Commodity markets extend rally, with gains across the board
February 2, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) surged again last week, rising another 3.4%, its 12th consecutive weekly gain. Last week's advance was driven by chemicals, which rose a strong 9.4%, and by rubber and DRAMs, both of which increased 2.8%. While these three sub-indexes showed particular strength, every component of the MPI increased as US dollar weakness and a general optimism contributed to broad commodity price strength.
Chemical prices have rocketed 40% higher since the beginning of December, gains largely driven by increasing feedstock costs, as natural gas prices have jumped on strong seasonal heating demand in the United States. DRAM prices have been slowly gaining ground over the last two months, rising 18% since the beginning of December. Indeed, DRAMs are experiencing supply bottlenecks, leading to strong price escalation, as seasonal mobile demand leaves little capacity for personal computer and server applications.
Macroeconomic data released last week were mixed. In the United Kingdom, fourth-quarter GDP remained robust at an annualized level of 2.2%, as strong gains in consumer spending helped buoy the economy. In the United States, fourth-quarter GDP growth slowed to 1.9%, but only because of slower agricultural exports. The good news in the US report, however, was that both business capital spending and housing investment showed signs of life, meaning that the US economy will keep growing at a decent clip in coming quarters. The Chinese New Year Holiday should bring a lull to markets this week. The interesting question is what happens when trading returns to normal in February. While commodity markets seem to have too much optimism priced in right now, they are also carrying a good deal of momentum that could push prices higher still in the weeks ahead.
IHS Materials Price Index
Industrial Materials: Prices
Key Prices & Demand Drivers