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November 4, 2016 - Weekly Pricing Pulse
Energy markets continue to drag down the MPI, as gains for metals and lumber fail to arrest overall slide.
The IHS Material Price Index (MPI) fell 1.2% last week, its seventh decline in the past nine weeks. Weakness in the oil, chemical, and freight subindexes pressured the headline index lower. Indeed, the chemicals subindex has now fallen for six consecutive weeks, the longest stretch of declines since August 2015.
The overall MPI is also seeing downward pressure from energy markets as oil steadily slips—Brent crude is now back below $50/barrel following a strong uptick in early October. The October rally in oil markets has vanished as OPEC members fail to agree how to put in place a deal to limit production. Positive price moves were seen last week in metal markets, but these relatively modest increases were not enough to counter declines in energy and chemical markets, which are now firmly dictating the direction of the index.
Data for the week centered on the flash IHS Markit Purchasing Manager Index (PMI), which came in uniformly positive, and US GDP data for the third quarter, which surprised on the upside. Collectively, the flash PMI reports show manufacturing activity gathering some strength as the year ends, a welcome change from the sector’s lackluster performance over the year to date. Other good news came from the preliminary US third-quarter GDP report, which showed growth at 2.9%, the fastest pace in two years. Despite the rosy economic news, we expect the MPI to experience a fairly benign environment over the coming weeks, slipping further as commodity prices begin to show seasonal weakness and experience volatility in the run-up to an anticipated year-end increase in US interest rates.