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September 16, 2016 - Weekly Pricing Pulse
The recent MPI rally is starting to look somewhat vulnerable in light of chemical feedstock headwinds expected over coming months.
The IHS Materials Price Index (MPI) fell for a second consecutive week last week, dropping 1.2% primarily because of weaker US chemical prices, which fell 3.7%. Although Henry Hub prices last week stayed relatively high around $2.85/MMBtu, the chemical sub-index contracted on the back of an 8.0% retreat in ethylene prices. Otherwise, there was also some hawkish oil market sentiment following an announcement on greater cooperation between Russia and Saudi Arabia—the world's biggest oil producers—even though the news itself was short on concrete action.
The ferrous subindex was down for another week, and by a significant 1.5%. Bucking the overall trend, the shipping subindex was up another 4.4%, making it the third consecutive gain, happening alongside ongoing difficulties at South Korea's largest carrier, Hanjin. However, despite the uptick in freight rates, other key commodities were not buoyed up despite the potential global shipping bottleneck.
Along with being down, commodity markets ended the week with a decidedly negative tone prompted by a renewed focus on rising US interest rates and a stronger dollar. Hawkish comments from the Federal Reserve and what the market interpreted as less than strong support from the European Central Bank (ECB) regarding its own quantitative easing program were enough to create a mini temper tantrum. More importantly, last week’s reaction hints at the volatility that markets are likely to encounter should interest rates rise in December.