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February 9, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) gained another 1.8% last week, moving to its highest level since August 2014. Last week's increase was driven by lumber and rubber prices, which rose 8.7% and 5.2%, respectively. The only significant weakness was in our freight sub-index, down 4.4%.
Rubber prices have almost doubled since September. Supply worries, driven by heavy rains in Thailand and Chinese speculators piling into the market, have been the prime drivers of strong and persistent gains since the start of the fourth quarter. For lumber, the threat of potential retroactive duties on shipments between Canada and the United States saw heightened buying last week, pushing prices higher.
Last week saw several positive economic announcements, especially in Europe. Economic sentiment in the Eurozone rose for a fifth consecutive month to reach the highest level in six years, highlighting growing confidence in the region. In both the United States and the Eurozone, the January Markit Manufacturing PMI rose strongly, reaching 55.0 and 55.2, respectively, with input costs also bolstered in both regions by strengthening demand. January's US employment report also showed strong job gains with little acceleration in wage growth, likely pushing the Federal Reserve's next interest rate increase into the second half of the year. When the third wave of the current commodity rally began in September 2016, market fundamentals had yet to show broad discernible advances. However, over the past two months, manufacturing demand has clearly improved, reinforcing a growing optimism for 2017 and supplying commodity markets with real momentum.