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Our Materials Price Index (MPI) increased 1.4% last week,
continuing a strong start to the year. The subcomponents paint a
different picture, however, with the MPI excluding energy
commodities falling 0.7%, its first decline since mid-November.
Commodity markets have shown strength over the past eight weeks
with the MPI rising 13.7%. Even so, the index is still 7.7% below
its May 2021 peak.
Six of the ten MPI subcomponents declined last week, but a 9.3%
climb in the energy index drove the overall MPI into positive
territory. Natural gas prices rebounded in another volatile week as
the ongoing scramble to get more LNG imports into Europe was met
with renewed urgency in northeast Asia where cold weather in Japan
is lifting demand. Asian LNG prices jumped from $21.25/MMBtu to
$27.50/MMBtu last week. Thermal coal prices increased for a fourth
consecutive week and are now back to record levels in some regions;
the Australian price reached $261 per metric ton, surpassing the
previous all-time-high of $254 set in October 2021. Limited cargo
availability and surging demand from India are behind the recent
rise in coal prices. The supply outlook in Asia has improved in
recent days as Indonesia ended its export ban three days early.
Offset by the upward move in the heavy weight energy index, North
American lumber prices declined 14.5% last week due to an
improvement in market fundamentals. Infrastructure in British
Columbia has been restored following disruptive mudslides, allowing
supply from a major exporting region to recover. Demand is also
back down to its usual weak winter seasonal levels, creating room
for prices to fall.
The recent combination of the ongoing pandemic, related supply
chain disruptions, inflation, and tightening monetary policy is
creating volatility in markets, which is likely to continue into
February. Energy markets, facing tight supply, will continue to see
strong price moves driven by regional weather at least until the
end of the Northern Hemisphere winter. With weekly oil prices
nearing $90 per barrel, the market is perhaps just one more crisis
away from the $100 per barrel threshold. Geopolitical tensions
around Russia and Ukraine will likely continue to shake not just
energy markets but a range of raw materials given the importance of
both countries as large exporters of many hard and soft
commodities. The bottom line is that commodity markets likely face
heightened volatility until at least the middle of the second
quarter.
Posted 02 February 2022 by Thomas McCartin, Senior Economist, Pricing & Purchasing, IHS Markit
