VANCOUVER (miningweekly.com) – The Materials Price Index (MPI) from Global Insight by IHS Markit has fallen back to levels at which it started the New Year, as a return of volatility shook markets again last week, dampening appetites for risk and souring the exuberant mood that has prevailed this year.

The MPI plunged 3% last week, marking a second week of sharp declines. IHS advised that five subindexes drove the index lower, including chemical and oil prices, which saw the biggest decreases, falling 9.3% and 4.5%, respectively.

"In oil and chemical markets, risk aversion paired with climbing supply levels caused price levels to plummet. The US Energy Information Agency reported US inventory builds across the board last week, with crude oil, gasoline and diesel stocks all rising; two days later, the Baker Hughes rig count shot up by 22, further pushing down crude prices," IHS Markit economist Cole Hassay commented.

The decline in oil prices pushed downstream to chemical markets, where fundamentals are already creating price weakness, according to the analyst. Falling chemicals demand on the back of derivative production shutdowns, is putting downward pressure on the chemical complex, while climbing propylene inventory and easing feedstock costs for ethylene are adding to the pressure.

Hassay noted that data releases were mixed last week.

In China, inflation reports showed slowing year-on-year inflation, with food, transportation, and communication price escalation decelerating. In the US, the PMI Services Index came in at a moderate 53.3; slowing output is behind the moderation, but job growth and order backlogs are continuing to show strength.

The Eurozone remains a bright spot with the PMI Composite for January, coming in at 58.8, its highest reading since June 2006.

"The retreat in commodity markets does not signal weakness in the global economy; indeed, the outlook remains bright. But we feel a combination of factors – slightly slower growth in China, higher interest rates, and flat or slightly lower oil prices – will work to check further strong increases in commodity prices. In the past two weeks, two of these three factors have been in evidence," according to Hassay.