Weekly Pricing Pulse: Political price premiums drive another rise in the MPI

Our Materials Price Index (MPI) increased 1.0% last week, its second consecutive gain. Price increases were widespread, with seven of the MPI's ten sub-indexes rising, while another stayed flat. Oil and nonferrous metals were among the biggest movers last week, increasing 2.6% and 2.8%, respectively; freight rates also showed strength.

Nonferrous metals surged last week amid continued fallout from US sanctions on RUSAL, the Russian aluminium producing giant. Nervousness spread to other nonferrous metals markets as buyers worried about further sanctions on Russian producers. Nickel markets were a particular casualty as prices jumped over concerns Russian producer Nornickel would be the next target of US sanctions. Meanwhile, oil markets had another strong week. OPEC ministers signalled a willingness to extend production cuts into 2019, while the May 12th deadline for President Trump to recertify the Iranian nuclear deal is fast approaching. Demand-side fundamentals are also supporting oil prices - US crude inventories declined by 1.1 MMbbl last week - but there is little doubt geopolitics have been the main driver behind oil's now two-week rally.

Data releases continued to show a healthy global economy last week, although there are some signs of growth peaking. In China, year-on-year GDP growth was flat in the first quarter, while quarter-on-quarter growth decelerated slightly. Topline industrial production numbers for March were solid in the US, but components of the index were less impressive; manufacturing production only increased 0.1% m/m. In the Eurozone, consumer confidence numbers came in a bit firmer than expected, indicating sentiment there remains upbeat. Overall, the global economy is doing well, but the outlook ahead is becoming cloudier; indeed, the geopolitical developments roiling commodity markets are contributing to that uncertainty. These heightened risks have boosted prices. The question remains, however, whether fundamentals will support further price gains this year. We believe several headwinds will make sustained increases difficult.