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December Nonresidential Construction Materials Project Prices Down Again

0 2970 Market Intelligence

Prices for inputs used in nonresidential construction fell for the third month in a row. In the near term, the outlook is for limited increases in building materials prices as companies delay investments until the threats of sequestration (across the board reduction in most federal spending) and of the federal debt ceiling becoming effective are eliminated. After that, expect prices to rise roughly in line with or slightly faster than overall inflation.

Overview
Prices for inputs used in nonresidential construction fell for the third month in a row. In the near term, the outlook is for limited increases in building materials prices as companies delay investments until the threats of sequestration (across the board reduction in most federal spending) and of the federal debt ceiling becoming effective are eliminated. 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 rose 0.3% on a seasonally adjusted (SA) basis in December after rising 0.1% in November according the Bureau of Labor Statistics (BLS). It was also the fifth monthly increase in a row. The index was up 2.7% on a not seasonally adjusted (NSA) year-over-year basis and was up 8.9% since December 2009. Meanwhile, prices for raw materials used in construction or to produce products used in construction increased 0.6% after declining 0.4% in November. The index was up 2.7% from December 2011 and up 6.0% from December 2009.

An index that measures inputs used in nonresidential construction (excluding capital equipment) fell 0.3% (NSA) in December after dropping 1.3% in November. On a year-over-year basis, the index was up 0.8% in December.

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
  Dec-12 Nov-12 Oct-12 Dec-12 Nov-12 Oct-12 Dec-12 Nov-12 Oct-12 Dec-12
Composite Indexes (Exclude capital equipment)      
Construction Materials*
(Unprocessed materials)
0.6 -0.4 0.0 0.1 -0.1 0.1 2.7 2.5 2.9 6.0
Materials and Components for Construction*
(Processed goods)
0.3 0.1 0.1 0.2 0.2 0.2 2.7 2.4 2.2 8.9
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
-0.1 -1.1 -0.4 -0.5 -0.2 0.4 1.3 1.0 2.0 12.2
    Inputs to New Construction -0.1 -1.0 -0.4 -0.5 -0.2 0.4 1.5 1.2 2.2 12.1
        Inputs to Residential Construction 0.1 -0.7 -0.4 -0.3 -0.2 0.3 2.0 1.7 2.5 11.6
        Inputs to Nonresidential Construction -0.3 -1.3 -0.5 -0.7 -0.2 0.5 0.8 0.6 1.8 NA
            Inputs to Commercial Construction -0.1 -0.7 -0.3 -0.4 -0.1 0.4 1.1 0.9 1.6 NA
            Inputs to Industrial Construction -0.2 -1.0 -0.3 -0.5 -0.2 0.5 0.8 0.7 2.0 NA
            Inputs to Heavy Construction -0.3 -1.6 -0.5 -0.8 -0.3 0.6 0.7 0.5 2.0 NA
       
    Inputs to Maintenance and Repair -0.3 -1.2 -0.4 -0.6 -0.2 0.5 0.0 -0.3 0.6 12.7
        Inputs to Nonresidential Maintenance
        and Repair
-0.3 -1.3 -0.3 -0.6 -0.2 0.5 -0.2 -0.7 0.3 12.8
        Inputs to Res Maintenance and Repair 0.0 -1.1 -0.5 -0.6 -0.2 0.5 1.7 1.4 2.5 12.8
       
  (Indexes include installation and overhead)      
New Warehouse Building Construction 0.0 0.0 0.3 0.1 0.1 0.2 2.6 2.5 2.5 6.8
New School Building Construction 0.0 -0.3 0.1 0.0 0.0 0.0 1.1 1.2 1.5 7.3
New Office Construction 0.0 0.0 0.2 0.1 0.1 0.1 1.3 1.3 1.5 4.9
New Industrial Building Construction 0.0 0.1 0.5 0.2 0.1 0.1 1.4 1.2 1.0 5.0
       
