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Our Materials Price Index (MPI) fell another 0.4% last week, the
eighth consecutive weekly drop. The decline was broad, with seven
out of the ten MPI sub-components lower. This latest move means
commodity prices have fallen 12.4% since the end of July.
Industrial metals were the main contributor to the MPI's decline
last week. Our ferrous sub-index was down 5.5% as iron ore prices
fell for the tenth week in a row. Iron ore prices dropped to $117 a
tonne, after peaking at over $230 in July. The reason for the price
drop is linked to uncertainty over future Chinese steel production.
Authorities in mainland China have asked many heavy industries to
limit production to help meet emission targets or curb electricity
consumption because of power shortages. Chinese markets are also
grappling with the fallout from the possible collapse in
Evergrande, the huge property developer, which helped to send
copper and nickel prices down last week. In contrast to weaker
metal prices, energy prices are showing strength with natural gas
prices again lifted the energy component of the MPI. The 3.4%
increase in the energy index was propelled by an 8.2% weekly climb
in natural gas prices. Liquefied natural gas (LNG) import prices
have doubled since early July in Europe. With depleted stocks in
Europe, weak pipeline imports from Russia, and strong LNG demand in
Asia, European traders have pushed prices to record levels. The
tight market entering winter suggests elevated prices will last
through much of the near term.
While the drop in the MPI since early May meshes with the change
we have been expecting to see in commodity markets, the recent
string of weekly declines looks to end soon if not next week. The
correction in metal markets appears to have run its course - at
least for now - while the recent strength in energy markets looks
to continue into the fourth quarter with winter approaching in the
Northern Hemisphere. Chemical markets have remained quiet in the
face of higher energy feedstock costs, a condition that will not
persist if energy prices continue to show strength. Strength in
these two sectors alone should be enough to lift the MPI absent
sharp corrections elsewhere.
Posted 29 September 2021 by Michael Dall, Associate Director, Pricing and Purchasing, IHS Markit
