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Commodity prices, as measured by our Materials Price Index
(MPI), fell 1.0% last week in a broad-based move that saw eight of
the index's ten sub-components decline. Weak buying during the
usual Lunar New Year holiday lull is now being matched against
active selling tied to growing fears about the impact of the
coronavirus on Chinese demand.
Freight rates and rubber saw the largest declines last week,
dropping 4.9% and 3.8%, respectively. Rubber prices have been
rising almost without pause since early October on concerns about
tightening supplies related to a fugal blight, so some profit
taking might be expected. Bulk freight rates have dropped by more
than 20% since late December on weaker iron ore shipments from
Brazil and Australia as a result of wet weather, especially so in
Southern Brazil. Although Hubei province (Wuhan is the capital) is
a modest steel making center by Chinese standards, prospects of
extended holiday idling - and the possibly that other areas will
soon face similar actions - are undercutting charter rates. Other
commodities with exposure to China have shown weakness as well.
Pulp, metals, natural and synthetic fibers, and chemicals all saw
modest declines last week after showing upward momentum since early
December. In particular, copper prices, often regarded as a
bellwether for the global economy, have fallen almost 9% in two
weeks, giving up almost all of their fourth quarter advance. Lumber
and DRAM prices were the only sub-categories in the MPI to buck the
downward trend last week, rising 2.8% and 0.9%, respectively.
Lumber prices have been reacting to very good seasonal housing
activity in the U.S. linked to lower mortgage rates, while DRAM
prices are rebounding because of improving semiconductor orders and
shipments.
While reports of the spreading coronavirus in China dominated
commodity markets last week, other news was more encouraging. Our
flash January Purchasing Manager reports for Japan, the Eurozone
and the US all showed conditions either stable or improving, giving
hope that the upward momentum in markets evident during the past
two months might be restored once the flu epidemic in China is
contained.
Posted 30 January 2020 by William May, Senior Economist Pricing and Purchasing IHS Markit
