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April 15, 2016 - Weekly Pricing Pulse
Lack of fundamental support and profit-taking have prices pulling back.
The IHS Materials Price Index (MPI) declined again last week, falling 0.7% because of drops in oil, pulp, and both metals categories. This was the second consecutive weekly decline in the index after six straight gains. Even with declines in the past two weeks, the MPI is still up by more than 20% since mid-January.
Oil fell 2% last week on increasing concerns that the upcoming Doha talks will not yield a deal on production cuts. Iron ore prices also backed off their recent spike as the magnitude of the additional steel production cuts needed to reduce excess supplies became clearer. Nonferrous metal prices fell 1.2% largely because of a retreat in copper. Producers failed to announce the cuts traders and analysts had been looking for at the annual CESCO World Copper Summit, with prices dropping as the conference concluded.
Commodity prices enjoyed a nice rally in the first quarter that was not tied to any real improvement in fundamentals. Hence it is no surprise that there might be at least a partial retrenchment in the second quarter. IHS expects that incoming data will begin to provide this fundamental support over the next two to three months. The Chinese GDP report this week will be one such data point. We expect the data to show that Chinese GDP grew 6.6% year over year in the first quarter. While that would not necessarily be a strong report, it would show a certain stability in the Chinese economy, which markets will nonetheless find reassuring.