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November 12, 2015 - Weekly Pricing Pulse
The Materials Price Index (MPI) had a nasty downward shock last week, dropping by 2.8%. The sharpest decline came through in ferrous metals, which plunged 12.3%. There were also more modest declines in nonferrous metals (down 1.5%), lumber (down 1.5%), DRAMs (down 1.6%), and rubber (down 2.7%). Some support was provided by oil and chemicals prices, both of which rose slightly.
Iron ore prices were strongly range-bound in the last few months. However, during October, the price began to fall strongly, breaking important technical support lines. Fundamentally, the sudden drop was the result of a build up in Chinese port stocks, causing a drop in demand for seaborne ore. In the first week of November the price remained in freefall, as sentiment continued to sour.
Looking ahead, commodity prices face even greater pressure from the better-than-expected October US employment report released last Friday, which has increased the likelihood of a December US rate hike. Following Friday's employment news, the dollar surged to a seven-year high, which will weigh heavily on the entire commodity complex. We look for additional market volatility around a December rate hike, which now seems a forgone conclusion.