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Our Materials Price Index (MPI) increased 0.8% last week, its
eighth gain in nine weeks. Once again, however, the rise was
narrow, with only four sub-indexes rising; the other six showed
modest declines. Bullish chemical prices continue to mask declines
elsewhere in the commodity complex, while nonferrous prices
contributed to the upward pressure last week - these indexes rose
3.9% and 3.1%, respectively. For the third week in a row, the MPI
would have fallen if chemical prices were excluded.
Ethylene prices skyrocketed last week, jumping 11.3% as several
steam cracker outages provided price support. Ethane costs are also
increasing, a key feedstock for ethylene prices, while demand is
set to increase because of rising polyethylene operating rates. In
nonferrous markets, copper prices shot up 4.2% last week on fears
the big Escondida mine in Chile may see a strike.
Evidence that the commodity price rally is running out of steam
is provided by the fact that the current rally has depended on just
few sectors over the past three weeks - mainly chemicals. Apart
from chemicals, commodity prices have started to retreat, and not
without reason. Macroeconomic data is pointing to peaking growth;
IHS Markit's Purchasing Manager Index (PMI) reports from last week
showed weakness in the Chinese service sector and a slowing economy
in the Eurozone. The US headline PMI Services Index did signal
continued vigor in the economy. However, this strength, coupled
with a slow acceleration in compensation growth, provides support
for the Federal Reserve to tighten monetary policy. This tightening
will be supportive of the US dollar, at least this year, and is a
headwind for any sustained rise in commodity prices.
