Weekly Pricing Pulse: Soaring Natural Gas Offsets Weak Commodity Prices

Our Materials Price Index (MPI) rose 2.9% last week, marking consecutive weekly increases of nearly 3% for the first time since early March. However, the rally in prices was almost entirely driven by the energy component, with seven of the index’s ten sub-components either declining or flat. Even though the IPM jumped sharply last week, it remains 15.5% below its all-time high set in early March.

Energy prices pushed the overall IPI higher again, posting a 9.8% increase just one week after a 14% jump. Prices excluding energy were indeed down 1.2% last week and are down 31% since the first week of March. Natural gas was again the main contributor as strong demand in Europe, amid uncertain supply, and Asia, facing a heat wave, drove up liquefied natural gas spot prices (LNG) at $70/MMBtu. Reflecting the stark contrast between energy prices and other commodity prices, the gap between the overall IPI and the non-energy IPI is at an all-time high, dating back to 1996. On the opposite end of the spectrum, lumber prices fell 10.9% last time. week as US housing starts and permits continue to decline. The freight rate sub-component also fell significantly last week as demand for iron ore imports from mainland China cooled. The Freight Index is a four-week rolling average of the rates of vessels transporting minerals from Australia and Brazil to mainland China. The subcomponent has declined in 11 of the past 12 weeks.

IPM Materials Price Index Chemical and ferrous prices

Many macroeconomic factors point to downward pressures on industrial materials prices, with energy being the wild card. Last weekend, central bankers reinforced their commitment to fighting inflation, suggesting that financial conditions will continue to tighten through 2023 and will remain tight for much of next year, which thwarts investors. market hopes that conditions could begin to ease as early as next spring. Mainland China’s economy also continues to weaken due to the ongoing containment measures under the “zero-COVID” policy. Additionally, policymakers are signaling that they are willing to sacrifice growth in order to maintain zero-Covid policy due to public health concerns. In Europe, energy shortages and soaring prices threaten to push the Eurozone into a recession in the fourth quarter of 2022. Despite the rise in the MPI over the past two weeks, with central banks aggressively tightening financial conditions, slowing global economic growth and supply chains easing, inflation peaking.

Movement of the Materials Price Index IPM due to macroeconomic factors

Posted on Aug 31, 2022 by Thomas McCartinSenior Economist, Pricing & Purchasing, S&P Global Market Intelligence

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.

About Mallory Brown

Check Also

Dow drops 300 points as traders fret over FedEx warning, Wall Street heads for big weekly loss

Stocks fell on Friday as Wall Street headed for a big losing week, and traders …