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November Nonresidential Construction Materials Project Prices Fall

0 3306 Market Intelligence

Prices for inputs used in nonresidential construction fell for the second month in a row. Lower oil prices were a major factor in the continued decline. A drop in steel and copper prices contributed to the fall in November’s construction costs.

Overview
Prices for inputs used in nonresidential construction fell for the second month in a row. Lower oil prices were a major factor in the continued decline. A drop in steel and copper prices contributed to the fall in November’s construction costs.

In the near term, the outlook is for building materials prices to hold steady or decline slightly as companies continue to delay investments while the politicians in Washington thrash out a budget deal and the federal debt ceiling approaches. After that, expect prices to rise roughly in line with or slightly faster than overall inflation. Greater than forecasted growth would result in higher building materials price inflation.

Construction Materials Inflation
The Producer Price Index (PPI) for materials and components used in construction inched up 0.1% on a seasonally adjusted (SA) basis in November, after rising 0.1% in October according the Bureau of Labor Statistics (BLS). November marked the fourth consecutive monthly increase for the index. On a not seasonally adjusted (NSA) year-over-year basis the index was up 2.4% and was up 8.8% since November 2009. Meanwhile, prices for raw materials used in construction or to produce products used in construction fell 0.4% following no change in October. The index was up 2.5% from November 2011 and up 6.2% from November 2009.

Meanwhile, an index that measures inputs used in nonresidential construction (excluding capital equipment) plunged 1.3% (NSA) in November after falling 0.5% in October. On a year-over-year basis, the index was up 0.6% in November.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Nov-12 Oct-12 Sep-12 Nov-12 Oct-12 Sep-12 Nov-12 Oct-12 Sep-12 Nov-12
Composite Indexes (Exclude capital equipment)      
Construction Materials*
(Unprocessed materials)
-0.4 0.0 0.8 0.1 0.1 0.3 2.5 2.9 3.2 6.2
Materials and Components for Construction*
(Processed goods)
0.1 0.1 0.3 0.2 0.2 0.0 2.4 2.2 2.1 8.8
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
-1.1 -0.4 0.9 -0.2 0.4 0.4 1.0 2.0 1.7 12.4
    Inputs to New Construction -1.0 -0.4 0.9 -0.2 0.4 0.4 1.2 2.2 2.0 12.4
        Inputs to Residential Construction -0.7 -0.4 0.7 -0.1 0.3 0.4 1.7 2.5 2.3 11.7
        Inputs to Nonresidential Construction -1.3 -0.5 1.2 -0.2 0.5 0.5 0.6 1.8 1.6 NA
            Inputs to Commercial Construction -0.7 -0.3 0.8 -0.1 0.4 0.3 0.9 1.6 1.4 NA
            Inputs to Industrial Construction -1.0 -0.3 0.8 -0.2 0.5 0.4 0.7 2.0 1.8 NA
            Inputs to Heavy Construction -1.6 -0.5 1.3 -0.3 0.6 0.5 0.5 2.0 1.5 NA
       
    Inputs to Maintenance and Repair -1.2 -0.4 1.2 -0.1 0.5 0.3 -0.3 0.6 -0.3 13.5
        Inputs to Nonresidential Maintenance
        and Repair
-1.3 -0.3 1.1 -0.1 0.5 0.3 -0.7 0.3 -0.8 13.6
        Inputs to Res Maintenance and Repair -1.1 -0.5 1.0 -0.2 0.5 0.5 1.4 2.5 2.4 13.0
       
  (Indexes include installation and overhead)      
New Warehouse Building Construction 0.0 0.3 0.0 0.1 0.2 0.2 2.5 2.5 3.8 6.7
New School Building Construction -0.3 0.1 -0.1 -0.1 0.0 0.0 1.2 1.5 3.1 7.3
New Office Construction 0.0 0.2 0.0 0.1 0.1 0.0 1.3 1.5 2.4 4.8
New Industrial Building Construction 0.1 0.5 -0.2 0.2 0.1 -0.1 1.2 1.0 1.9 4.7
       
