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Our Materials Price Index (MPI) jumped another 5% last week,
following the record breaking 8.1% increase the week before. Price
increases were once again broad with seven out of ten
sub-components in the index rising. After last week's increase,
commodity prices now sit 11.7% above the previous all-time high set
in April 2011.
Brent Crude oil reached $129 per barrel for the first time since
2008 last week adding further upward pressure to commodity prices.
It was industrials metals, however, that grabbed center attention.
Prices soared amid trading volatility and concerns over future
supply from Russia. The ferrous sub-index jumped 10%, with both
scrap steel and iron ore posting large price gains. Turkish scrap
steel prices, a global benchmark, reached a record $650/tonne, an
$82 increase on the previous week. Turkey relies heavily on Russian
scrap imports as feed for its EAF steel mills and is now scrambling
to find alternatives, hence the strong price increases last week.
The nonferrous metal sub-index increased 2% with unprecedented
turbulence in the nickel market leading to the suspension of
trading in the nickel contract on the London Metal Exchange (LME).
A large short position held by Tsingshan Stainless Steel exceeding
in size available inventory on the LME was the root cause of the
turmoil in the market. Margin calls triggered by a rising nickel
price could not be fully met because of the size of the position
and low available inventory. The short squeeze therefore unmoored
prices from the physical market, prompting the exchange to
intervene.
With inflation already high, the broad jump in commodity prices
last week only adds additional upward pressure on global prices
while at the same time lowering projected economic growth - an
unwelcome combination. Thus far there has been little actual supply
disruption from the conflict in Ukraine, though traders and
financial institutions are avoiding Russian exports, effectively
isolating the country from global markets. The only good news is
that markets did seem to calm slightly at week's end. Prices will
be interesting to watch over the next fourteen days. While prices
are certain to remain high, even a slight retreat will suggest that
markets regard the current situation as a temporary disruption
rather than indicative of long-term supply reduction.
Posted 16 March 2022 by Michael Dall, Associate Director, Pricing and Purchasing, IHS Markit
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
