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Our Materials Price Index (MPI) fell 0.4% last week, with seven
of the index's ten sub-components falling. Following the extreme
volatility in commodity markets in the aftermath of Russia's
invasion of Ukraine, prices have been more settled in the last
three weeks. That said, commodity prices remain near their all-time
high established in early March.
Declining energy prices were the main reason for the decrease in
the MPI last week. The energy sub-component dropped 5.9% as both
natural gas and oil prices fell. UK spot landed prices of liquefied
natural gas (LNG) dropped to $30MMBtu from $40 the previous week.
Asian prices also pared back to $33/MMBtu, down $4 in one week. The
main reason for the price decline was improving market sentiment
after it became clear that Russian gas flows were continuing
despite an ongoing payment dispute between European countries and
Russia. This optimism did not stretch to the US, however, as Henry
Hub prices increased 12%, their third consecutive weekly rise.
Lower domestic production and increased US exports to Europe led to
supply concerns. This coincided with a severe weather warning for
parts of the United States, which is expected to lead to a spike in
demand. Global oil prices continued to fall, declining 5% last
week, after the International Energy Agency (IEA) announced plans
to release an additional 60 million barrels of crude oil to the
market. This followed the commitment by the United States to
release 180 million barrels from its strategic reserve over the
next six months.
Last week's decline in commodity prices chimed with general
market softness across asset classes. This was a reaction to
growing COVID-related shutdowns in China and the US Federal Reserve
plans to rapidly reduce its balance sheet to tackle high inflation
rates. Markets are now expecting an even more aggressive tightening
of US monetary policy, which damaged market sentiment. In Europe,
the prospect of a tight French Presidential race added to the
gloomy mood among traders. Nevertheless, commodity markets remain
precariously poised. The disruption to Russian trade flows still
signals a deterioration in measures of vendor performance in the
months ahead. After showing signs of improving late in 2021,
delivery times, backlogs and reported shortages all look to
increase this summer. The risk for policymakers is that cost
pressures will continue to remain strong and embed expectations of
sustained higher price levels, making the job of taming consumer
inflation all the harder.
Posted 13 April 2022 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit
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.
