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Our Materials Price Index (MPI) decreased 1.4% last week, with
half of the index's ten sub-components falling. Markets have been
growing increasingly nervous about growth prospects with widening
Chinese COVID-19 lockdowns and higher interest rates in recent
weeks. This sparked the second consecutive weekly decline in
commodity prices with prices now collectively 10.4% lower than the
all-time high established in early March.
Declining industrial metal prices were the main reason for the
drop in the MPI last week. The nonferrous metal index was down 5%,
with five of six of the tracked base metals falling (tin proved to
be the exception). Aluminum prices were down 6% for the week and
dipped below $3,000/metric ton for the first time since January.
Copper prices fell to the lowest point in 2022 finishing the week
at $9,427/metric ton having been as high as $10,730 in early March.
Metals markets were reacting to a variety of factors including
weaker demand signals from mainland China, rising US interest rates
and the strength of the US dollar. The US dollar rose sharply last
week making dollar denominated metals more expensive for buyers
using other currencies. The steel making raw materials index
declined 3.8% as the price of iron ore ended the week at
$136/metric ton. Iron ore traders were particularly gloomy after
the Politburo meeting in mainland China confirmed the commitment to
using lockdowns to control COVID-19. The expected negative impact
on economic growth weighed heavily on the iron ore price.
Another round of commodity price declines added to bearish
sentiment across markets last week. As expected, the US Federal
Open Market Committee (FOMC) raised the target for the federal
funds rate by 50 basis points to a range of 0.75-1.00%. The Bank of
England Monetary Policy Committee also announced an interest rate
increase of 25 basis points to 1.0% while forecasting that the UK
economy would enter recession later this year. Finally, the Central
Bank of Brazil raised its policy rate from 11.75% to 12.75%, a full
percentage point. This news, coupled with the May Day holiday,
dampened buying last week and led to declines in global commodity
and equity markets. With consumer inflation remaining high across
the globe, further interest rate hikes are expected, which will to
put further downward pressure on commodity prices.
Posted 12 May 2022 by Michael Dall, Associate Director, Pricing and 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.
