A MetalMiner IndX(SM) (MMI) Introduction and Analyzing the June Commodity Drop-Off (Part 1)

Earlier in June, Spend Matters covered the launched of MetalMiner's new aggregate pricing indexes, better known as the MMIs. As we noted at the time,
"the monthly MMI reports -- 10 in all, powered by MetalMiner IndX data -- focus on MetalMiner's exclusive composite indexes, highlighting metal price trends by specific industry (the Auto MMI®, Construction MMI, Renewables MMI) and by vertical metal sector (the Raw Steels MMI, Stainless MMI, Aluminum MMI, Copper MMI, Rare Earths MMI, Global Precious Metals MMI and the world's first GOES MMI). The MMIs are useful and clever for a variety of reasons -- which we'll explore by delving into June MMI data that highlights the recent commodity drop-off shows (but more on that later).

Over on MetalMiner, you can download a background brief that summarizes and analyzes all of the MMIs from June. But perhaps it will be most useful to step back for a moment and explore why the MetalMiner team created the ten MMIs in the first place. As MetalMiner observes in the above-linked document, the genesis behind creating a range of indexes began with a phone call from one of our readers, a very large oil and services firm.

We spoke with a commodity analyst who called to ask a very simple question: "Do you know of anything besides the BLS indexes that can help me track what is happening for a range of metal products that I buy?" The next set of follow-up questions was easy: what metals do you buy, and what do you perceive as the limitations of existing BLS data?

The company buys a range of steel, stainless steel and nickel alloy high-pressure semi-finished products. The BLS data typically tracks only one single product/grade and, more importantly, bears little resemblance to what the company had paid for the range of products. The commodity analyst asked if we could do better.

We couldn't promise a resounding "yes" to that question yet (you'll need to be the judge), but we said we'd at least take a shot. The 10 MMI reports that appear in the previously-linked downloadable document represent our best initial attempt to devise a range of indexes that would provide value in the market using the following guidelines as the basis:

  1. Each index should represent a basket of metals or raw materials (depending on the category) that impact the cost structure for that particular metal market (e.g. coking coal, scrap, and iron ore for steel prices)
  2. The inputs should reflect the global market for that commodity. BLS indexes by default only include US data, but that may/may not be representative of underlying global price trends
  3. Metal prices often depend upon the underlying demand for various industries (e.g. steel prices relate to construction industry activity), hence the addition of several key industry verticals that impact multiple metal markets

Industrial companies, economists and others can use the MMI data in a number of ways:

  1. To better understand underlying month-to-month metal price trends across industries as well as within specific metal markets
  2. To use as an economic indicator, much like the ISM PMI (Purchasing Manager's Index) monthly numbers or the BLS PPIs (Producer Price Index)
  3. To use for forecasting and predictive analytics

Stay tuned as this post series continues. But in the meantime, be sure to check out the aggregate June MMI report that reports on and analyzes the recent market declines on MetalMiner.

- Jason Busch

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