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Commodity prices, as measured by our Materials Price Index
(MPI), fell 0.2% last week. This was less than the fall in the
previous week, but was broader based, with seven of the MPI's ten
components falling. Growing COVID-19 case counts are stoking
uncertainty around demand at the same time support measures, such
as job retention schemes, are being phased out.
Lumber stood out again as a price mover for the week, falling
another 14.4%. Prices now are down 40% from their record high of
early September. Steel raw materials fell 1.7% as iron ore prices
finally cracked after running above $120 /Mt since early August.
Chinese steel mills have bid prices higher recently as they restock
ahead of China's Golden Week holiday October 1st-7th. Non-ferrous
metals prices fell 1.8% on weaker buying keyed to last week's rally
in the US dollar. Nickel fared the worst falling 4.3%, with zinc
and tin falling around 2.5% each. The non-ferrous market looks to
be correcting, having enjoyed a boost recently from firm Chinese
demand and strong sentiment around electrification and battery
technology. Energy prices, still trading at low levels relative to
the start of the recent crash jumped 5.7% last week powered by
rises in LNG and thermal coal of 12.3% and 6.9%, respectively.
European gas prices rose 20.9% on sharply colder weather in the
region whilst thermal coal demand from India continues to
strengthen, boosting Asian coal prices. Crude oil ticked up 1.4%.
Chemicals feedstock prices rose 4.4% driven by gains in ethylene
(6.8%), propylene (2.3%) and benzene (2.1%). US ethylene prices are
being supported by strong demand and lower supply curtailed by
planned and unplanned outages, some related to several recent
hurricanes that have battered the Gulf Coast.
Commodity prices have enjoyed a strong run over the past five
months, boosted by the rebound in manufacturing activity. The
question is, is this bounce now beginning to fade? Concerns over
growing COVID-19 case counts and the possibility of containment
measures being re-imposed, plus the reduced government support are
adding uncertainty to the fourth quarter outlook. Two additional
known unknowns complicate the immediate outlook potentially
creating added volatility: the possibility of a contested US
election and the failure of the UK and EU to reach a trade
agreement before the end of the withdrawal period. Our bottom-line
is that we see the upward momentum exhibited recently in commodity
markets, hard to maintain through year-end.
Posted 30 September 2020 by Mr. William May, Senior Economist Pricing and Purchasing, IHS Markit