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Commodity prices, as measured by our Materials Price Index
(MPI), trended roughly sideways last week, gaining just 0.3%. Six
of the MPI's ten subcomponents fell as questions around the US
election, China's ability to maintain demand and fresh lockdowns in
Europe created uncertainty and undercut markets.
Rubber was an important exception in a generally downbeat week,
with prices jumping another 18.0%. Since the end of September
prices are up almost 40%. A litany of issues are impacting rubber,
which include supply disruptions from COVID-19 related labour
shortages in South East Asia, flooding and political unrest in
Thailand and, on the demand-side, strong PPE shipments and a good
recovery in auto production. Fiber rose 2.7% on tight inventories
helping to lift prices that are still down 8.4% on pre-COVID-19
levels. Energy rose 1.0%, due to moves in natural gas prices, which
gained another 7.6% last week. US and Asian gas rose 17.8% and
14.5%, respectively, as demand continues to improve. Nevertheless,
supply is not constrained, with US exports increasing strongly in
recent weeks. Coal moved sideways whilst oil dropped 2.5% on news
of reduced mobility and increased Libyan supply. Lumber fell 5.0%,
a fourth fall in five weeks. Prices are now down 45% since hitting
an all-time high in early September. Steel raw materials fell 0.6%
on slightly lower blast furnace operating rates in China.
Two significant events will command markets attention this week:
the US Presidential election and a return of lockdowns in Europe.
The election on November 3 will create froth in commodity markets
as the outcome of the election is digested. The second, more
concrete event is the return of community lockdowns in Europe in
light of rapidly escalating COVID-19 case counts. This latest round
of containment measures - as announced - is less stringent and
shorter in duration and thus impact to industrial activity is
likely to be much less severe than in the second quarter.
Nevertheless, some businesses will be forced to halt activity with
demand slowing. More worrisome, surging COVID-19 case counts in
North America and elsewhere point to additional control measures in
other regions, signalling a potentially difficult winter ahead.
Posted 03 November 2020 by Mr. William May, Senior Economist Pricing and Purchasing
