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October 1, 2015 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) was down 0.4% last week, continuing the post-summer "slow bleeding" pattern. We recorded some stability in oil, ferrous metals, and DRAMs, but declines of more than 2% in nonferrous metals, pulp, and lumber were enough to pull the overall index down slightly.
Moves over the past year in commodity markets represent the final phase of the so-called supercycle that dominated the last decade. (For further discussion on this topic, see the recent Financial Times article by IHS Vice Chairman Dan Yergin.) Indeed, the gloom pervading markets is spilling over into share prices. Glencore has grabbed most of the headlines recently, with their share price now down more than 30% since the beginning of September. But Alcoa has also made news, announcing it would split itself into two companies as part of its own restructuring, highlighting yet again the challenges facing commodity producers.
It is concerning that without any upside surprises we are proceeding on a declining trend. Our expectation last week was of a 1% decline, so in the end "upside" support proved to be quite modest. We expect further declines in the MPI ahead. Continuing softness in Chinese demand and a US rate hike before year end will not help commodity prices moving forward.