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Commodity prices, as measured by our Materials Price Index
(MPI), ticked 0.9% higher last week despite the to-and-fro nature
of talks in the US senate around a potential stimulus package.
Nevertheless, significant hurdles remain and with the US
Presidential election looming, uncertainty promises to create
volatility in markets later this month.
Energy markets enjoyed a good week, with the sub-index in the
MPI rising 3.6%. Natural gas index recorded its highest level since
February 2019 as weather forecasts portend a colder than usual
northern hemisphere winter. Global gas prices are now up 194% since
July on improving demand and the slashing of operating capacity.
Coal prices have suffered recently because of mainland China's
'ban' on imported Australian coal. However, traders, sensing the
'ban' may eventually be more bark than bite jumped into the market,
lifting prices 3.6% last week. Natural rubber prices have been
surging in recent weeks and rose a further 8.2%, amid concerns
about supply disruption from Thailand due to intensifying political
unrest. A steady increase in demand from mainland China has also
contributed to rubber's recent strength. Non-ferrous metals rose
another 1.4%, to the highest level for the sub-index since March
2019, as the stronger yuan and optimism around EV metals during the
industry's LME Week encouraged buying. Copper was a particular
beneficiary of improved sentiment, with prices surpassing $7,000
/Mt on an intraday basis for the first time since June 2018. Fiber
prices, one of the major laggards of the MPI since the March crash,
has jumped 6.1% higher since September. Last week fiber prices rose
another 1.9% after improved textile demand in China since September
caused polyester staple and filament inventory to plunge. Steel raw
materials fell 0.3% on a jump in iron ore port stocks in China,
which corelated with the 1.9% fall in bulk freight prices as more
Capesize vessels to Brazil become available after a recent
pinch.
The closing months of 2020 point to potential volatility for
commodities. The US Presidential election and rapidly rising
COVID-19 case counts pose immediate questions for markets. Lying
ahead in December is also the prospect of a no-deal Brexit. And
next year will now bring a constitutional convention in Chile at a
time when that country's copper production has been struggling. A
potential upside for markets is the targets of China's 14th
five-year plan, which will be reviewed during the Fifth Plenum of
the Chinese Communist Party this week. An expressed intention for
further reforms, more open capital markets and investment plans
around developing a low carbon economy could provide an offset to
bad news elsewhere.
Posted 28 October 2020 by Mr. William May, Senior Economist Pricing and Purchasing