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October 28, 2016 - Weekly Pricing Pulse
Pricing weakness across several key sub-sectors dragged the index down, as demand-side weakness begins to bite.
The IHS Materials Price Index (MPI) broke out of a month-long downtrend to record a 0.9% uptick last week. Optimism in oil markets, up 1.9%, coupled with strong gains for ferrous metals and a 4.3% surge in DRAM prices offset weakness in the nonferrous sector.
The overall MPI would have seen a sharper, stronger fall had it not been for the continued strength in the DRAMs sub-index, up a massive 8.5% on the week. Indeed, as we have previously noted, the DRAMs market continues to readjust and has moved into a period of tighter supply and rising prices. We expect this behavior to persist through the end of the year. Strong demand from mobile devices is the primary driver behind the supply/demand imbalance.
Looking at the general business environment, several indicators announced last week underwhelmed. US industrial production was nearly flat at 0.1% month on month for September. In Asia, Chinese third-quarter GDP growth came in unchanged last week at 6.7% year on year. This leaves China on track to meet the government's full-year goal for 2016 of between 6.5% and 7.0% growth. Still, the market is regarding China's top-line data with some skepticism given how nicely it has been meeting targets. The rather lackluster performance of the global economy translates into a benign environment for industrial prices, with the MPI expected to hold around its current level for the next few weeks. We do, however, expect some volatility in late November and early December in the run-up to an anticipated US interest rate increase on 14 December.