The last month has been a mixed one in regards to price moves in comparison to the strong, broad-based gains of the previous month. Rubber and iron ore saw the largest price declines in October, with both sliding around 12% on a monthly basis. Upside was limited, with just transport prices getting anywhere near double-digit gains, up 9.4%.

Shortages, what shortages?

The previous report was largely driven by strong price gains in the energy and chemicals sector on the back of supply worries around Hurricanes Irma and Harvey in the US. However, as noted from our research back in September, PMI reports citing polyethylene supply shortage were broadly similar to historical averages, which suggests a partial decoupling from fundamentals - as one might well expect in a period of such uncertainty.

This has been borne out in our October survey, with prices falling in the chemicals sector, clearly not what you would expect from an industry struggling to fulfil demand. Broadly speaking incidences of supply shortages remained below historical trends for ten of the 12 monitored categories in October. Chemicals and transport were the two sectors to register above average scarcity, though chemical prices have fallen, so any lack of supply is clearly not creating enough scarcity to impact prices, yet. Indeed, while some respondents in the US and Canada commented on the residual effects of Hurricane Harvey feeding through into the market, the overall level of chemical shortages remained below that recorded in May.

Rubber producers have had a woeful 2017

Looking once more at rubber markets, prices here have been in a strong downtrend since the beginning of the year, the result of rapid increases in supply, as sellers looked to take advantage of the rapid price increase, peaking in February. Following our survey indicating the loosest supply conditions in May, since 2011, supply has once more slipped back below average, indicating prices shouldn't have a whole lot further to fall. Indeed, with pricing moving below production cost for a number of rubber producers supply-side tightening is inevitable at these levels.

Steel prices remain at the whim of Chinese policy makers

Iron ore has had a tough month. Following a recent peak in September, iron ore has given up all of the gains made through autumn, falling at the fastest pace for six months and reversing what had been shaping up to be a stellar end to 2017. While the supply-side has certainly had an influence - persistently high inventories at Chinese ports - the majority of the price moves of late have been driven by changing views on Chinese demand. The buoyancy of early 2017 has been replaced by a more measured view of Chinese economic activity, with the hefty fiscal stimulus beginning to loose efficacy in supporting commodity prices. Although there is no need to worry, further financial support has been announced by the Chinese government in the last few days - it seems the market is still not ready to price commodities properly on a fundamental basis.

Posted 22 November 2017