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September 24, 2015 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) recorded another slight decline of 1.1% last week. Key sectors such as oil and metals saw nominal downward shifts, but pulp and lumber gained. The theme continues to be one of post-summer consolidation, in contrast to recent volatility. Reduced volatility may suggest Chinese economic gloom has now been priced in. Even with recent declines, the MPI is still treading above its late August low.
As expected, the US Federal Reserve (Fed) held rates constant last week, though many observers are taking it for granted that a rate hike will happen this year. Surprisingly, the Fed's stance actually drove bearish market sentiment, reinforcing negative sentiment regarding trade and global manufacturing activity.
We are expecting another MPI decline of 1% next week and are holding to a cyclical low in the fourth quarter. On the downside, global iron ore prices could come under pressure again as South Africa became the latest country to put up tariffs on steel imports. However, the latest Baker Hughes rig count has spurred on oil prices and bulk freight rates could get support from better-than-expected Chinese demand and chatter of a potential vessel shortage.