Other Related Indexes      
PPI Finished Goods* -0.8 -0.2 1.1 0.1 0.9 1.0 1.5 2.3 2.1 10.7
PPI Finished Goods less food and energy* 0.1 -0.2 0.0 0.0 0.0 0.2 2.2 2.1 2.3 6.5
CPI Urban Consumer* -0.3 0.1 0.6 0.1 0.4 0.4 1.8 2.2 2.0 6.4
CPI Urban Consumer less food and energy* 0.1 0.2 0.1 0.1 0.1 0.1 1.9 2.0 2.0 4.9
       
Production Index: Construction Supplies* 1.4 -0.3 0.5 0.5 0.0 -0.2 2.5 2.1 3.0 15.4
Retail Sales: Building & Equipment Supplies* 1.6 -1.2 2.7 1.0 1.0 2.0 5.9 7.3 0.2 20.8

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics; Production Index - Federal Reserve Board; Retail Sales - Census Bureau

Construction machinery prices rose for the second month in a row, up 0.8% (SA) in November after rising 0.5% in October. Construction machinery rental rates advanced 1.0% (NSA) after jumping 1.8% in October. The shift towards renting construction machinery for construction projects over the last several months has resulted in rental rates rising faster than purchase prices on a not seasonally adjusted basis for five consecutive months. However, on a year-over-year basis, rental rates were only 0.6% higher, considerably lower than the 4.1% increase for purchase prices. Similarly, rental rates were only up 2.8% since November 2009, also well below the 9.1% purchase prices increase.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Nov-12 Oct-12 Sep-12 Nov-12 Oct-12 Sep-12 Nov-12 Oct-12 Sep-12 Nov-12
Assembled Equipment      
Hand and Edge tools 0.0 2.0 0.3 0.8 0.5 -0.1 3.2 3.2 1.2 3.6
Power Hand Tools 0.2 0.0 0.1 0.1 0.1 0.0 1.4 1.2 1.2 2.9
Appliances* -1.0 0.5 0.3 -0.1 0.3 0.3 3.7 5.1 5.1 6.6
Furnaces -0.2 1.0 -0.5 0.1 0.2 -0.2 0.5 1.9 1.8 5.9
Construction Machinery* 0.8 0.5 -0.1 0.4 0.1 0.0 4.1 3.6 3.0 9.1
Construction Machinery Rental (incl. oilfield equip.) 1.0 1.8 -0.1 0.9 0.8 0.8 0.6 0.9 -2.4 2.8
Trucks over 14,000 Ibs. GVW 0.5 0.3 -0.5 0.1 -0.2 -0.2 1.8 1.5 2.1 7.8
Metal Doors, Sash and Trim 0.0 0.1 0.0 0.0 0.0 0.0 2.0 2.2 2.1 9.7

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Cement and Concrete
Cement prices rose for the second month in a row, up 0.2% in November, after increasing 0.4% in October. Cement prices were up 3.6% from November 2011 but were down 5.6% from November 2009.

Prestressed concrete products prices edged down 0.1% in November following no change in October. On a year-over-year basis, prices fell 0.2%, while they were 2.0% higher than they were in November 2009. Precast concrete products prices slipped 0.2% in November after increasing 0.5% the previous month. Prices were 1.3% higher than November 2011 and were 4.8% higher than November 2009.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Nov-12 Oct-12 Sep-12 Nov-12 Oct-12 Sep-12 Nov-12 Oct-12 Sep-12 Nov-12
Construction Commodities      
Dimension Stone 0.1 -0.1 1.0 0.3 0.1 0.3 1.6 1.3 2.0 5.3
Cement 0.2 0.4 -0.1 0.1 0.1 -0.1 3.6 3.9 0.3 -5.6
Construction Sand, Gravel & Crushed Stone* -0.3 -0.1 0.9 0.2 0.0 0.3 2.1 2.6 2.9 5.5
Softwood Plywood -3.6 0.7 2.9 -0.1 1.8 1.7 21.0 22.8 27.0 29.4
Hardwood Lumber 0.2 0.8 -0.5 0.1 0.6 0.3 1.7 1.0 -0.9 7.3
Softwood Lumber* 5.3 -2.7 2.6 1.7 0.8 0.6 13.7 6.7 11.8 21.6
Other Commodities      
Industrial Natural Gas* 0.4 0.2 2.0 0.8 1.8 1.7 -8.2 -11.7 -13.7 -16.6
Plastic Resins & Materials -0.6 1.4 0.3 0.4 0.6 -0.2 2.3 3.9 -0.1 21.7
Insulation Materials -0.5 -0.7 -1.4 -0.9 -0.5 0.6 5.1 5.5 5.6 15.9
Iron & Steel Scrap 11.9 -11.4 -0.3 -0.4 -1.4 -0.2 -11.0 -27.3 -19.5 41.1
Iron Ore 0.1 0.0 -1.8 -0.6 0.4 -0.3 1.2 4.7 4.7 22.9
Copper Ores -4.4 6.3 0.7 0.8 2.5 1.6 1.3 11.8 -6.5 17.7
Copper Base Scrap* -2.7 0.0 7.0 1.3 1.5 0.7 -0.7 2.7 -5.7 23.8

