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January 13, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) surged in the first week of 2017, gaining 2.9%. The large increase continues the upward trend that emerged in commodity markets during the final quarter of 2016. Last week's increase was the MPI's ninth consecutive weekly gain. The index is now up 51% from a year ago.
Last week's increase was led by chemical prices, which surged 11.7%. Rubber prices also saw strong gains, increasing 4.6%. Chemical prices have been in a three-week uptrend as US natural gas prices, an important input, have jumped on cold winter weather and storage drawdowns. This is a seasonal uptick, but the strength of this week's gains is unexpected. Increasing US olefin prices also helped push the sector higher. Rubber prices had also been on a strong run in the fourth quarter, although the last two weeks of 2016 saw prices slip. However, last week rubber prices were up again as torrential rains hit production in Thailand, stoking global supply worries.
The first week of 2017 had several notable macroeconomic data releases. The Caixin Chinese manufacturing purchasing managers' index (PMI), produced by IHS Markit, advanced strongly in December, up to 51.9 from 50.9 the prior month. In the Eurozone, the European Commission's index of economic sentiment saw its fourth successive rise in December, up 1.2 points to 107.8, the highest level in nearly six years. Lastly, the US dollar retreated at week's end, further supporting the entire commodity complex. While we continue to see commodity markets overbought and therefore exposed to a pullback, the strong and broad price gains since September (and indeed since January 2016) do chronicle a real improvement global manufacturing activity.