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October 21, 2016 - Weekly Pricing Pulse
The recent dollar strength is beginning to hamper Chinese imports, with price growth slowing, one should buy as needed.
The IHS Materials Price Index (MPI) broke out of a month-long downtrend to record a 0.9% uptick last week. Optimism in oil markets, up 1.9%, coupled with strong gains for ferrous metals and a 4.3% surge in DRAM prices offset weakness in the nonferrous sector.
Since OPEC announced its "in principle" production agreement last month, global oil prices have rallied strongly. The past week saw a deceleration in oil prices, following a near double-digit surge the prior week, as price gains reach the zenith on current announcements. Steel markets also experienced a positive week as iron ore gained on the back of forecasts for unusually strong weather patterns off the coast of Western Australia—the largest production center—raising the prospect of constrained supply. However, the largest gains this week were in DRAMs, which also saw strong upward revisions for previous weeks. Indeed, manufacturers have been transitioning capacity away from PC to mobile and server applications and, the resulting difficulties associated with large-scale product transition—especially in demand forecasting—has seen prices more volatile than usual.
More broadly speaking Eurozone industrial production, announced last week, had a stellar August. Excluding construction, output was up 1.6% on the prior month, more than double the market consensus, driven higher by strength in the four largest Eurozone economies. Conversely, the US dollar posted its largest weekly gain in more than seven months against the euro after strong US retail sales and producer prices data for September reinforced expectations the Fed would raise interest rates in December. Additionally, following a deterioration in September’s Chinese import figures, commodity prices could face headwinds if import demand weakens further.