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Energy and Related Products
Diesel fuel prices plunged 11.0% (SA) in November after escalating 2.2% in October. Diesel prices were 4.0% (NSA) lower than they were in November 2011 but 50.0% higher than they were in November 2009.

Industrial natural gas prices moved higher for the fourth month in a row, rising 0.4% (SA) in November after increasing 0.2% in October. Despite recent price increases, industrial natural gas prices were down 8.2% from a year earlier and 16.6% lower than three years earlier. Of late, natural gas prices have experienced upward pressure as demand grows faster than supply following a long period in which supply climbed faster than demand. Natural gas prices will continue to move higher in the short run but remain well below the price for oil.

Plastic resins and materials prices fell 0.6% (NSA) in November after jumping 1.4% in October. Prices were up 2.3% from November 2011 and were up 21.7% from November 2009.

Asphalt prices plummeted 7.5% (NSA) in November after increasing 2.9% in October. Prices were 3.2% higher than they were in November 2011 and were 27.6% higher than they were in November 2009. Meanwhile, asphalt roofing prices sank 0.5% in November after advancing 0.7% in October. Prices were a modest 1.4% higher than November 2011 and 3.8% higher than November 2009.

Plastics pipe prices were 0.6% (NSA) higher in November after surging 2.4% in October. They were 11.8% higher than they were in November 2011 and were 26.9% higher than they were in November 2009. Plastics plumbing fixtures prices have risen more slowly, inching up 0.1% in November after increasing 0.2% in October. Prices were 1.7% higher than in November 2011 and 4.8% higher than in November 2009.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Nov-12 Oct-12 Sep-12 Nov-12 Oct-12 Sep-12 Nov-12 Oct-12 Sep-12 Nov-12
Manufactured Materials      
Gypsum Products 0.4 -0.7 -1.3 -0.5 -0.6 -0.6 14.9 14.1 17.9 14.1
Petroleum refineries -8.3 -2.7 5.9 -1.8 3.1 3.3 -3.8 6.2 4.0 40.9
Diesel Fuel* -11.0 2.2 9.2 -0.2 5.2 6.1 -4.0 12.6 7.5 50.0
Asphalt -7.5 2.9 -2.7 -2.4 -0.9 -2.9 3.2 8.2 5.1 27.6
Asphalt paving mixture & block mfg. 0.0 0.1 -0.8 -0.3 -0.4 -0.5 4.5 4.2 3.7 18.2
Asphalt shingle and coating materials mfg. -0.5 0.6 0.3 0.1 -0.2 -0.4 1.6 -1.0 -2.9 8.6
Asphalt Roofing -0.5 0.7 0.3 0.2 -0.3 -0.4 1.4 -1.9 -3.9 3.8
       
