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September 09, 2016 - Weekly Pricing Pulse
Shipping bottlenecks could provide further near-term support to MPI.
The IHS Materials Price Index (MPI) finally pulled back last week by 0.3%. This breaks a four-week streak of increases, though it did little to undo the previous 7.4% cumulative gain. The week's decline was broad based, with all commodities except chemicals, freight, and rubber ending down. The chemicals index would have been boosted by US natural gas prices once again pushing towards $3/MMBtu. The significant increase in freight rates was also interesting in light of Hanjin's bankruptcy. While global shipping markets have seen persistent overcapacity, there was much anxiety late last week that the bankruptcy could result in route-specific short-term price spikes. However, perhaps the biggest knock-on effect will be on supply chains and operational disruptions. Delivery problems/bottlenecks could also put upward pressure on certain commodities.
Last week also saw some soft Markit Purchasing Managers' Index (PMI) numbers. The Eurozone manufacturing figure remained in expansionary territory, although it decelerated in August compared with July. US and Chinese manufacturing PMIs meanwhile also weakened. This came in addition to a disappointing US employment report, which helped to push back Federal Reserve rate-hike expectations to December (in line with the IHS view). The global manufacturing PMI has been disappointing but is still off its lows from earlier in the year.
Looking ahead, Russia and Saudi Arabia will create a "working group" to foster greater cooperation in crude oil markets, according to an announcement early this week. This could drive up crude benchmarks given recent volatile short-term expectations, notwithstanding the lack of concrete action. Additionally, some commodities may get an extra boost from global shipping disruptions if buyers show a willingness to pay up in order to avoid temporary shortages.