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November 18, 2016 - Weekly Pricing Pulse
Divergence between energy sectors and metals continues during the week when the US election is digested by markets.
The IHS Materials Price Index (MPI) rose just 0.3% last week despite continued and intense volatility in several sub-indices. Oil continues to fall, down 3.1%, while chemicals collapsed 8.2%, dropping for the eighth consecutive week. Again, weakness in energy markets was offset by strong gains in metals, with the ferrous index up 9.1% and base metals rising 5.0%.
For a second successive week a relatively steady headline MPI masked severe underlying volatility. Metals markets are enjoying a stellar run, with our ferrous index up 18% in just two weeks, with iron ore jumping to its highest level since late 2014. Nonferrous metals are also in a strong uptrend, buoyed last week by the prospect of increased infrastructure spending in the United States following the election of Donald Trump. The plunge in chemical prices reflected further declines in US natural gas prices. This weakness in natural gas is a seasonal artifact of storage, which hit an all-time high of just more than 4 trillion cubic feet during the first week of November.
Last week was quiet regarding notable macroeconomic data, with market direction dictated by reaction to the US election. September's German industrial production came out below expectations, dropping 1.8% month on month, bucking the recent positivity in European output measures. Chinese producer prices were forced higher in October, up 0.7% on September, driven by rising metal and coal costs. We continue to see a fairly flat MPI in the weeks ahead, with commodity prices actually dipping slightly on seasonal weakness and the profit-taking and portfolio reallocations that are likely to emerge in the approach to a December increase in US interest rates.
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