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April 20, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) rose 0.3% last week, its first rise since late March, although markets were jittery. Lumber and freight rates were a source of strength, rising 7.2% and 10.6%, respectively. Oil and chemical prices also rose, marking a change from recent weeks. Metals were a source of weakness, with the ferrous index dropping 4.0% and the nonferrous metals index down 2.4%.
Anxiety was a key feature in lumber markets, as US buyers scrambled to make purchases before anticipated duties are levied on Canadian lumber imports. This anxiety has led to skyrocketing lumber prices for the second straight week. Oil prices firmed with the market looking closer to balance. In iron ore markets, high inventory and unsustainable Chinese steel production levels are putting downward pressure on prices.
Data releases last week contained a mix of good and bad news. The US consumer price index for March saw a decline of 0.3% month to month (m/m), contrary to expectations of no change occurring. The University of Michigan Consumer Sentiment Index rose last month, although good consumer sentiment readings are not translating into higher spending—retail sales declined in March. The Chinese economy, the engine of commodity demand, grew at an annualized 6.9% rate in the first quarter as industrial sector growth accelerated, marking the fastest pace since 2015. This mix of data, however, was overshadowed by rising geopolitical tensions, which saw safe-haven assets perform well, in contrast to commodities with their higher risk profile.
We expect this risk off pattern to continue for a few more weeks, presenting a challenging environment for the commodity complex into May.