Other Related Indexes      
PPI Finished Goods* -0.2 -0.8 -0.2 -0.4 0.1 0.9 1.3 1.5 2.3 10.0
PPI Finished Goods less food and energy* 0.1 0.1 -0.2 0.0 0.0 0.0 2.0 2.2 2.1 6.6
CPI Urban Consumer* 0.0 -0.3 0.1 -0.1 0.1 0.4 1.7 1.8 2.2 6.3
CPI Urban Consumer less food and energy* 0.1 0.1 0.2 0.1 0.1 0.1 1.9 1.9 2.0 5.0
       
Production Index: Construction Supplies* 1.0 2.2 -0.2 1.0 0.9 0.0 2.3 3.3 2.2 20.1
Retail Sales: Building & Equipment Supplies* 0.0 0.8 -1.4 -0.2 0.7 1.0 -1.0 5.4 7.3 11.3

*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 inched up 0.1% (SA) in December after increasing 0.8% in November. Construction machinery rental rates shot up 1.1% (NSA) after increasing an almost as strong 1.0% in November. For five of the past six months, rental rates increased faster than purchase prices on a not seasonally adjusted basis, reflecting the emerging preference for renting construction machinery over purchasing equipment. Nonetheless, despite the shift in demand, on a year-over-year NSA basis, rental rates were essentially unchanged (up 0.1%) while purchase prices were up 3.8%. Meanwhile, rental rates were up 6.7% since December 2009 while purchase prices were up 9.1%. Expect increases in rental rates to continue to exceed equipment purchase price increases over the next several months.

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
  Dec-12 Nov-12 Oct-12 Dec-12 Nov-12 Oct-12 Dec-12 Nov-12 Oct-12 Dec-12
Assembled Equipment      
Hand and Edge tools -0.3 0.0 2.0 0.6 0.6 0.5 2.8 3.2 3.2 3.3
Power Hand Tools 0.2 0.2 0.0 0.1 0.1 0.1 1.3 1.4 1.2 3.0
Appliances* 0.2 -1.0 0.5 -0.1 0.1 0.3 4.0 3.7 5.1 6.6
Furnaces 1.0 -0.2 1.0 0.6 0.1 0.2 2.1 0.5 1.9 6.9
Construction Machinery* 0.1 0.8 0.5 0.5 0.4 0.1 3.8 4.1 3.6 9.1
Construction Machinery Rental (incl. oilfield equip.) 1.1 1.0 1.8 1.3 0.4 0.8 0.1 0.6 0.9 6.7
    Construction equipment rental and leasing 0.7 1.4 2.5 1.5 0.9 1.2 -0.4 1.8 2.2 8.3
    Oilfield and well drilling equipment rental
      and leasing
3.5 0.0 0.0 1.2 -1.1 0.0 4.0 -0.4 0.7 6.6
Trucks over 14,000 Ibs. GVW 0.3 0.5 0.3 0.4 0.0 -0.2 2.2 1.8 1.5 7.4
Metal Doors, Sash and Trim -0.1 0.0 0.1 0.0 0.0 0.0 1.8 2.0 2.2 9.4

*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 were unchanged in December after rising 0.2% (NSA) in November. They were 3.4% higher than in December 2011 but were 4.6% lower than in December 2009.

Prestressed concrete products prices inched up 0.1% in December after slipping 0.1% in November. On a year-over-year basis, prices were down 0.2%, while they were up 1.2% from December 2009. Precast concrete products prices jumped 1.6% in December after sliding 0.2% in November. Prices were 2.6% higher than December 2011 and were 6.5% higher than December 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
  Dec-12 Nov-12 Oct-12 Dec-12 Nov-12 Oct-12 Dec-12 Nov-12 Oct-12 Dec-12
Construction Commodities      
Dimension Stone 0.0 0.1 -0.1 0.0 0.1 0.1 1.3 1.6 1.3 4.1
Cement 0.0 0.2 0.4 0.2 0.0 0.1 3.4 3.6 3.9 -4.6
Construction Sand, Gravel & Crushed Stone* 0.6 -0.3 -0.1 0.1 -0.1 0.0 2.3 2.1 2.6 5.4
Softwood Plywood 1.2 -3.6 0.7 -0.6 -0.4 1.8 19.6 21.0 22.8 29.6
Hardwood Lumber 0.2 0.2 0.8 0.4 0.4 0.6 1.6 1.7 1.0 6.4
Softwood Lumber* 2.1 5.3 -2.7 1.6 1.4 0.8 17.3 13.7 6.7 23.4
Other Commodities      
Industrial Natural Gas* 2.5 0.4 0.2 1.0 1.0 1.8 -5.0 -8.2 -11.7 -14.8
Plastic Resins & Materials -0.7 -0.6 1.4 0.0 0.3 0.6 3.5 2.3 3.9 19.5
Insulation Materials 0.1 -0.5 -0.7 -0.4 -0.7 -0.5 5.1 5.1 5.5 15.9
Iron & Steel Scrap 0.9 11.9 -11.4 0.0 -0.8 -1.4 -15.5 -11.0 -27.3 27.6
Iron Ore 0.0 0.1 0.0 0.0 0.3 0.4 -3.8 1.2 4.7 22.8
Copper Ores -2.6 -4.4 6.3 -0.3 0.9 2.5 1.6 1.3 11.8 10.4
Copper Base Scrap* 3.4 -2.7 0.0 0.2 1.3 1.5 0.9 -0.7 2.7 21.1

