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The slump in the MPI is arrested as oil markets drag index higher
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Last week the IHS Materials Price Index (MPI) gained 0.9%, its first increase in six weeks. Large increases were seen in oil prices, which jumped 4.9%, and in pulp prices, which rose 4.2% on tightening supply.
Oil markets were buoyed by the announcement that OPEC and Russia had agreed to extend their production cuts through the first quarter of 2018, not just to the end of the year. This is longer than the market had been assuming and was enough to push prices back above $50/barrel. Pulp prices, also up strongly, were driven by the commencement of the maintenance season, which has seen capacity constraints emerge. With inventory low, producers have gained the upper hand in price negotiations.
More generally, gains in the MPI chimed with weakness in the US dollar and good macroeconomic data. US dollar weakness stemmed from growing uncertainty around the Trump administration's plans for tax and regulatory reforms being enacted this year. Positive economic data included April US industrial production, which rose 1.0%, and Japanese GDP, which grew at an annualized rate of 2.2%, the first time since 2004 that GDP has grown in five consecutive quarters. Despite several strong releases last week, the environment for commodity markets appears challenging over the rest of the year. Higher US interest rates, questions about additional US infrastructure funding, and, most importantly, slowing Chinese growth point to continued volatility in the months ahead.
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For an overview of the IHS Materials Price Index, view this video.
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| Key Prices & Demand Drivers |  |
Construction Costs Rise for Sixth Consecutive Month in April
| | According to IHS Markit and the Procurement Executives Group (PEG), construction costs rose in April on price strength in materials and equipment. |
The headline IHS Markit PEG Engineering and Construction Cost Index registered 57.0 in April, the sixth consecutive month of rising prices, and up from the 53.9 reading in March.
Carbon steel pipe had the largest increase in the materials/equipment index this month when compared to March as higher steel input costs and better demand prospects pushed steel pipe prices higher. “Higher steel input costs and better demand prospects are pushing steel pipe prices higher and will cause prices to escalate further over the next several months. Pipe imports have increased in response to rising demand and they will continue to trend upward and maintain a sizeable share of the market,” said Amanda Eglinton, senior economist at IHS Markit.
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