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Our Materials Price Index (MPI) fell 3.2% last week, its first
decline since early November and its biggest weekly drop since
March 2020, which was the height of COVID-19 shutdowns.
Notwithstanding last week's retreat, the MPI is still at its
highest point since April 2014 and still stands 39.5% higher than
in early 2020.
Six of the MPI's ten sub-components posted decreases last week
with energy and chemicals recording sizable drops. The energy index
declined 16.1%, fully reversing the increase recorded the previous
week. The decline was also the second biggest drop in the history
of the series and was only beaten by the plunge in April 2020 when
oil markets were in freefall. LNG prices declined on milder weather
projected for China and Japan combined with a better supply
picture, especially for the Panama Canal, where congestion is
expected to be alleviated by early March. The chemicals index
declined by 4.2% as US ethylene prices fell because of weaker
feedstock costs. Supply also improved with several longstanding
plant outages expected to be resolved in the first quarter. Asian
ethylene prices were likewise weaker on expectations that supply
will improve in the short term. Bucking the general trend in the
MPI for the week, our DRAMS index increased 3.5% as a global
shortage of semiconductors pushed up prices. An unexpected increase
in demand from carmakers at the end of last year has challenged
supply chains, which were already tight because of strong demand
from phone and computer manufacturers. Long semiconductor lead
times suggests further upward price pressure in the near term.
While markets did receive some good news last week on US housing
markets and did exhibit some general optimism around President
Biden's inauguration, these positives were offset at week's end by
weak flash January Purchasing Manager Index (PMI) reports for
Japan, the U.K. and the Eurozone. The PMI data highlight the damage
being done by the COVID-19 second wave and signal a recession for
the European economy is now underway. With Asian buyers soon to be
away from markets because of the Lunar New year holiday, a run of
bad news in the weeks ahead could expose markets to a
correction.
Want more on what's happening to material prices and labor
shortages? Listen to our latest podcast with our pricing team.
