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Our Materials Price Index (MPI) rose 3.5% last week, its tenth
consecutive increase since early November. As has been the case
since late December, commodity prices collectively recorded another
significant gain, pushing the MPI to its highest level since
February 2014. In the last ten weeks alone the MPI has risen by
39.8%.
Eight of the MPI's ten sub-components posted increases last week
with energy and shipping the biggest movers. The energy index
soared 16.1%, the second highest weekly increase ever recorded as
natural gas prices continued to surge. Harsh winter weather in
China, Japan and South Korea is boosting demand for LNG, leading to
gas supplies being rationing in several Asian countries. Transit
delays through the Panama Canal are also delaying LNG cargoes bound
for Northeast Asia, exacerbating tightness in the spot market. The
surge in LNG prices increased demand for coal as buyers sought
cheaper available alternatives. Our coal sub-index increased by
10.1% as a result. A global shortage of container space also pushed
our shipping subcomponent up by 10.3% last week. Transpacific
shipping rates are up to four times higher than they were in
January 2020 adding to the general price inflation in commodities.
Metals markets provided a slight check to an otherwise strong week
in commodity markets, with a broad sell-off early last week sending
the nonferrous metals sub-index down by 1.1%.
Market optimism softened last week with the report of weaker
than expected December retail sales in the US and the announcement
of additional city lockdowns in northern China. Still, COVID-19
vaccine rollouts have created a glass half full view of the
near-future in commodity markets. The key for pricing will be how
supply chains recover from a challenging winter. An answer may be
apparent immediately after the Lunar New Year holidays when Asian
markets return from their normal seasonal lull. Spring should also
help calm energy markets. Still, the strength in commodity prices
over the past six months foretells a rise in goods price inflation
during the first half of 2021.
Posted 20 January 2021 by Michael Dall, Associate Director, Pricing and Purchasing, IHS Markit
