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January 6, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) moved up again to close 2016, increasing 0.5%. This last weekly gain was the eighth consecutive week the index rose, capping off a strong end to 2016. Since hitting a low in mid-January, the MPI has increased 54% in three successive waves.
Key sectors rising last week were oil and chemicals, both up by 2.3%. Oil prices have rebounded strongly over the past two months, with the subindex up 25%. Oil prices have been increasing on the prospect of tighter fundamentals in the wake of OPEC’s announced production agreement. Pulp prices also showed strong gains last week, climbing 1.5% due to price increases in China following production outages there. In contrast to late November and early December, however, several sectors posted declines last week: ferrous and nonferrous metals, rubber, lumber, and freight.
The Christmas holiday meant fresh macroeconomic data were fairly sparse. Japanese industrial production was a standout indicator, up a sizeable 4.6% in November, year on year, reflecting higher output in transportation equipment and electrical machinery. Commodity prices have moved up strongly in the final two months of 2016. As we have been noting, commodity prices look rich given the US dollar strength. The slowing of overall price gains and a pullback in certain sectors over the last two weeks could signal a reversal is nearing.