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Our Materials Price Index (MPI) rose 1% last week, following a
1.7% increase the previous week. The increases were widespread with
seven of the ten MPI sub-components up last week. Despite last
week's rise, commodity prices have dropped over 12% since
mid-October, a change that points to cost pressures in goods
markets ebbing as early as the first half of 2022.
Metal prices were the main contributor to the MPI's climb last
week. Our nonferrous metals sub-index was up 1.9% with five of the
six big base metals pushing higher (lead proved the exception, with
its price dropping fractionally). Tighter supply was the main
reason for the price rises with visible nickel inventories standing
at 85,000 tonnes last week, down from a high of 273,000 tonnes in
the first quarter of 2021. This sent nickel prices up to $21,130
per tonne, a seven-year high. Lower inventories are also placing
upward pressure on tin. Tin prices touched $40,950 per tonne, the
highest on record, although they did pare back from those highs in
late-week trading. Zinc prices climbed 4.6% after Glencore
announced that it would halt production at its Italian smelter due
to high energy prices in Europe. The company said that the smelter
will undergo maintenance until at least December and would not
restart until there was a "meaningful" change in power prices.
What started as a quiet week on markets due to the US
Thanksgiving holiday was upset by the emergence of the Omicron
variant of COVID-19 in southern Africa. This sparked a broad
sell-off on global markets on Friday with equities suffering the
largest daily drop in over a year. Until this latest development in
the pandemic, markets were focused on rising price inflation.
Notwithstanding real concerns about aggregate inflation, commodity
prices look increasingly like they hit their high-water mark back
in May. This good news must now be balanced against the likelihood
of fresh restrictions to combat this new variant of COVID-19.
Tightening US monetary policy and slower growth in China have been
signaling a further modest correction in commodity prices through
2022. The question is now whether the Omicron variant will also
impact the supply-side of markets and negate the downward pressure
we see developing on prices.
Posted 01 December 2021 by Michael Dall, Associate Director, Pricing and Purchasing, IHS Markit
