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May 18, 2017 - Weekly Pricing Pulse
Commodity prices are continuing their retreat, with the IHS Materials Price Index (MPI) dropping 2.1% for a second consecutive week. The MPI is down in seven of the last eight weeks and nine of the past eleven weeks, a sharp change from the optimism that powered markets between November and January. Weakness in the MPI was also again broad-based, with all but one of the MPI's subindixes registering a fall.
Steel markets were the point of weakness last week, with the ferrous subcomponent of the MPI dropping 5.3%. Iron ore prices continue to slump on excessive inventory in China and worries around end-market steel demand. Further weakness was also found in the rubber subindex, which slipped 3.4% and is now down 27% from its recent February peak as supply loosens significantly.
The dour mood last week was highlighted by weaker industrial production readings in several regions. In Germany, the industrial production measure for March fell 0.4% on the month, with weakness in capital goods particularly sharp. Indeed, March industrial production for the whole of the Eurozone fell 0.1%. In China, industrial production expanded at a robust 6.5% rate year on year (y/y) in April, but this was a full percentage point lower than in March. Moreover, tightening credit markets signal a further slowdown ahead and are raising concerns about commodity demand in the second half of the year.