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Concerns that Chinese growth will decelerate help pop iron ore bubble

May 11, 2017 - Weekly Pricing Pulse

The IHS Materials Price Index (MPI) dropped 2.1% last week, as 8 of the 10 sub-indices fell. The MPI has now declined 11.2% from its mid-February high. Lackluster Chinese manufacturing data, coupled with moves by regulators to crack down on risky investments, are fueling concern that Chinese demand growth is set to decelerate and pushed down commodity prices.

Freight rates experienced the sharpest decline last week, falling 6.1% because of declining fuel prices and jitters about Chinese trade. Oil fell by 3.0%, its third consecutive decline as concerns of oversupply in global markets persist. Meanwhile, the ferrous metals sub-index dropped 4.5% on plunging iron ore prices. Record iron ore port stocks, Chinese steel export markets being closed off by trade actions, and concerns about softening real estate markets have combined to pop the iron ore bubble. Fiber prices came in as the strongest sector last week, rising a mere 0.4%.

Data last week were highlighted by the April purchasing managers' index (PMI) reports and fresh US employment data. April's US employment report was solid, with 211,000 jobs added. The PMI reports, though, did show some softening, with the April global manufacturing composite index inching back to 52.8 from 53 in March. Masked within this slight decline, however, was the retreat in the Caixin Chinese manufacturing index, which moved down to 50.3, close to the breakeven 50 mark. Doubts about Chinese manufacturing activity coupled with ongoing efforts to restrain credit growth are raising concerns about commodity demand in the second half of the year and undermining prices.

IHS Materials Price Index

IHS Materials Price Index

Industrial Materials: Prices

Industrial Materials: Prices

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