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Our Materials Price Index (MPI) rose 2.8% last week, its sixth
consecutive increase, though a smaller rise than the robust 7.4%
and 5% gains in the previous two weeks. This said, the MPI is up
nearly 24% since the start of October and is now at its highest
level since early September 2014.
Lumber was the biggest mover last week, jumping 10.4%. Lumber
prices are approaching their all-time high, set just three months
ago in September, as the North American market remains in short
supply. Southeast Asia dominated the narrative in many of the
hotter markets. Pulp prices jumped 4% last week as shipping issues
constrained cargoes getting into China. The DRAMS index, which had
been quiet since September, also increased 4% last week following a
4.4% climb in the week before. Buyers appear to be pulling forward
purchases in advance of the Chinese New Year to hedge against any
disruptions, either from the holiday itself, or feared from COVID
related containment measures. Thermal coal prices also added
another strong week with a 7.1% increase, which helped push up the
MPI's energy sub-index 2.9%. Higher natural gas prices and tight
inventories are the main drivers of the ongoing climb in coal
prices.
COVID-19 remains the major focus in markets. The rollout of
vaccines has begun in many countries, supporting an upbeat demand
outlook. At the same time, supply chains continue to face
disruptions that are hampering production and snarling logistics
services. The result is higher costs, which are now beginning to
migrate downstream. The question for the new year is how quickly
will the supply-side of markets react to the rebuild in demand as
vaccinations become more widespread. Persistent bottlenecks will
result in a burst in goods price inflation that carries beyond
2021.
Posted 24 December 2020 by Thomas McCartin, Senior Economist, Pricing & Purchasing, IHS Markit
