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August 4, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) increased another 1.0% last week, a third consecutive weekly gain. Commodity markets continued to show broad strength, with all but one subindex gaining last week. Oil, base metals, and freight contributed to the week's advance, rising 2.9%, 2.1%, and 3.1%, respectively. Apart from individual commodity market fundamentals, further weakness in the US dollar provided support for the commodity complex as a whole.
As has been the case recently, energy markets drove the direction of the overall MPI. Oil prices rose on the back of news that US crude oil inventories were run down at a quickening pace. Chaos in Venezuela also reverberated through markets, supporting the oil price rise. Base metals enjoyed a strong week, with copper prices hitting a two-year high. Better-than-expected growth in China and possible restrictions on Chinese scrap imports have improved sentiment in copper markets.
Since falling between February and mid-June, commodity prices as measured by the MPI have now risen in four of the past five weeks. Underlying fundamentals slowly improved during the first half of the year, thus we always believed a correction would fairly quickly run its course. July data clearly show that it has. Looking ahead, we still see three major headwinds against a strong rebound in commodity markets: oil production that will at least keep pace with demand growth; a slowing Chinese economy (notwithstanding the latest data); and tightening financial markets. Commodity markets will exhibit their characteristic volatility—as they are now—but we do not expect strong, sustained price increases over the next four quarters.