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Our Materials Price Index (MPI) fell 2.7% last week, its biggest
decline since early February. This is the second week in a row the
MPI has declined, marking a turnaround from the nine-week long
rally that faltered last week. The retreat was broadly based, with
nine of ten sub-indexes falling. Chemical prices were the main
driver behind the decline, falling 6.3%. Lumber and rubber prices
also showed weakness last week, both pulling back 5.4%.
The strength chemical markets saw earlier this month continued
to dissipate last week. Ethylene prices plunged, dropping 12.4% for
the week, making for a combined two-week fall of over 20%. Market
sentiment remains bearish as steam cracker capacity is ramping up,
raising fears of oversupply. Propylene prices also fell on worries
about higher production with demand staring to look softer. The
strength propylene prices saw earlier this month destroyed demand
as consumers waited on the sidelines. Demand should improve as
prices come down. Meanwhile, lumber prices experienced their
largest weekly decline since January of 2016 for the second week in
a row as supply continues to improve.
While the global expansion remains intact, a sense of
nervousness is creeping into markets as the outlook becomes
cloudier. A brewing trade war is the biggest risk facing markets
now, evidenced in part by the decline in equities and commodities
last Tuesday and Wednesday as trade rhetoric between the US and
China heated up. Flash PMI reports once again pointed to peaking
global growth, adding to the uncertainty ahead. The Eurozone
composite number was the second weakest in seventeen months, while
the United States showed a slowdown in factory activity - a
slowdown driven in part by recently imposed tariff actions. As
anxiety builds in markets and global growth continues to decelerate
- particularly from raw material consuming economies - look for
more commodity price declines ahead.