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August 19, 2016 - Weekly Pricing Pulse
Non-US buyers need to be aware of currency volatility as regional manufacturing costs diverge.
The IHS Materials Price Index (MPI) recorded another sizeable 2.1% boost last week, pushing the figure near a one-year high. Last week's momentum was mostly driven by chemicals and crude oil, both of which gained nearly 5%. Oil's rally marked a sharp turnaround from the declines seen in July, as markets seized on news of an informal OPEC meeting next month.
Chemical prices are also being influenced by rising natural gas prices. Soaring temperatures across most of the United States have pushed Henry Hub natural gas prices to almost $3/MMBtu, a jump of around 50% compared with early 2016. Higher feedstock costs are driving chemical prices, with the chemicals subindex now up 53% since mid-January to its highest level in more than a year. Overall, the MPI has increased 37% since its early-2016 low.
Although the direct impact of the recent Brexit vote on the MPI has been limited, the index has seen some sharp swings when measured in pound sterling. The pound’s depreciation has resulted in the sterling-based MPI experiencing a much stronger 51% increase since early January 2016, with this index now close to an 18-month high. In contrast, the Japanese yen’s appreciation against the dollar has meant that the yen-denominated index has seen an increase of “just” 18% since its low in January. Over the short term, such currency moves will translate into considerable regional manufacturing cost differences that in some instances will help maintain production.