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May 27, 2016 - Weekly Pricing Pulse
Buying opportunities may present themselves as prices appear likely to consolidate over the coming weeks.
The IHS Materials Price Index (MPI) rebounded last week, managing to eke out a 0.6% gain despite global headwinds. The main driver was the oil subindex, which posted a 6.4% gain as crude prices came very close to $50/barrel. Interestingly, the ferrous subindex did not move much despite new US steel tariffs being announced and the European Union talking up similar moves.
Despite declines in nonferrous, drams, freight, and rubber, we saw upward moves in lumber and fiber. Oil prices were critical to last week's MPI. These were driven by the ongoing Canadian wildfires that are taking 1.5 million barrels per day of production off-line in addition to further outages in Nigeria.
US industrial production provided something of an upside surprise, rising 0.7% month on month in April compared with the prior month's decline. However, the Japanese flash manufacturing purchasing managers' index for May declined to 47.6. Recent optimism regarding a stimulus-led rebound in China also seemed to fade last week, and the US Federal Reserve sent out signals that a June rate hike is very much on the table, reinforcing the dollar's recent lift. In all, these data releases typify mixed signals on the global economy. The expansion continues to be sure, but its uneven pace remains at odds with the broad-based rebound in commodity prices since January. Unless the dataflow improves, the current rally continues to look exposed to a partial rollback in the months ahead.