Our Materials Price Index (MPI) fell 3.5% last week, with seven
of the ten sub-components declining. Markets are growing
increasingly anxious about global growth, particularly in mainland
China, and continued aggressive monetary tightening in western
economies. This sparked the second weekly decline in the MPI and
leaves the index at its lowest level all year.
The commodity market sell off continued last week with only
chemicals and pulp recording price increases. Volatile natural gas
prices in Europe and Asia have been a feature of commodity markets
in the past year and last week was no exception. The MPI’s energy
sub-index declined 7% as Asian spot landed prices of liquefied
natural gas (LNG) fell to $40/MMBtu, down $11 for the week
following a $21 drop the previous week. European prices also dipped
to $55/MMBtu, a 14% drop. Prices were reacting to progress in the
European Union efforts to intervene to reduce electricity prices
and that natural gas storage levels in the bloc have already
reached 83% against an 80% October target. Oil prices also dropped
last week on global growth fears despite an announcement by OPEC+
that it was reducing supply. OPEC+ agreed only to an insignificant
downward supply tweak that will take away in October the 100,000
b/d it nominally added in September. However, the weaker demand
environment was of more concern to traders and sent prices of Brent
Crude, the international benchmark, below $90/barrel for the first
time since January.
Prospects for slower demand continue to weigh on commodity
prices, with central bank action last week further harming market
sentiment. The European Central Bank (ECB) raised interest rates by
75 basis points reflecting acute concerns over persistent upward
surprises on inflation, broad-based current pressures, and a
potential upward shift in inflation expectations. The Bank of
Canada also raised its policy rate 75 basis points last week in the
face of still-high inflation, with core inflation rising. A strong
US Dollar was another factor in last week’s price slide across
commodity markets. Although supply-side risks in energy markets and
low inventory in some metals have the potential to trigger prices
increases later this year, commodity prices have peaked. Even more
encouraging, this change upstream in supply chains is migrating
downstream into intermediate material and component prices and
foretells a slowdown in goods price inflation into 2023. How
quickly this change in goods price inflation translates into lower
consumer price inflation remains an open question, however.
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.
