Our Materials Price Index (MPI) rose 2.0% last week, with six of
the index’s ten sub-components increasing. This was only the second
weekly increase since the start of April and followed three
successive weekly declines. This recovery in prices is at odds with
the general pessimism running through markets as interest rates
rise and global growth prospects recede. Even though the MPI has
pushed higher in the last two weeks, it is still 12.7% lower than
the all-time high established in early March.
A broad rise in energy prices pushed the overall MPI higher last
week. Non-energy prices were in fact down by 0.6% last week.
However, coal, oil and natural gas all increased, with the energy
sub-index climbing 9.8%, its biggest weekly increase since late
February in the immediate aftermath of Russia invading Ukraine.
Global coal prices remain at record highs with logistical issues in
Europe stemming from low water levels in the Rhine the latest
problem to impact the industry. This coincided with India scrapping
import duties on coking coal to help domestic industry, which
provided further support for prices. Oil prices also showed
strength last week with Brent Crude, the international benchmark,
reaching $114 per barrel up from $102 the week before. Prices
jumped on news that mainland China plans to fully re-open the city
of Shanghai on the 1st of June following several weeks of strict
lockdowns. This optimistic tone did not extend to lumber markets,
as US lumber prices recorded the second largest weekly decline in
history, falling 23.7%. Prices fell to $734 per thousand board
feet, the lowest in six months, as house sales slowed due to higher
mortgage rates and soaring prices.
Equity markets briefly entered bear market territory last week
with selloffs on a similar scale to the immediate aftermath of
global COVID-19 lockdowns. This benefited commodity prices as
investors sought to limit losses on stocks. Lower COVID-19 case
numbers in mainland China also boosted sentiment among traders.
However, fundamentals do not support a sustained increase in
commodity prices at this point. Global growth is showing signs of
slowing. Coupled with tighter financial markets and an eventual
easing of supply bottlenecks, commodity prices should retreat, not
increase over the next year. The caution in this optimistic view of
commodity markets is that unwinding the cost pressures built up
over the past two years in supply chains will take some time.
Inflation is peaking now, though its decline may prove painfully
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.