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Our Materials Price Index (MPI) rose 5.3% last week, its ninth
consecutive increase. This is the fourth largest rise on record and
occurs less than a month after the highest ever increase in the
series (7.9%), with the MPI now at its highest level since April
2014.
Every major sub-component of the MPI rose last week, with five
of the ten posting increases of more than 5.0%. The energy index
increased 5.5% as natural gas prices soared to the highest level
ever recorded in the index. Asian spot prices reached $21.45/mmBtu
having been as low as $1.82/mmBtu last spring. A perfect storm of
the coldest Chinese winter since 1966, logistical issues in the
Panama Canal and lower production levels at domestic plants caused
this latest price surge. Cold weather in Europe, including freak
snow blizzards in Madrid, added further upward pressure on global
LNG prices. The chemicals index was up by 4.7% as global ethylene
markets had a busy start to 2021. US supply outages were high with
several plants delaying the restart after Christmas shutdowns. This
tightened the supply/demand balance and sent ethylene spot prices
to 44 cents/pound, from 31 cents/pound a week earlier. Iron ore
continued its recent strong price performance as strong Chinese
demand led to a 7.3% weekly increase in our ferrous metals sub
index.
Markets were unmoved by the political turbulence in the United
States and focused instead on the prospect of a sustained global
economic recovery. Despite weaker US non-farm payroll data,
COVID-19 vaccine rollouts seemed to dominate trading sentiment. The
key for commodity markets in the near term will likely 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. This said, the
sustained strength in commodity prices over the past six months
foretells a rise in goods price inflation during the first half of
2021.
Posted 13 January 2021 by Michael Dall, Associate Director, Pricing and Purchasing, IHS Markit
