IHS Materials Price Index jumps to 18-month high; emergent weakness to undermine momentum
VANCOUVER (miningweekly.com) – Analytics firm IHS Markit reports that its Materials Price Index (MPI) rose for a sixth consecutive week, increasing 1.4% to hit a fresh 18-month high.
Global Insight Pricing & Purchasing senior economist Ben Orhan pointed out that ferrous metals once again drove the index higher, gaining 3.3%. However, rubber provided the largest boost by jumping 10.6%, capping off two months of continuous gains.
The analyst warned that weaker fundamentals in the coming months might undermine price momentum.
“Commodity prices are beginning to look rich given US dollar strength, a position that looks even more exposed should the Fed become more aggressive in lifting interest rates in 2017,” Orhan noted in a news release.
The US Federal Reserve last week raised the benchmark interest rate to 0.75%. Orhan pointed to the Federal Reserve also having voiced a potentially faster path for normalising interest rates, informing IHS Global Insight’s forecast for three rate increases in 2017.
Orhan said rubber's exceptional increase last week was on the back of buoyant Chinese car sales data, which lifted expectations for tire demand, albeit with the slight reversal of a 2016 car sales tax cut likely to weigh on demand from 2017. As has become customary in the last few weeks, both oil and ferrous also gained, with oil enjoying a strong run following widespread production cut announcements, the analyst explained.
IHS also noted Chinese industrial production for November increasing 0.5% on the prior month, maintaining an annual growth rate of just above 6%. On the negative side, US manufacturing for November slipped 0.1%, as declines in autos pulled the measure lower.
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