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August 25, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index fell 0.1% last week, marking a pause in the rally that started in late June. Four of the ten sub-indexes declined, led by lumber and oil, which dropped by 2.9% and 2.5%, respectively. Shipping rates increased a strong 6.7%, while nonferrous metals moved up another 2.1%.
Despite a drop of 6.5 million barrels in crude inventories last week and a decline in the Baker Hughes rig count, oil prices fell. While demand growth looks healthy over the near term, increases in production look to keep the market well supplied, with prices expected to fall in early 2018. Lumber prices have appeared to advance in front of fundamentals recently and, hence, some give back in prices was not unexpected. Prices could retreat further before the final decision on countervailing and antidumping duties on Canadian imports is rendered in Washington.
Economic reports last week in the United States were largely positive, but reports coming from China disappointed. US retail sales grew by 0.6% month on month (m/m), beating expectations. The University of Michigan consumer sentiment survey shot higher to 97.6, also stronger than expected. Meanwhile, fresh Chinese data showed signs of slowing GDP growth, a potential headwind for commodity prices in the fourth quarter. Industrial production grew at 6.4% year on year (y/y) in July, lower than market expectations, while retail sales also slowed.
Markets seemed to lose some momentum last week. Volatility has increased recently, perhaps a sign that the optimism that has carried the market in the third quarter is beginning to dissipate. Our view remains that the strong rebound in prices over the past seven to eight weeks cannot continue given our fundamental picture of the near term.