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August 05, 2016 - Weekly Pricing Pulse
Markets remain unsettled for the third quarter, suggesting a wait-and-see buying strategy of spot purchases.
The IHS Materials Price index declined 1.3% last week on the back a continuing slide in oil prices, which dipped to below $45/barrel. Oil prices have now fallen for five straight weeks, and are back to April levels. We also witnessed a fairly sharp 2.0% fall in chemicals, while nonferrous metals ended up 1.1% lower. Freight and rubber prices also declined. Steel prices recorded the only notable gain, rising 1.0%.
Background data for last week was varied. US second-quarter GDP growth came in at a disappointing annualized rate of just 1.2% (although much of the weakness was in inventories, which is likely to be a positive for the third quarter). In contrast, year on year (y/y) Eurozone growth in the second quarter came in at 1.6%. The United Kingdom posted an even better 2.2% y/y growth rate in the second quarter, confirming that Europe's economies still had some momentum ahead of the Brexit vote. July’s Purchasing Manager Index reports for manufacturing activity were equally mixed, but did show some general improvement: China and the United States advanced; the Eurozone showed activity still expanding but at a slower pace; and conditions in the United Kingdom, Japan, Korea, and Russia appeared to deteriorate or were soft.
The trajectory for oil prices has turned quite strongly negative over recent weeks. Given the absence of any uniform lift in global manufacturing activity, oil’s recent weakness could be a harbinger of another round of choppy commodity price movements that characterized market behavior between April and June.