Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Our Materials Price Index (MPI) fell 0.1% last week, pausing
after an 11-week rally dating back to late April. Over the past
three months commodity prices, as measured by the MPI, have
registered a cumulative gain of just over 30%. Year to date the MPI
is still down 4.8%.
Six of the MPI's ten subcomponents fell for the week, a marked
change to the previous 11 weeks, which saw, on average, seven of
the index's subcomponents increase week to week. Freight prices led
the week-to-week decline with a 5.8% fall. Dry bulk charter rates
have surged over the past eight weeks from four-year lows on strong
iron ore shipments to China. Added sailings and a dip in loadings
contributed to last week's retreat. Lumber prices also fell 2.9%
last week, another commodity that saw prices rise strongly in the
past second quarter. COVID-19 related disruptions at sawmills in
Canada and the US - both in terms of production and in arranging
shipments - has seen lumber prices almost double since early April.
These supply-side disruptions do seem to be slowly improving and
hence additional price declines are expected. Chemical prices were
the other large mover last week, dropping 1.5% on a large 20%
decline in US ethylene prices. US ethylene prices have been
especially volatile over the past two months, rising or falling
strongly on plant outages or returns to service along the Gulf
Coast.
Commodity markets have been brushing aside any worries about the
COVID-19 pandemic and instead have been focusing on a combination
of good Chinese data, supply disruptions, a softer US dollar, the
promise of yet more stimulus and hopeful news on a vaccine. News on
all these fronts for the most part remained good last week. What
upset markets at week's end, however, were the tit for tat
consulate closures by the US and mainland China, which highlighted
anew the simmering tensions between the two countries. More
fundamentally, IHS Markit believes a slow end of supply-side
disruptions coupled with sluggish demand growth once pent-up demand
is satisfied and a period of inventory restocking ends exposes
commodity markets to a potential correction in the second half of
the year. Put differently, we do not see the three-month rally in
commodity prices resuming in the third or fourth quarter.
Posted 30 July 2020 by Thomas McCartin, Senior Economist, Pricing & Purchasing, IHS Markit
