VANCOUVER (miningweekly.com) – The materials price index (MPI) from Global Insight by IHS Markit fell by 0.4% last week, its third decline in the past five weeks.
While the decline was relatively modest, it was broadly based, with eight of ten sub-indexes falling – the first time since June that a majority of the MPI's subcomponents have been down in the same week, stated IHS Markit economist Cole Hassay.
Chemical prices showed the sharpest decline, falling 2.8%, though rubber prices, freight rates and the ferrous metal index all saw declines of more than 1%. Oil prices were the outlier last week, rising a relatively strong 4.2%. Declining US oil inventories and tensions in the Middle East helped drive prices higher.
"There are a number of interrelated factors behind the recent change in commodities, none by themselves particularly strong, but collectively enough to undercut some of the market's recent momentum," Hassay explained in a statement sent to Mining Weekly Online.
First, October's manufacturing purchasing manager's indices, while globally showing a continuing expansion, did post some lacklustre readings in China and in a number of other Asian economies.
Second, a subtle change in monetary policy may be starting to produce a slow drag. US interest rates have been rising for almost two years now, while in China, key long-term interest rates are up by roughly 100 basis points in the past year. Even in Europe, conditions are beginning to change, highlighted by the Bank of England lifting its Bank Rate last week for the first time in ten years.
"Finally, the US dollar has rebounded since early September, a change in currency markets that corresponds almost exactly with the recent change in tone in commodity markets. The past five weeks are still too short to constitute a trend. However, we believe the combination of slower growth in China, an end to extremely loose conditions in financial markets and stable oil prices will create a change in commodity markets during 2018, with the strong price increases that have characterised the past seven quarters ending," Hassay advised.