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Our Markit Materials Price Index (MPI) rose 0.3% last week,
following on from a 1.4% increase the previous week. This is the
first time the MPI has increased for two consecutive weeks since
March. However, commodity markets are currently gripped with
uncertainty; demonstrated by the fact that only four of the ten
subcomponents in the MPI rose last week. The general direction of
commodity prices has been down over the past three months with the
index now 12% lower than its all-time high established in early
March.
Chemical and steel prices were the two largest upward movers
last week. The chemical sub-index increased 5.2%, its biggest
weekly rise since early March which was the immediate aftermath of
the Russian invasion of Ukraine. The fallout from the
Russia-Ukraine war, and the associated sanctions placed on crude
oil products, were the major reason behind the rise in chemical
prices last week. Benzene is a co-product of petroleum, so the
recent rise in the Brent oil price above $120/bbl has sent global
benzene prices to an all-time high. Asian benzene was up by
$120/metric ton last week, the joint highest weekly increase ever
recorded. Higher chemical costs have also driven up our fiber index
in recent weeks. Polyester prices are at levels not seen since
December 2018 as feedstock costs soar. In metals markets, the steel
making raw materials sub-index increased 3% as the price of iron
ore breached $140/tonne for the first time in over a month. Traders
were reacting to continued easing of COVID-19 restrictions in
mainland China with Beijing authorities announcing the resumption
of public transport in most districts.
US equity markets suffered their worst week since January as the
latest US inflation data showed elevated and more persistent
consumer price pressure. The US equity market, as measured by the
S&P 500 index, has now fallen in nine of the last ten weeks. US
CPI inflation rose to another 40-year high in May. The 12-month
change in the CPI increased 0.3 percentage point to 8.6% in May,
the highest since December 1981. Inflation is unacceptably high,
unemployment unsustainably low, and inflation expectations have
crept above the Fed's long-run 2% objective. In addition, the
European Central Bank meeting last week heralded an unprecedented
signalling of successive policy rate hikes at its next two
meetings, including increases potentially larger than 25 basis
points at the latter, highlighting the central bank's heightened
concerns over persistent, exceptionally high inflation and related
risks. IHS Markit believes the data will soon show a peak in
inflation, though its retreat over the next year may prove to be
painfully slow. The looming threat, however, is in energy markets
where growing physical tightness over the next six months may
trigger record oil prices by year-end.
Posted 15 June 2022 by Michael Dall, Associate Director, Pricing and 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.
