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December 16, 2016 - Weekly Pricing Pulse
Oil and ferrous gains push MPI higher for sixth consecutive week.
The IHS Materials Price Index (MPI) surged to an 18-month high this past week, gaining 4.3%. Once more it was oil and ferrous metals that propelled the index higher, gaining 7.5% and 6.8%, respectively.
Oil continued higher last week as news emerged that OPEC's production agreement is complemented by a commitment by non-OPEC producers to also enact production cuts. Ferrous markets have been gaining strongly for several weeks, as iron ore and metallurgical coal rallied. Last week steel scrap prices reacted, following ore and coal, boosted by growing substitution from virgin steel production.
There were numerous positive macroeconomic announcements last week to aid the strong supply-side news. The Eurozone composite purchasing managers' index rose further in November, up to 53.9, an 11-month high, as new business expanded and backlogs continued to grow. In China the November producer price index showed further upward price pressure, with gains of 1.5% on the prior month, significantly adding to manufacturing input costs. This said, prices look exposed to a correction. Dollar strength with US interest rates rising would seem to make commodity markets ripe for year-end profit-taking.
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