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January 26, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) continued climbing last week, gaining another 1.9% to reach its highest level since the end of 2014. Commodity markets have shown a great deal of momentum since early October, with the MPI up for the past 11 weeks. The most persistent drivers have been chemicals and nonferrous metals prices, which last week rose 4.1% and 2.6%, respectively.
Chemical prices continue to increase strongly, with the subindex up 30% since the start of December alone. Chemical prices began to move up with the US heating season, and have been driven by a combination of higher natural gas prices and a market tightening on the back of unplanned outages at chemicals plants. Nonferrous metals were pulled higher by strong advances in lead, as market worries about tightening supply fundamentals and an apparent squeeze on Chinese investors, which translated into a weekly gain of 6.8%.
Macroeconomic data releases continue to support higher commodity prices. In the United States, a weather-boosted 6.6% surge in utility output contributed strongly to a 0.8% gain in industrial production for December. China, the biggest driver for commodity markets, recorded better-than-expected GDP growth in the fourth quarter, at 6.8%, although this gain was mostly driven by non-industrial sectors, dampening the impact on commodity markets. Finally, the US dollar pulled back slightly last week, which lent support to the entire commodity complex. For all the evident momentum in commodities right now, the solid fundamentals for a strong US dollar and the forecast of a slow deceleration—not acceleration—in Chinese growth makes it look like too much optimism has been priced into markets.