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Our Materials Price Index increased 2.6% last week in a
broad-based move largely unaffected by a volatile week in other
markets. The recent spectacular Tech fuelled rally in equity
markets finally underwent a sharp correction after weeks of
back-to-back gains. With commodity prices also looking expensive
relative to global industrial activity, a correction would seem
overdue, but China's demand is currently holding sway.
Chemicals prices lead the MPI higher rising 5.0% as US refinery
infrastructure recovers from the impact of Hurricane Laura. No
major damage was sustained with a number of sites opting to halt
production to safeguard assets, which pushed ethylene prices 11.4%
higher globally. Propylene also rose but less strongly, increasing
1.6%. Prices in the US actually fell 4.7% on retreating natural gas
prices. Energy prices as a group nudged up 0.4%, driven mainly by a
14.3% increase in Asian LNG prices and a 1.3% rise in coal prices.
Crude oil fell 2.0% last week on persisting demand fears. Refiners
have begun fall maintenance schedules but rising COVID-19 case
counts in Europe (and elsewhere) raises the threat of fresh
lockdown measures, a red flag for liquids demand. Steel raw
materials prices rose 2.6% with iron ore setting another six-year
high of $130 /Mt. Scrap prices also rose 1.6% as Turkish prices
near January highs once again. Pulp and rubber prices rose 5.8% and
4.7%, respectively, as Chinese demand continues to outperform.
Rubber prices are now up 25.3% year-to-date.
Although commodity markets continue to perform robustly, their
rebound looks to lose some momentum in the near future. Waning
government stimulus, satisfied pent-up demand, the threat of
COVID-19 second waves, US-China trade tension and growing
uncertainty in Europe due to stagnant Brexit talks, all point to
some fading in manufacturing's recent bounce. Still, optimism
persists regarding China, where President Xi Jinping last week
outlined a part of China's next five-year economic plan. Whether
China alone can continue to power commodity markets remains to be
seen. For now, markets feel that it can.
Posted 09 September 2020 by Mr. William May, Senior Economist Pricing and Purchasing, IHS Markit
