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December 10, 2015 - Weekly Pricing Pulse
Despite continuing weakness, low prices and high volatility means this is good time to lock in favorable terms.
The renewed global commodity downturn has once again been confirmed by our Materials Price Index (MPI). We saw another significant 2.5% drop for last week—driven by oil, chemicals, ferrous metals, and freight. Despite the pause around the US Thanksgiving holiday, the index seems to be back on a downward trajectory with further weakness ahead to year end. We are now only 3% above December 2008 lows.
Last week's OPEC meeting actually ended up abandoning reference to the 30 million barrels per day (MMb/d) production ceiling—a symbolic gesture that nonetheless further fuels bearish sentiment. The somber commodity mood was also reinforced by BHP Billiton's pessimistic outlook on iron ore prices. And finally, the US employment report for November all but guarantees a US rate hike next week.
Looking ahead, we are modestly optimistic for 2016. A slow acceleration in growth among the advanced economies, stabilization in China, and easing recessions in Russia and Brazil suggest some support in commodity markets. This view also makes current prices look attractive. Our caution is that light trading volume through early February because of the holiday season will accentuate volatility, making it difficult to get a clear read on markets for the next eight weeks.