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February 16, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) rose once more last week, up 0.8%, continuing the strong uptrend of the last 15 weeks. The main drivers of last week's increase were lumber and chemicals, up 14.5% and 2.3%, respectively. However, in contrast to the uniform increases seen recently, several categories in the index fell last week: oil, ferrous metals, rubber, and freight. Shipping costs slipped 4.3%, their second consecutive weekly fall.
Lumber markets have gained strongly over the last three weeks, up 26% over the period. Gains have been driven by the "emotion and confusion" regarding potential duties on Canada's softwood exports to the United States. Prices have been reacting to higher demand and a reduction in shipments amid a potential trade dispute. For chemicals, prices are being driven by increased input costs. However, gains have been diminishing as lower input costs begin to feed through. Moderating oil prices may check chemical prices in the weeks ahead.
Last week's macroeconomic data were mixed. German industrial production for December dropped 0.6% year on year, with declines across all major production categories. In Japan, producer prices increased 0.5% in January. Year-on-year prices are now up for seven consecutive months as higher commodity prices and a strong US dollar drive input costs higher. The current commodity price rally, which started back in September, has now run 15 consecutive weeks. While fundamentals are improving, the near-four-month rise in prices has been almost too good. It will be interesting to see if commodity markets can maintain their momentum in the aftermath of the Chinese New Year holiday. Continued strength into the second quarter would begin to suggest a stronger fundamental picture for 2017.