MPI declines again as oil signals a possible recovery
September 3, 2015 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) recorded another large 3.6% decline last week, on the back of the widespread declines in almost all indicators, with a 20% plunge in freight rates standing out.
Attention is once again focusing on oil, with Brent presently hovering above $50/bbl. What was a bearish mood only a few days ago saw a sharp turnaround late last week on a set of events: Shell declared force majeure on Nigerian shipments, OPEC stating its commitment to "fair and reasonable prices," and the June US oil production report showed output dropping.
The 'hope' of better commodity market news still faces Chinese headwinds. The official Chinese PMI fell to 49.7 in August--its first contraction since February and a reminder that the kind of strong emerging-market growth that supported demand for the past decade will not be present going forward. For the coming week, our baseline expectation is another 2.2% decline in the MPI, as the lagged effect of lower oil continues to migrate to other sectors. However, recent oil market developments hint at stabilization in commodities, which will provide stronger MPI support going forward.
Industrial Materials: Prices - Week of 3 September 2015
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