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Our Materials Price Index (MPI) fell another 0.8% last week, the
seventh consecutive weekly drop. As has been the case in recent
weeks, movement in the subcomponents was mixed, with four
categories rising and six declining. With last week's drop, the MPI
is now down 14.2% since peaking in early May.
Iron ore prices were once again the catalyst for the drop in the
MPI. Production controls in mainland China have increased worries
about demand for iron ore. At the same time, major iron ore
exporters have increased output in recent months, leading to a
market that looks far better supplied in the near-term. The result
has been nine consecutive weekly declines in iron ore prices. The
third quarter is the seasonal peak for a few of the major
exporters, however, so we expect volumes to gradually recede
through the end of the year. Natural gas prices again lifted the
energy component of the MPI. The 6.8% increase in the energy index
was propelled by a 17% weekly climb in natural gas prices.
Liquefied natural gas (LNG) import prices have doubled since early
July in Europe. With depleted stocks in Europe, weak pipeline
imports from Russia, and strong LNG demand in Asia, European
traders have pushed prices to record levels. The tight market
entering winter suggests elevated prices will last through much of
the near term. Lumber was the other notable mover, jumping 11% last
week; still, prices remain well below the elevated levels from the
first half of the year.
Although we have been expecting a change in commodity markets
for some time, our expectation has that this change would emanate
from the supply-side of markets as production disruptions and
supply chain bottlenecks were resolved. Instead, recent price
declines are mostly the result of demand weakness; to date, we have
not seen real improvement on the supply-side of markets. While we,
therefore, believe commodity markets have more downside potential,
this lack of improvement on the supply-side leaves markets with
some upside risk as the pandemic recedes next year.
Posted 22 September 2021 by Thomas McCartin, Senior Economist, Pricing & Purchasing, S&P Global Market Intelligence
