| Week ending July 20, 2017 |
| The overall MPI remains highly correlated with oil price changes, a continuation of a three-month trend. |
The IHS Materials Price Index (MPI) fell last week, slipping 0.7%, its first decline since the middle of June. Weakness in oil, down 1.5%, and chemicals, down 3.9%, pulled the overall MPI lower. Lumber and pulp prices were rare bright spots for sellers, up 7.1% and 2.1%, respectively.
Oil price changes have been a key driver of the MPI over the last few months, with gains and losses in the headline index reflecting the direction of oil markets every month back to April. Lumber prices climbed spectacularly last week as wildfires in Canada forced some sawmills to halt operations at a time when prices were already being pressured higher by softwood duties on exports to the United States. Our chemical index also slipped 3.9% last week, as US ethylene prices continued to drop—hitting their lowest levels since February 2016, as the US ethylene market remains oversupplied.
Last week saw several positive macroeconomic readings, so despite the fall in our headline commodity index, we do not think the market has necessarily turned negative. In the United States, the June industrial production measure gained 0.4%, following a flat reading the prior month, with mining the big driver of gains, up 1.6%. In the Eurozone, the same measure was up 1.3% for May, a third consecutive monthly gain; capital goods were the force behind the impressive headline figure. However, most eyes were on the upcoming Chinese GDP release, with the coming week's price moves likely to have been heavily influenced by the outcome here.
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| Industrial Materials: Prices |  |
| Key Prices & Demand Drivers |  |
Construction Materials and Equipment Cost Escalation Hit Lowest Level This Year
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Construction costs rose again in June, according to IHS Markit and the Procurement Executives Group (PEG). |
The headline IHS Markit PEG Engineering and Construction Cost Index registered 51.5, down from 54.0 in May, indicating less broad price increases across the industry. Both the material/equipment and labor categories continue to record higher prices. The materials/equipment price index came in at 51.3 in June, its lowest level in seven months. Price increases were uneven with only six of the 12 categories tracked in the materials sub-index showing higher prices, three categories registered flat pricing, and three had falling prices. Although structural steel and steel pipe prices have backed off from this spring’s peaks, anxiety about the pending Section 232 trade case decision continues. “Steel pipe prices have peaked for the time being and prices for certain products have started to fall,” said Amanda Eglinton, senior economist at IHS Markit. “However, there is still tightness in products such as oil country tubular goods (OCTG) and line pipe, where demand remains elevated. There is high potential for further tightening pending the outcome of the Section 232 trade case. If pipe is included in the scope of this case and imports are restricted, prices will spike again and supply will be very tight. If pipe is not included, steel pipe prices will continue to soften with lower steel input costs.”
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