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September 30, 2016 - Weekly Pricing Pulse
The recent MPI rally still looks somewhat vulnerable in light of chemical feedstock headwinds expected over coming months.
The IHS Materials Price Index (MPI) was almost flat last week, ending up with a 0.1% decline. Once again, the chemicals subindex emerged as a major driver, with prices dropping off their summertime highs (down 1.4%). This happened despite natural gas prices continuing to hold up close to $3/MMbtu, which suggests that chemical market tightness is beginning to ease a bit, given stronger-than-expected operating rate data showing higher levels of production. Helping to offset this, we saw broad-based gains in nonferrous metals (up 1.9%), fiber (up 1.3%), lumber (up 0.6%) and rubber (up 5.8%). However, shipping once again stood out on a strong 7.6% increase, reflecting tightening fundamentals within the global bulk segment.
Otherwise, the oil subindex declined by 0.5%, with benchmark prices again around $45/barrel. This takes us back to April-May 2016 levels, despite an ongoing global rebalancing now occurring, while the upcoming OPEC meeting has also produced some price volatility in recent weeks.
Markit flash Eurozone PMI numbers also came out last week, which provided mixed signals. While the flash manufacturing number ended up higher, at 52.6, compared with 51.7 in August, services experienced headwinds to end up on 52.1 (a 21-month low). This took the overall composite down to 52.5 in September, compared with 52.9 last month. Additionally, the US flash manufacturing figure would have also weighed on market sentiment, having dipped to 51.4 in September, after registering 52.0 in August. The OPEC meeting in Algeria and ongoing chemical market developments will likely set the MPI tone this week.