Paint 0.0 0.0 0.0 0.0 0.0 0.0 10.5 11.0 11.4 15.1
Plastic Construction Products 0.4 0.2 0.8 0.5 0.0 -0.2 4.5 2.7 2.3 11.9
    Plastics Pipe 0.6 2.4 1.2 1.4 0.7 -1.5 11.8 5.4 1.3 26.9
    Plumbing Fixtures 0.1 0.2 -0.3 0.0 0.3 0.2 1.7 1.7 1.7 4.8
Vitreous Plumbing Fixtures -1.1 1.9 NA -0.1 NA NA 1.1 2.3 0.3 4.8
Ceramic Tile -0.5 2.7 -1.6 0.2 0.3 -1.0 0.4 0.2 -2.5 -0.6
Flat Glass 0.3 -0.1 1.0 0.4 0.6 0.5 2.3 1.8 2.3 1.6
       
Steel Mill Products -1.3 -1.9 1.0 -0.7 -1.1 -1.1 -9.1 -8.5 -7.1 15.4
Steel Pipe and Tube* 0.3 0.0 -2.1 -0.6 -1.2 -1.7 -6.7 -5.0 -3.4 25.7
Hot rolled bars, plates & structural shapes -2.0 -1.7 0.8 -1.0 -1.3 -1.0 -12.0 -10.2 -9.1 18.7
Extruded Aluminum rod, bar and other shapes -0.7 2.7 -0.6 0.4 0.6 -0.8 -5.1 -7.1 -10.1 7.0
Architectural Metalwork 0.2 -0.5 -0.2 -0.1 0.1 0.3 0.6 0.7 1.4 7.5
Metal Plumbing Fixtures* 0.0 0.4 0.5 0.3 0.3 0.2 1.6 1.8 1.6 5.8
Builders’ Hardware 0.4 0.1 0.0 0.2 0.0 -0.2 1.2 0.4 -0.6 8.0
Sheet Metal Products 0.0 -0.1 0.3 0.1 -0.1 -0.1 -1.4 -0.8 -2.3 7.3
       
Copper and Copper Products -3.6 3.4 2.3 0.6 1.7 0.8 -1.7 4.2 -8.7 14.1
Copper and Brass Mill Shapes -3.3 2.8 3.6 1.0 1.8 0.9 -0.9 4.7 -10.3 6.4
    Nonferrous Pipe and Tube -1.5 5.2 4.7 2.7 2.7 0.6 -1.1 0.4 -17.0 15.2
       
Building Brick -0.2 -0.1 -0.1 -0.1 0.0 0.1 -3.4 -2.7 -2.4 -6.0
Ready Mix Concrete* 0.1 0.1 0.3 0.2 0.3 0.3 2.4 2.7 2.7 1.6
Concrete Block & Brick -0.3 0.0 0.0 -0.1 0.1 0.1 0.8 0.8 1.2 1.0
Prestressed Concrete -0.1 0.0 -2.7 -0.9 -0.5 0.2 -0.2 -0.2 -0.4 2.0
Precast Concrete Products -0.2 0.5 0.1 0.1 0.2 0.1 1.3 1.9 1.7 4.8
Concrete Pipe -0.7 2.0 0.4 0.5 0.8 0.3 3.2 4.3 2.3 4.9
       
Wood Kitchen Cabinets 0.0 0.5 0.0 0.1 0.2 0.0 2.7 2.8 2.3 5.7
Millwork (window, door, cabinet)* 0.0 0.2 -0.2 0.0 0.1 0.1 1.2 1.5 3.2 5.3
Engineered Wood Products 1.2 0.0 2.8 1.3 1.3 1.1 9.7 8.9 8.8 15.3
Laminated Plastics -0.1 -0.5 0.0 -0.2 0.2 0.3 0.7 0.9 1.4 6.8

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Copper and Copper Products
Copper ores prices sank 4.4% (NSA) in November, ending four months of increases, and partially offsetting October’s 6.3% surge. Despite the recent increases, prices were up a moderate 1.3% from November 2011. Meanwhile, prices were up 17.7% from November 2009.

Copper base scrap prices slumped 2.7% (SA) in November after no change in October. Prices were down 0.7% from a year earlier, but were up 23.8% from three years earlier.

Prices for copper and copper products plunged 3.6% (NSA) in November after rising an almost equal 3.4% in October. Prices were 1.7% lower than November 2011, but were 14.1% higher than November 2009.

Copper and brass mill shapes prices tumbled 3.3% in November after jumping 2.8% in October. Prices were down 0.9% from November 2011, but were up 6.4% from November 2009.

