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Our Materials Price Index (MPI) declined 1.4% last week,
following a 2.5% decrease the previous week. Although commodity
markets have become choppier recently, declines were not widespread
last week - five of the MPI's ten subcomponents fell. Commodity
prices as measured by the MPI are still up 22.3% since the
beginning of 2021.
The largest declines were in chemicals and ferrous metals.
Global chemical prices fell 5% as an improving supply picture
improved market balances. Benzene markets globally witnessed the
largest declines, with European prices down more than 20%. This
followed the return of a major refinery in the Netherlands, which
had been offline since the end of February. Improved supply in
Europe lessened export opportunities for US producers, causing a
similar price correction for North America. The steel making raw
materials sub-index declined 2% last week as iron ore prices
continued to retreat from recent historic highs. Markets are
reacting to recent announcements from the Chinese government
signaling its intention to intervene to tackle soaring prices.
Elements of the MPI showed strength last week including energy with
our sub-index up 6.3% as global coal prices rallied. Strong demand
and tight supply continue to support prices in coal markets.
Although commodity markets remain strong the overtly bullish
sentiment has begun to ebb. The optimism that has characterized
markets since last November is being tested by the appearance of
consumer price inflation in official statistics. Investor sentiment
remains generally positive, though concerns that policymakers may
begin to reduce stimulus sooner than previously expected have
started to become a concern. More important for physical markets,
high commodity prices are beginning to encounter resistance from
buyers. If supply conditions improve - as expected -- these factors
will combine to end the now-13-month surge in commodity prices.
Posted 02 June 2021 by Michael Dall, Associate Director, Pricing and Purchasing, IHS Markit
