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Our Materials Price Index (MPI) climbed 4.5% last week,
following a 1.6% increase the previous week. This is the fifth
consecutive weekly price increase and the latest move puts the
index at its highest point since September 2011. Prices, as
measured by the MPI, have increased by 128% since early May
2020.
Eight of the MPI's ten sub-components posted increases last week
with industrial metals the largest contributors to the upward move.
The steel-making raw materials index jumped 8% as the price of iron
ore broke the $200 per metric ton barrier. This latest move was
triggered, in part, by a rush from Chinese steel producers to
secure iron ore ahead of potential trade restrictions between
Australia and China. Chinese steel production continues to soar
despite the Chinese government's efforts to curtail production to
meet stricter environmental limits. The nonferrous metal index was
up 2.6% last week as copper's rally continued. Strong demand from
mainland China and an onerous new tax regime on the mining sector
in Chile that passed the lower house of the legislature sent copper
prices to $10,361 a tonne, a new record. Investor appetite was
further fueled by expectations of a future rise in green
infrastructure projects where copper will be an important raw
material. The MPI's chemical index provided some price relief last
week as supply issues improved. The global chemical industry was
reeling from the winter storms in the US in February, but operating
levels have now recovered, and the sub-index fell 2.8%.
It was a record week for equity markets with the S&P 500
closing at an all-time high. This was despite the US nonfarm
payroll report coming in significantly below market expectations.
However, US wage increases were strong and investors remain focused
on the global economic recovery, which continues to support
commodity prices. Commodities are also being used as a hedge
against potential future inflation and with Chinese traders
returning after the May Day holiday it was another bumper week on
commodity markets. Notwithstanding these demand-side factors, it is
the continuing disruptions in supply chains that remain the main
issue reflected in surging prices. The only solace in looking
toward the summer is that absent some new shock, IHS Markit
believes supply-chain conditions during the second quarter are as
bad as they will get. Assuming some improvement in delivery times
and higher inventories, markets should begin to see some price
relief in the second half of the year.
Posted 12 May 2021 by Michael Dall, Associate Director, Pricing and Purchasing, S&P Global Market Intelligence
