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February 23, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) rose 0.3% last week, extending its stretch of consecutive gains to 16 weeks. However, increases are becoming smaller, with several categories in the index now falling, in contrast to the strong, broad-based gains earlier in the current rally. Metal prices drove the MPI higher last week, with the ferrous and nonferrous metals indexes up 4.4% and 2.3%, respectively.
The ferrous metals index surged 4.4% to reach its highest level since 2014. Iron ore prices are at a three-year high, as strong Chinse demand for high-grade seaborne ore feeds a buying frenzy. Nonferrous metals were also up, with copper the main driver. Supply disruptions at the world's two largest copper mines have tightened the market and pushed prices up 3.3%.
Macroeconomic data was mixed last week. In the United States, industrial production declined month on month in January, down 0.3% on a weather-related drop in utility output. The manufacturing component of the index, however, only rose a disappointing 0.2%. Weak January retail sales in the United Kingdom fueled concerns that the anticipated Brexit slowdown is about to materialize. While fundamentals have improved in the past six months, the exuberance in commodity markets appears a bit overdone. Smaller gains in the top-line MPI, along with corrections in some of the index's subcomponents, suggest that the current rally that began back in October is finally starting to lose momentum.