Other Metals
Steel mill products prices declined for the second consecutive month in November, falling 1.3%, after decreasing 1.9% the previous month. Prices were down 9.1% from November 2011, but were 15.4% higher than November 2009. Hot rolled bars, plates, and structural shapes prices skidded 2.0% after falling 1.7% in October. Prices were down 12.0% from November 2011, but were up 18.7% from November 2009.

Extruded aluminum rod, bar, and other shapes prices slipped 0.7% in November following a 2.7% surge in October. Prices fell 5.1% from November 2011, but rose 7.0% from November 2009.

Softwood Lumber and Gypsum
Single-family housing construction is the main factor driving demand for softwood lumber and gypsum products. The single-family housing market continues to improve, creating increased demand for these materials.

The PPI for softwood lumber soared 5.3% (SA) in November after tumbling 2.7% in October. Prices were 13.7% higher than November 2011 and were 21.6% higher than November 2009.

Canadian softwood lumber exports to the U.S. come under the purview of the Softwood Lumber Agreement (SLA). For each month, the level of exports permitted and any relevant export fees are determined by where the average price of softwood lumber over a specified four week period prior to that month falls within a four tier regime. The categories, from most restrictive to least restrictive and the related prices determining which category is in force for the month, are as follows.

  • The first category is for an average price of $315 per thousand board feet or lower
  • The second category is for an average price of $316 to $335
  • The third category is for an average price of $336 to $355
  • The fourth category, is for on an average price of $356 or higher and eliminates all restrictions on Canadian softwood lumber exports to the United States

Over the past several months the price of softwood lumber has fluctuated significantly with the result that the relevant tier for Canadian exports kept changing. Looser restrictions typically produce an upsurge in imports, pushing prices down and subsequently resulting in a lower tier. That in turn pushes prices higher, resulting in a higher tier and more imports.

The average price for the October tier was $341, resulting in tier 3 restrictions and sending prices lower due to increased imports. Those lower prices produced an average price of $326 for the November tier, resulting in tier 2 restrictions for the month. Although prices subsequently rose, the average price for December was $334, just below the price to trigger tier 3. However, with tier 2 restrictions still in place and single-family construction activity continuing to ramp up, softwood prices continued to rise. Those higher prices meant an average price of $357 for January, high enough to result in tier 4 — no restrictions on Canadian exports. Presumably, a flood of Canadian softwood imports will send prices down this month. Meanwhile, Reed Economics estimates the February average price will be $377, keeping tier 4 in place and keeping downward pressure on prices. Stockpiling of lumber may help keep prices low in March as well.

In 2011, six gypsum producers sent letters indicating they would raise prices 35% in January 2012. But the November PPI was up less than half that amount (14.3%) from December 2011. At the same time, prices were up 14.9% from November 2011 and were up 14.1% from November 2009.

Although only partially successful with their 2012 price increase, last year several gypsum producers announced price increases of 25% to 30% effective January of this year. It remains to be seen what their success will be this time around. Although residential construction, along with commercial construction, is improving and is expected to continue to improve, it is doubtful that the full price increases will prevail.

Outlook for Construction Materials Prices
Despite challenges like the fiscal cliff, the U.S. economy has improved and continues to grow, although at a slower pace than would be desirable. Europe is coping with its troubles even as many of its economies are mired in recession. The slowdown in growth in Europe is a drag on world economic growth and reduces exports of construction machinery to Europe.

Despite these and other hurdles, which include the approaching U.S. federal debt ceiling, the Reed Construction Data forecast is for construction activity to continue to grow this year and next. Mild upward pressure on construction materials prices will emerge as some of the obstacles are addressed. The outlook is for 2013 building materials prices inflation to proceed at roughly the same pace or a little faster than overall inflation.

If the U.S. economic growth exceeds our forecast of real (inflation-adjusted) growth of 2.7% for the year, there will be greater construction activity and faster materials price inflation. Faster growth in the rest of the world would contribute to higher construction materials prices. Significantly higher energy prices for a sustained period would send building materials prices up at a faster rate as well.

by Bernie Markstein

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