Our Materials Price Index (MPI) rose 2.3% last week, its first
increase since early June. The recovery in prices was narrow with
only three out of the ten subcomponents increasing. Even though the
MPI pushed higher last week, it is still 19.4% below its all-time
high established in early March and 4.3% lower than this time last
year.
A rise in energy prices pushed the overall MPI higher.
Non-energy prices were in fact down by 2.2% last week. However,
natural gas and coal both increased significantly, with the energy
sub-index climbing 12%, its biggest weekly increase since late
February in the immediate aftermath of Russia’s invasion of
Ukraine. UK spot landed prices of liquefied natural gas (LNG)
reached $44/MMBtu, up $29 for the week. US prices also increased
with Henry Hub reaching $8.60/MMBtu, a 10% gain. Prices were
reacting Russia’s announcement that it would reduce gas flows
through its Nord Stream 1 pipeline, the major source of its exports
to Europe, to 20 per cent of its capacity. This has raised fears of
widespread shortages in Europe this winter. The potential reduction
of gas supply heightened interest in alternative energy sources and
sent Australian thermal coal up $14 to $426 per metric ton, its
highest ever price. Overall, global coal prices climbed 4.9% last
week. Industrial metals also rebounded with the nonferrous metal
sub-index up 2.5%. Copper prices rose to $7,800 per tonne, having
been as low as $7,200 per tonne the previous week. Base metal
prices reacted to a slightly weaker US Dollar, the promise of
additional infrastructure spending by mainland China, and a
continuing decline in inventory.
Weaker demand expectations are still weighing on commodity
prices but last week’s rise in the MPI suggests that markets are
turning less bearish about the future. Even though US real GDP
contracted in the second quarter, according to the Bureau of
Economic Analysis “advance” estimates, traders viewed this as a
positive sign for inflation. With demand slowing, markets are now
expecting inflation to ease and interest rates to decline in 2023.
Weaker demand will remain the key influence on commodity prices in
the near term but easing goods inflation will limit the downside.
Our caution in the sanguine view of goods price inflation is that
spare capacity in energy markets and inventory in metal markets
remains low, exposing both to a potential rebound in prices should
there be any loss in supply or better than expected demand.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