*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 jumped 7.1% (SA) in December after plummeting 11.0% in November. Diesel prices were up a relative modest 1.8% (NSA) from December 2011 but were up a more painful 54.4% from December 2009.

Industrial natural gas prices increased for the fifth consecutive month, 2.5% (SA) higher in December after rising 0.4% in November. In spite of the recent price increases, industrial natural gas prices were still 5.0% lower than a year earlier and 14.8% lower than three years earlier. The recent increases are reducing some of the price advantage of natural gas over oil. Although natural gas prices are likely to move somewhat higher in the near term, the rate of increase should soon taper off as increases in demand slow and supply picks up a bit in response to the recent rebound in prices. Overall, natural gas should maintain its advantage over oil in the United States.

Plastic resins and materials prices fell for the second month in a row, down 0.7% (NSA) in December after falling 0.6% in November. Prices were up 3.5% from December 2011 and were up 19.5% from December 2009.

Asphalt prices also were down for the second month in a row, dropping 2.0% (NSA) in December, after plunging 7.5% in November. Prices were down 2.5% from December 2011 but were up 22.2% from December 2009. Asphalt roofing prices tumbled 1.1% in December after declining 0.5% in November. That left prices 0.6% lower than in December 2011 and 3.8% higher than December 2009.

Plastics pipe prices were unchanged in December after increasing 0.6% (NSA) in November. They were up 12.4% from December 2011 and were up 27.2% from December 2009. Plastics plumbing fixtures prices continued their slow upward creep, advancing 0.3% in December after inching up 0.1% in November. Prices were 2.1% higher than in December 2011 and 5.2% higher than in December 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
  Dec-12 Nov-12 Oct-12 Dec-12 Nov-12 Oct-12 Dec-12 Nov-12 Oct-12 Dec-12
Manufactured Materials      
Gypsum Products -0.3 0.4 -0.7 -0.2 -0.5 -0.6 14.0 14.9 14.1 15.8
Petroleum refineries -2.4 -8.3 -2.7 -4.5 -1.9 3.1 -3.2 -3.8 6.2 39.9
Diesel Fuel* 7.1 -11.0 2.2 -0.9 -0.3 5.2 1.8 -4.0 12.6 54.4
Asphalt -2.0 -7.5 2.9 -2.2 -2.4 -0.9 -2.5 3.2 8.2 22.2
Asphalt paving mixture & block mfg. -0.2 0.0 0.1 -0.1 -0.3 -0.4 4.0 4.5 4.2 17.5
Asphalt shingle and coating materials mfg. -0.9 -0.5 0.6 -0.2 0.1 -0.2 -0.2 1.6 -1.0 7.8
Asphalt Roofing -1.1 -0.5 0.7 -0.3 0.0 -0.3 -0.6 1.4 -1.9 3.8
       
