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Our Materials Price Index (MPI) rose 0.3% last week, continuing
its recent strength. Price increases were not universal, however,
with only half of the MPI's ten sub-components rising. That said,
commodity prices have now risen for five consecutive weeks and are
up 14% since the end of November. Despite the recent price growth,
the MPI remains 7.4% below its May 2021 peak.
Iron ore was the main reason for last week's increase. Our
ferrous sub-index was up 4.8% as iron ore prices reached $145 per
tonne amid improved demand sentiment. Iron ore import figures into
mainland China continue to show strong growth, which is boosting
hopes that steel markets there will prove to be better than
previously expected. Last week the discovery of several new
COVID-19 cases in Western Australia, a key export market, also
created supply concern and sparked additional buying adding upward
momentum to prices. Energy markets remain volatile with our
sub-index declining 5% last week. Asian and European natural gas
prices dropped 12.2% and 9.7%, respectively, as supply from Russia
into Europe increased. Near-term winter weather forecasts also
indicate milder than average temperatures, which caused some
additional softness in prices. The precarious nature of European
supply, however, means further price volatility is likely before
the end of winter.
While commodity prices increased last week, trading was quiet in
markets due to the Lunar New Year holiday and opening of the
Olympics in mainland China. Buyers were largely absent in Asia,
with much of mainland China's manufacturing sector on holiday.
Volatility will likely resume after the Lunar New Year holiday
since geopolitical tensions around Russia and Ukraine will continue
to shake not just energy markets, but a range of raw materials
given the importance of both countries as large exporters of many
hard and soft commodities. However, with weather models indicating
milder weather in February, energy prices may provide some welcome
relief to buyers.
Posted 10 February 2022 by Michael Dall, Associate Director, Pricing and Purchasing, IHS Markit
