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April 8, 2016 - Weekly Pricing Pulse
Amid signs of improving global fundamentals, this recent dip could be a good opportunity to extract concessions.
The IHS Materials Price Index (MPI) declined by 2.8% last week on falls in both oil (-3.8%) and chemicals (-5.2%), ending the streak of six up-weeks. Oil prices declined, partly driven by remarks that Saudi Arabia also wants Iran to participate in the upcoming Doha talks - making a deal on production cuts less likely. Meanwhile, the decline in chemicals was partly associated with falls in Henry Hub natural gas in early March, when it dipped to $1.6/MMBtu.
IHS Global Insight expects that weak US GDP growth will persist into the first quarter, with growth of only 1.2%—downward revisions to January’s consumers spending are part of the story. Last week we also noted that Japanese industrial production dropped 6.2% month on month in line with expectations, a solid rebound is expected in March and April.
We've been looking at fundamental indicators for signs of commodity price support over recent weeks. On this score, both Chinese manufacturing PMI figures recorded modest improvements taking the numbers close to "expansionary" territory. Eurozone manufacturing PMI numbers also recorded an improvement in March and came out ahead of expectations on 51.6. Meanwhile, the US manufacturing PMI was largely in line with expectations on 51.5. The global manufacturing PMI ended up on 50.5 in March compared to 50.0 in February, again pointing to an improving global picture after jitters earlier in the year. This signals some tentative signs of support for prices going forward.