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After rising for six straight weeks since late-December, the IHS
Markit Materials Price Index (MPI) dipped 1.0% w/w, with eight of
the index's ten components falling. Commodity trading was quiet,
with Asian markets only slowly returning to normal after the
extended Lunar New Year holiday.
Oil and Rubber were the week's only winners rising, 1.9% and
1.5%, respectively. Oil was buoyed by Saudi and Russian supply
cuts, although gains were tempered by persistently strong US oil
production. Chemicals diverged from oil prices last week, falling
4.0%, as high inventory levels and seasonally weak demand continue
to play on prices. Non-ferrous metals prices fell -1.7% on trade
and economic concerns. All metals in the complex retreated save
tin, which now seems to be the focus of electric vehicle hype among
investors, supplanting cobalt. After gaining 17% in recent weeks,
iron ore prices fell last week as markets weighed on market
fundamentals, i.e. that Chinese steel demand, given production
restrictions, is not booming, Chinese margins are wafer-thin and
the value chain is well stocked with ore. Therefore, despite
ferrous scrap prices ticking up last week, the MPI's Ferrous
subcomponent fell 0.3% w/w.
Collectively, data from last week underlined the fragile state
of the global economy. US retail sales fell 1.2% in December, a
bigger fall than most analysts had been expecting, while US
industrial production sank 0.6% in January. Poor US data bookended
disappointing German GDP data for the fourth quarter that showed
the economy barely avoided a recession. In China, the producer
price index edged up by just 0.1% in January, continuing the
deceleration in goods price inflation and highlighting a general
softness in the country's manufacturing sector.
The good news for the week centered on trade and the on-going
US-China trade negotiations, where progress was made toward a
memorandum of understanding that could serve as a basis for a
formal agreement. Markets will remain focused on trade with the
pending delivery of the US Commerce Department's report on its
Section 232 investigation into US imports of motor vehicles and
automotive parts. The investigation was launched in May of last
year and by law must be delivered within 270 days, placing the
deadline in mid-February. Depending on the report's conclusion,
markets will either be calmed or worried about a new front opening
in the trade war.
Posted 20 February 2019 by William May, Senior Economist Pricing and Purchasing IHS Markit
