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Our Materials Price Index (MPI) increased 3.4% last week,
resuming its upward movement after last week's drop. Price declines
were comparatively narrow with only six of the ten MPI
sub-components increasing. Despite last week's rise, commodity
prices have dropped over 10% since mid-October, a change that
points to cost pressures in goods markets ebbing as early as the
first half of 2022.
Iron ore, energy, and lumber price increases were most notable
last week. Our ferrous sub-index was up 4.5%, a third consecutive
weekly increase. Iron ore prices reached $108 per tonne as markets
reacted positively to strong import figures into mainland China.
Official data showed that iron ore imports increased 14.6% from
October to November which was interpreted as a sign that steel
demand would increase in early 2022. However, the Chinese economy
is facing major headwinds (with the potential collapse of major
developer Evergrande a real threat) which will likely reduce the
need for steel. Our energy sub-index was up 5.7% last week as the
crisis in European natural gas markets continues. Inventory levels
in Europe are currently 10% lower than seasonal norms and exports
from Russia remain low by historic standards pushing UK spot landed
prices of liquefied natural gas (LNG) to $34/MMBtu, up from $30 the
previous week. With little change expected this winter, elevated
prices could last well into the summer. Prices for lumber also rose
strongly with our sub-index recording a 15% gain. Mudslides in
British Columbia, which provides 14% of total US lumber, have
blocked deliveries; and the Biden Administration's doubling of
tariffs on Canadian imports has triggered a fresh spike in
prices.
Last week's increase in the MPI chimes with continued market
nervousness over rising price inflation in many economies as
highlighted by November's US Consumer Price Index report, which
showed US inflation reaching 6.8% year over year, its highest rate
in four decades. Despite the strength being seen in top-line
measures of inflation, IHS Markit remains hopeful about inflation.
Notwithstanding last week's increase in the MPI, commodity prices
appear to have peaked back in May. With goods markets benefiting
from lower commodity prices and better logistics services, and with
strong wage pressure not sustained, year-on-year top-line inflation
rates are expected to slow by the end of 2022. A definitive change
in goods market should be apparent even sooner, perhaps as early as
the second quarter, hence our guarded optimism for the new
year.
Posted 14 December 2021 by Michael Dall, Associate Director, Pricing and Purchasing, S&P Global Market Intelligence
