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December 17, 2015 - Weekly Pricing Pulse
Low prices make end-of-year buys appear attractive. Early 2016 market activity may actually produce a less-attractive pricing environment.
The commodity bears were vocal last week as markets were left disappointed by OPEC's winter meeting and prepared for a US interest rate hike. The IHS Materials Price Index (MPI) lost another 3%, which leaves the overall index just 1% above December 2008 lows.
Oil led the MPI drop this past week, falling 8.7%. Additionally, downstream oil-related pressure moved chemical prices down 5.3%. Ferrous metals also continued to hemorrhage, with another 1.4% decline. Support for the index was provided by lumber (up 5.1%), rubber (up 1.9%), pulp (up 0.9%), and nonferrous metals (up 0.9%).
At least some market observers (though not IHS) had expected OPEC hawkishness to come through in Vienna, so the decision not to cut output sent both Brent and West Texas Intermediate (WTI) plunging below $40/barrel. Steel market woes also sent iron ore prices below $40/ton for the first time since late 2007. The country-level effects of low commodity prices came as the South African rand was thumped by foreign-exchange markets, although the sharp depreciation also reflected broader political concerns. A positive spillover is that currency weakness in Russia, South Africa, and Brazil does lower cost floors for upstream operations in those geographies. The bottom line, however, is that a commodity market recovery will have to wait for 2016—2015 will end with a whimper.