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March 2, 2017 - Weekly Pricing Pulse
The IHS Materials Price Index (MPI) fell for the first time in more than four months last week, down 1.1%, breaking its longest-ever positive run. This decline had looked imminent for several weeks and was eventually driven by large falls in the chemical and rubber sub-indices, which fell 4.9% and 9.5%, respectively.
The long-awaited decline was fairly strong, with only 3 of the 10 sub-indices gaining last week. Our chemicals index was driven lower by a near 15% fall in ethylene prices as supply remains ample with minimal outages and demand less robust than expected. Rubber prices were also sharply lower as the Thai government, taking advantage of high prices, sold off inventories, flooding the market with ready supply.
Last week's macroeconomic releases provided downward pressure for commodity prices. Minutes from the Federal Reserve meeting three weeks prior indicated a further interest rate hike would be appropriate "fairly soon", strengthening the dollar—a negative for commodity prices. The US February Flash Manufacturing Purchasing Managers' Index came in at 54.3, still in expansionary territory but a slowdown on the prior month. Alongside these recent announcements, the continued slowdown in the Chinese property sector is a serious concern, one that will add further downward weight on commodity prices if the recent softening persists.