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Our Materials Price Index (MPI) rose 4.5% last week, the largest
one-week increase so far this year. Price increases were broad with
nine out of ten materials in the index rising. Commodity prices
have now risen for six consecutive weeks and are up 19.3% since the
end of November, a rally that has now carried the MPI close to its
May 2021 peak.
Industrial metals prices soared last week. Our ferrous sub-index
was up 7.7% as iron ore prices reached $151 per tonne after the
Chinese government announced an easing of its environmental
targets. The deadline for peak carbon emissions was shifted back to
2030 from 2025, which boosted the Chinese steel demand outlook.
Nonferrous metals also had a strong week with the sub-index
climbing 2.5% after broad price rises. Aluminum prices hit a
34-year high of $3,312 a tonne as supply tightened. Smelters are
being impacted by high electricity prices Europe and in China by
the effects of China "Dual-Control" and zero-COVID policies.
Geopolitical tensions are also taking a toll -- Russia is a major
commodity producer with elevated risk premiums now being priced
into many markets. Prices for lumber also rose strongly with our
sub-index recording a 19% gain. Supply was already constrained due
to mudslides in British Columbia, (which provides 14% of total US
lumber), which blocked deliveries. However, housebuilding demand
remains strong and buyers last week took the opportunity to
replenish inventories ahead of peak construction season in the
spring.
Commodity buyers returned to the market in force last week after
the brief respite of the Lunar New Year holiday and opening of the
Olympics in mainland China. Buyers became more nervous about supply
levels of a key range of materials. This has been exacerbated by
geopolitical tensions around Russia and Ukraine given the
importance of both countries as large exporters of many hard and
soft commodities. Demand assumptions remain strong, but after
confirmation that the 12-month change in the overall US CPI climbed
to 7.5%, the highest since February 1982, it is unclear how long
this sentiment will last.
The latest report on consumer prices supports the IHS Markit
expectation that the Federal Reserve will tighten monetary policy
several times over the course of 2022, beginning with consecutive
rate hikes in March, May, and June, increases that will likely
prompt some investor selling.
Posted 16 February 2022 by Michael Dall, Associate Director, Pricing and Purchasing, S&P Global Market Intelligence
