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July 9, 2015 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) retreated 2.2% last week, reaching its lowest level since April. All components of the MPI fell except lumber and fiber, with the overall index weighed down by ferrous metals, chemicals, and oil, which dropped 3.2%, 2.5%, and 2.1%, respectively.
Last week's broad-based decline in the MPI can be explained by three seemingly unrelated occurrences: the bursting of the Chinese equity bubble, weakness in Asian manufacturing activity, and the Greek vote. While uneasiness in financial markets over Greek debt negotiations grabbed headlines last week, China remains the bigger story. The continuing sluggishness in its manufacturing sector and its impact on the larger regional economy is reshaping the outlook for consumption growth-and hence pricing-for many commodities.
Ultimately, commodity markets are rendering a pessimistic view of the debt-fueled support for the recovery in Greece and the larger Eurozone, and in China. This more downbeat view of the near future will likely be reinforced once conditions in capital markets begin to return to normal-a transition IHS assumes starts this September with an initial interest rate increase in the United States.