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June 30, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) fell for the fourth straight time last week, dropping another 0.8%. The MPI is now down 18.5% from its year high in February. The retreat was narrow relative to recent weeks, as only 4 of the 10 sub-indexes fell. Oil continues to be a source of weakness, falling another 4.0% last week. Lower oil prices helped to drag down both freight rates and chemical prices, which fell by 6.1% and 0.9%, respectively. Rubber was another point of weakness, declining 4.0%.
Members of the OPEC production cut agreement have had impressive levels of compliance thus far; however, a sharp increase in North American production has thwarted the cartel's efforts to meaningfully reduce inventories. The Baker Hughes rig count announced last Friday showed an increase of 11 rigs, marking the 23rd straight weekly increase. Although oil inventories fell by 2.5 million barrels in the United States last week, pessimism reigns in oil markets as shale producers continue to ramp up production, marking a sharp contrast in sentiment from earlier this year.
Flash purchasing managers' indexes (PMIs) released last week pointed toward slowing global growth. The US flash PMI came in at a 53.0, a healthy reading but lower than in May and lower than expected. Growth outside the United States looks softer as well. The Eurozone flash PMI for June came in at 55.7, down from 56.8 in May. Manufacturing growth in Japan also slowed, as the June flash PMI was 52.0, down from 53.1 from one month ago. While the outlook for global growth still looks bright, the latest flash PMI data indicate a loss of momentum as the normally quiet summer months begin.