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August 18, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) rose 2.7% last week, its sixth gain in the past seven weeks. Commodity prices have rebounded strongly since early July, with the MPI already recovering about half the losses it suffered between February and June. Last week the strongest gains were in chemical and ferrous markets, with our subindices for each up 4.4% and 4.6%, respectively.
Activity in China continues to play an outsized role on metal markets, with iron ore and steel scrap prices gaining on continued demand for ever-greater steel production. Chemical prices moved higher last week as paraxylene contract negotiations in the United States created volatility, while increasing feedstock prices were transmitted through the supply chain.
The positive tone in commodity markets right now is being driven by a combination of improving in economic conditions and a softening US dollar. Last week, however, there was no such good news, rekindling worries that markets may be a little too exuberant. In Germany, for instance, industrial production in June fell by 1.1%, pushing annual growth to just 2.5%, the weakest level since March. Similarly, in India, industrial production grew just 0.1% in June, weakening sharply from May.
Looking into 2018, our caution about commodity markets is not to extrapolate from recent performance. The combination of slower Chinese growth, lower oil prices, and tighter financial markets suggests that it will be hard for prices to maintain their current momentum.