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July 29, 2016 - Weekly Pricing Pulse
The MPI buildup is continuing despite global headwinds; this signals that price concessions should start being sought.
The IHS Materials Price Index (MPI) jumped up by 2% last week. While there was another contraction in the oil subindex, driven by ongoing concerns about global excess stocks of refined products, the overall index was boosted by chemicals, which booked a 6.5% gain at a time when North American natural gas prices have shot toward $2.8/million Btu compared with the $2 levels seen in late spring.
It is notable that with this most recent gain, the index now appears to have broken out of the 2.1–2.2 range seen since early April. The overall figure is now at its highest level since October 2015, despite global demand side headwinds such as the Brexit fallout and lingering concerns about China, not to mention typically thinner summer activity.
Furthermore, flash Markit PMI figures from last week signaled that the post-Brexit slowdown did initially have a sharp impact on the United Kingdom, whereas the impact on the broader Eurozone economy was more attenuated. The UK manufacturing measure deteriorated sharply to 49.1 compared with 52.1 in June, while the Eurozone manufacturing number declined to 51.9 compared with 52.8 in June. If this trend continues, the Brexit fallout may prove to be more limited for global industrial commodity prices. Interestingly, the US flash Manufacturing PMI indicator came through at 52.9 compared with June's 51.3—this is a sizable improvement. Furthermore, the MPI may find some extra strength as we move into August, driven by the ramp-up in autumn contracts.