| Week ending August 18, 2017 |
The spring correction looks to be well and truly behind us
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The IHS Materials Price Index (MPI) rose 2.7% last week, its sixth gain in the past seven weeks. Commodity prices have rebounded strongly since early July, with the MPI already recovering about half the losses it suffered between February and June. Last week the strongest gains were in chemical and ferrous markets, with our subindices for each up 4.4% and 4.6%, respectively.
Activity in China continues to play an outsized role on metal markets, with iron ore and steel scrap prices gaining on continued demand for ever-greater steel production. Chemical prices moved higher last week as paraxylene contract negotiations in the United States created volatility, while increasing feedstock prices were transmitted through the supply chain.
The positive tone in commodity markets right now is being driven by a combination of improving in economic conditions and a softening US dollar. Last week, however, there was no such good news, rekindling worries that markets may be a little too exuberant. In Germany, for instance, industrial production in June fell by 1.1%, pushing annual growth to just 2.5%, the weakest level since March. Similarly, in India, industrial production grew just 0.1% in June, weakening sharply from May.
Looking into 2018, our caution about commodity markets is not to extrapolate from recent performance. The combination of slower Chinese growth, lower oil prices, and tighter financial markets suggests that it will be hard for prices to maintain their current momentum.
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| Industrial Materials: Prices | |
| Key Prices & Demand Drivers | |
Construction Materials and Equipment Cost Escalation Hit Lowest Level This Year
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Construction costs rose again in June, according to IHS Markit and the Procurement Executives Group (PEG). |
The headline IHS Markit PEG Engineering and Construction Cost Index registered 51.5, down from 54.0 in May, indicating less broad price increases across the industry. Both the material/equipment and labor categories continue to record higher prices. The materials/equipment price index came in at 51.3 in June, its lowest level in seven months. Price increases were uneven with only six of the 12 categories tracked in the materials sub-index showing higher prices, three categories registered flat pricing, and three had falling prices. Although structural steel and steel pipe prices have backed off from this spring’s peaks, anxiety about the pending Section 232 trade case decision continues. “Steel pipe prices have peaked for the time being and prices for certain products have started to fall,” said Amanda Eglinton, senior economist at IHS Markit. “However, there is still tightness in products such as oil country tubular goods (OCTG) and line pipe, where demand remains elevated. There is high potential for further tightening pending the outcome of the Section 232 trade case. If pipe is included in the scope of this case and imports are restricted, prices will spike again and supply will be very tight. If pipe is not included, steel pipe prices will continue to soften with lower steel input costs.”
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