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Our Materials Price Index (MPI) rose 1.6% last week, its third
consecutive increase. Commodity prices remained relatively flat
between September and early November as the third quarter rally
faded on rising COVID-19 case counts in both North America and
Europe. Sentiment has become decidedly bullish in the past few
weeks, however, with markets locked on to each fresh data release
from mainland China and the positive news on vaccine trial results.
Markets also seem to be taking heart from the US election, which
has produced a definitive result on the Presidency, removing one
uncertainty for the near future.
Energy prices collectively surged 6.8% on strong moves in coal
(7.6%), oil (7.1%) and gas (3.9%). Vaccine optimism drove crude oil
prices on hopes that demand could begin to return to normal sooner
rather than later in 2021. Indications that oil producers will not
be lifting production as planned at the start of next year also
helped lift prices. LNG prices were driven higher by news of South
Korea's decision to suspend production at 16 coal-fired power
plants to curb pollution, which will see gas demand increase in
north Asia. On the supply side, the market is digesting the impact
of an outage at Qatar gas. Thermal coal prices rose last week as
Chinese buying remained firm in early winter restocking activity,
despite threats by Chinese authorities to limit purchases from
Australia. Non-ferrous metals rose 2.2% as the complex found
support from firm demand in China and stronger risk-on sentiment
outside of China. Copper rose 3.2% to hit a seven-year high on a
20% decline in visible global inventories in the last month. Steel
raw materials moved 1.3% higher with iron ore spot prices pushing
back up to recent seven-year highs by rising steel prices in China.
Turkish scrap prices also hit a two and a half year high and look
set to continue rising. Rubber rose 2.3% rising further after the
technical sell-off two weeks ago. Disruptions in rubber production
and supply chains remain present and demand has also firmed on
vaccine news.
Commodity prices have resumed their third-quarter rally,
kickstarted by the combined effect of positive vaccine news, the
conclusion of the US election (with the promise of some sort of
second stimulus package) and continuing good news from mainland
China's manufacturing sector. Fundamentally, Chinese demand is the
sole support for global markets - outside of China consumption for
most of the commodities tracked by the MPI is expected to contract
this year. Markets, however, being forward looking, are pricing in
hope for an early end to the pandemic and more normal consumer
spending earlier rather than later in 2021.
Posted 03 December 2020 by Mr. William May, Senior Economist Pricing and Purchasing, IHS Markit
