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Our Materials Price Index (MPI) climbed 1.6% last week,
following a 3.2% increase in the previous week. The MPI is up 21%
year-to-date and is at its highest level in eight years.
Eight of the MPI's ten sub-components posted week-to-week
increases. Lumber and freight prices again led the pack. North
American
lumber prices, now up 64% since the beginning of the year,
jumped 9.4% last week. Despite record highs, demand for lumber
remains upbeat as new home building and home improvement continue
to outpace supply. Sawmills are back to pre-pandemic capacity and
thus are unable to catch up to new orders. The market for
ocean-going freight faces similar fundamentals to the lumber market
where robust demand has led to tight supply. Freight prices
increased 6.5% last week and are up 69% year-to-date, the strongest
performance among the MPI's ten subcomponents. The third stand was
the nonferrous metals index, which jumped 3.7% last week. Tin was
the major culprit, with prices rising 7.1% in response to news of
supply disruptions in Malaysia as the market already faces short
supply. Nickel and copper also contributed with increases of 6.3%
and 4.7%, respectively. A weaker trade-weighted US dollar and
investor bullishness supported higher pricing for the two base
metals.
Last week's market drivers are a continuation of the main themes
of the last couple of months. Robust demand at a time of several
supply disruptions has pushed commodity prices to record levels.
The worsening spread of COVID-19 in India and several other
countries has not yet offset upbeat demand expectations at this
point. However, supply chains remain fragile and maintain an
uncomfortable position for market participants. We expect the
second quarter will prove the low point for supply chain conditions
as producers work through current backlogs. As the rollout of
vaccines enables most countries to ease containment measures,
consumers will be able to shift spending from goods back to
services as the service industry returns to a more normal form.
Posted 05 May 2021 by Thomas McCartin, Senior Economist, Pricing & Purchasing, IHS Markit
