Commodity prices, as measured by the IHS Materials Price Index (MPI), fell 4.7% last week, in yet another large broad-based retreat tied to the deepening global recession. The MPI is now down 22.1% from the start of the year with no sign of a bottom forming.
Nine of the MPI’s ten sub-components declined last week. Chemicals, fiber, and rubber were the biggest movers, all falling more than 8% week-to-week. Benzene prices, which are heavily influenced by moves in crude oil, plunged 29%, driving a 10.9% decline in the MPI’s chemicals sub-index. Oil prices fell another 9%, but the energy sub-index declined only 2.0% thanks to nearly flat natural gas prices and an increase in coal prices. Both cotton and polyester prices fell by at least 8.0%, sending the fiber sub-index sharply lower. Plunging car sales and worldwide cuts in auto production triggered an 8.5% decline in natural rubber prices as a fungal disease threatens production in East Asia. Nonferrous metal prices declined 4.1% for the week with all six base metals in the sub-index falling. Lumber prices were the one exception to the rout in commodity prices last week, rising 0.3% in a dead cat bounce -- prices have fallen more than 30% in the previous four weeks even though US mortgage rates are at historic lows.
Data releases are now beginning to document the severity of the downturn on a global scale similar to China during January and February. Outside of China, virtually every market in every country is now recording a historic downturn. Even the reboot of the Chinese economy is being hampered by waves of cancelled export orders as the pandemic brings the rest of the global economy to a halt. Although production cuts should begin to put a floor under prices ‘soon’, a substantial downside remains. The MPI, for instance, is still 18% above its previous cyclical low of January 2016, when conditions were not anywhere near as dire as they are now.
