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June 3, 2016 - Weekly Pricing Pulse
Prices are set for a downward drift over coming weeks. It is worth holding off on purchases.
The IHS Materials Price Index (MPI) reversed course again last week and came through with a 0.6% decline. The overall figure has alternated quite a bit over recent weeks, generally reflecting the oscillating fortunes of commodities as markets weigh up supply side consolidation against global economic jitters and broader uncertainty. Significantly, while the oil subindex continued to move upwards, the 0.7% gain was not enough to offset declines in metals and chemicals.
Despite the continuing rally in oil prices, which last week broke through $50/barrel the overall MPI has been fairly flat over the last month, currently treading along the same levels we saw in late April. Part of this offset occurred due to a 5% decline in the nonferrous subindex since late April. Meanwhile, global economic conditions remain tepid. The Eurozone flash manufacturing PMI for May held steady on the prior month (51.5), while the US flash manufacturing PMI estimate was down on the prior month, from 50.8 to 50.5.
As we head into late spring, early symptoms of the sticky summer period may start to kick in as financial market volumes dry up and prices have scope to overreact on thin trading. Moreover, as actual deliveries start moving towards spring, some of the seasonal optimism of recent weeks may also wear thin. Early this week we saw strong consumer sentiment data for the United States, which may help to offset some of the aforementioned headwinds. Meanwhile, the OPEC meeting in Vienna could add volatility to oil prices. Nonetheless, we expect a downward commodity price drift over coming weeks.