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April 6, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) slipped 0.4% last week, reversing the previous week's gains and hitting the lowest level since early January. Last week's fall was driven by a drop in rubber and fiber prices, with each sub-index declining 3.0% and 2.6%, respectively. However, oil prices rose 2.0%, which helped trim the overall MPI's loss.
Rubber prices have been under considerable pressure in the last eight weeks, falling for all but two of these weeks. Last week prices fell further as a large build-up in global inventories continues to affect sentiment, hardening expectations for further falls. In oil markets, following four consecutive weekly declines, prices moved higher on stronger data in Asia and Europe, which outweighed concerns around the higher U.S. rig count.
Last week saw a mix of data. On the positive side, the European economic sentiment index remained close to multiyear highs at 107.9 in February. This was a slight slip from January but still near the highest level since 2011. Less positive, however, the Chinese Caixin manufacturing PMI slipped in March to 51.2, down 0.5 points from February. Although still expansionary, March's reading does show a slight loss of momentum in China's manufacturing sector as we head into the second quarter. We believe the current soft patch in the MPI will continue given a relatively strong dollar and a fading of the "Trump-rally." The key to the immediate outlook, though, remains the performance of China's manufacturing sector. If the strength evident early in the first quarter returns, commodity prices will resume their upward climb.