finally
over.
Posted 23 June 2021 by Michael Dall, Associate Director, Pricing and Purchasing, S&P Global Market Intelligence
