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MPI recovers with oil boost, but headwinds remain

September 10, 2015 - Weekly Pricing Pulse

The IHS Materials Price Index (MPI) recorded a turnaround last week, rising by 3.3%. This is the first increase since 13 July and the biggest gain since 1 June. Most major commodities were up, but the spike in oil was extraordinary, shooting up by almost 13%. There were also sizeable increases in freight (up 10.6%), the ferrous index (up 5.1%), and nonferrous metals (up 3.5%).

It is unlikely that such a large swing in commodity prices was due to shifting fundamentals alone; instead market discourse is centered on "expected" fundamentals with the accompanying uncertainty creating enormous volatility. Time will tell whether it is supply/demand fundamentals or "expectations" that will need to adjust, especially given questions about China.

It is also important to remember that last week's bounce took place on a light calendar. The United Kingdom, United States, and China all had market holidays, while the European Central Bank's dovish tone on more possible quantitative easing (QE) boosted markets. And over recent days oil has taken a beating, with Brent dropping back below $50/barrel, which could stall this recovery trend. Notwithstanding possible headwinds, we're expecting a flat MPI for next week, with the index possibly getting some support from lagged oil effects on downstream sectors.

IHS Materials Price Index

Industrial Materials: Prices - Week of 10 September 2015

Industrial Materials: Prices

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