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Our Materials Price Index (MPI) fell 2.5% last week, following a
5.2% increase the previous week. Price declines were widespread
with nine of the MPI's ten subcomponents decreasing. Commodity
prices as measured by the MPI are still up strongly over the past
12 months to more than double their level from May of 2020.
Lumber once again was a standout, falling 13.9% for the week.
Markets reacted to news that US April single-family building
permits dropped 3.8%, a sign that the white-hot housing market may
soften in the months ahead. Housing analysts are also noting
indications that high home prices are beginning to meet with some
buyer resistance. Pulp prices also recorded a large decline,
dropping 6.0% for the week. Increasing supply with rising inventory
is undercutting prices. Chemicals were another sector posting
relatively large declines, with the MPI's subindex retreating 4.1%.
Better availability as capacity comes back on line in the US Gulf
Coast is softening prices. One caution is that heavy rains late
last week in East Texas and Louisiana do appear to have disrupted
operations in the greater Lake Charles area, threatening the
industry just as it was putting winter storm Uri behind. Metal
prices saw a tumultuous week. Although declines were modest, the
MPI's ferrous index dipped 0.8%, while the nonferrous index dropped
1.7%, sharp price swings were triggered by Chinese policymaker
statements about possible investigations or interventions to limit
speculative behavior.
While commodity markets remain strong, the tone in markets
changed last week. The optimism that has characterized markets
since last November was checked by several factors: alarm over
fresh COVID-19 outbreaks in Asia, growing inflation fears, possible
market intervention by Chinese authorities, political resistance to
the Biden Administration's infrastructure plan, and finally that
high prices are beginning to encounter resistance from buyers.
Although the least newsworthy, this last factor may be the most
important in eventually ending the now 13-month surge in commodity
prices.
Posted 26 May 2021 by Tal Dickstein, Senior Economist, Pricing and Purchasing, S&P Global Market Intelligence
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