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Our Materials Price Index (MPI) rose 1.7% last week, bringing an
end to four straight weeks of declines. Price increases were
limited, however, with only three of the ten MPI sub-components
rising. Despite last week's rise, commodity prices have dropped
almost 13% since mid-October, a change that points to cost
pressures in goods markets ebbing as early as the first half of
2022.
Soaring natural gas prices drove the MPI higher last week.
Global natural gas prices increased 26.2% with European and Asian
markets posting large gains. The US market is more isolated, so
price movement remains limited at least for now. UK spot landed
prices of liquefied natural gas (LNG) climbed to $32/MMBtu, up from
$25 the previous week, while the Japanese spot landed price for LNG
reached $37/MMBtu, up from $28 the week before. Inventory levels in
Europe and Asia are depleted and exports from Russia remain low by
historic standards, which increased nervousness among traders and
pushed prices higher. The situation was exacerbated when Germany
suspended the certification of the Nord Stream 2 pipeline, designed
to transport natural gas from Russia to mainland Europe. This
latest delay ended any chance of additional supply from the
pipeline this winter and suggests elevated prices could last
through much of the near term. Prices for lumber also shifted
higher last week with our sub-index recording its largest-ever
weekly gain, climbing 25%. A supply-side shock was the major reason
for the jump as storms and mudslides in British Columbia (which
provides 14% of total US lumber) blocked deliveries and prevented
US construction firms from replenishing inventory. Despite last
week's increase, lumber prices remain 50% lower than the recent
peak in May 2021.
Last week's increase in the MPI chimes with continued market
nervousness over rising consumer price inflation in many economies.
US inflation, as measured by the Consumer Price Index, reached 6.2%
year over year in October, its highest rate in three decades,
prompting the Vice-chair of the Federal Reserve, Richard Clarida,
to suggest it could act sooner than expected to combat inflation.
To be sure, cost pressures in goods markets remain acute. Commodity
prices, however, look increasingly like they hit their high-water
mark in May. Volatility will certainly continue in global gas
markets over the winter, but the broad correction in commodities
shows signs that it will continue into 2022, which if true, will
soon begin to alleviate pressure on at least goods prices.
Posted 24 November 2021 by Michael Dall, Associate Director, Pricing and Purchasing, S&P Global Market Intelligence