Paint -0.4 0.0 0.0 -0.1 0.0 0.0 10.1 10.5 11.0 14.6
Plastic Construction Products 0.2 0.4 0.2 0.3 0.3 0.0 4.7 4.5 2.7 12.0
    Plastics Pipe 0.0 0.6 2.4 1.0 1.3 0.7 12.4 11.8 5.4 27.2
    Plumbing Fixtures 0.3 0.1 0.2 0.2 0.1 0.3 2.1 1.7 1.7 5.2
Vitreous Plumbing Fixtures 0.6 -1.1 1.9 0.5 0.1 0.3 1.7 1.1 2.3 5.4
Ceramic Tile 0.4 -0.5 2.7 0.9 0.0 0.3 0.7 0.4 0.2 -1.4
Flat Glass -0.7 0.3 -0.1 -0.1 0.3 0.6 1.0 2.3 1.8 2.5
       
Steel Mill Products 0.9 -1.3 -1.9 -0.8 -0.6 -1.1 -7.9 -9.1 -8.5 16.2
Steel Pipe and Tube* 1.6 0.3 0.0 0.6 -0.1 -1.2 -6.1 -6.7 -5.0 27.7
Hot rolled bars, plates & structural shapes 1.6 -2.0 -1.7 -0.7 -0.6 -1.3 -9.6 -12.0 -10.2 21.1
Extruded Aluminum rod, bar and other shapes -0.5 -0.7 2.7 0.5 0.4 0.6 -3.4 -5.1 -7.1 5.5
Architectural Metalwork -0.1 0.2 -0.5 -0.1 -0.1 0.1 0.5 0.6 0.7 6.7
Metal Plumbing Fixtures* 0.3 0.0 0.4 0.2 0.3 0.3 1.7 1.6 1.8 5.9
Builders’ Hardware -0.6 0.4 0.1 0.0 0.2 0.0 0.5 1.2 0.4 7.8
Sheet Metal Products 0.0 0.0 -0.1 0.0 0.0 -0.1 -0.5 -1.4 -0.8 7.2
       
Copper and Copper Products 1.3 -3.6 3.4 0.3 0.7 1.7 0.2 -1.7 4.2 9.5
Copper and Brass Mill Shapes 1.5 -3.3 2.8 0.3 0.9 1.8 1.0 -0.9 4.7 2.4
    Nonferrous Pipe and Tube -0.8 -1.5 5.2 0.9 2.4 2.7 -1.7 -1.1 0.4 5.2
       
Building Brick 0.1 -0.2 -0.1 -0.1 -0.1 0.0 -2.9 -3.4 -2.7 -6.0
Ready Mix Concrete* 0.1 0.1 0.1 0.1 0.2 0.3 2.3 2.4 2.7 1.6
Concrete Block & Brick 0.6 -0.3 0.0 0.1 0.0 0.1 1.5 0.8 0.8 1.6
Prestressed Concrete 0.1 -0.1 0.0 0.0 -0.3 -0.5 -0.2 -0.2 -0.2 1.2
Precast Concrete Products 1.6 -0.2 0.5 0.6 -0.2 0.2 2.6 1.3 1.9 6.5
Concrete Pipe 0.6 -0.7 2.0 0.6 0.5 0.8 4.3 3.2 4.3 6.1
       
Wood Kitchen Cabinets 0.3 0.0 0.5 0.2 0.1 0.2 3.0 2.7 2.8 6.0
Millwork (window, door, cabinet)* 0.3 0.0 0.2 0.2 0.0 0.1 1.5 1.2 1.5 5.8
Engineered Wood Products 2.3 1.2 0.0 1.2 1.4 1.3 12.5 9.7 8.9 18.0
Laminated Plastics -0.1 -0.1 -0.5 -0.2 0.0 0.2 0.6 0.7 0.9 6.2

*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 fell for the second month in a row, down 2.6% (NSA) in December after diving 4.4% in November. Prices were 1.6% higher than in December 2011 and 10.4% higher than in December 2009.

Copper base scrap prices shot up 3.4% (SA) in December, more than reversing November’s 2.7% plunge. Prices were up a modest 0.9% from December 2011, but were up 21.1% from December 2009.

Prices for copper and copper products increased 1.3% (NSA) in December after sinking 3.6% in November. Prices were just marginally higher than in December 2011, up 0.2%, and were up 9.5% from December 2009.

Copper and brass mill shapes prices rose 1.5% in December after dropping 3.3% in November. Prices were 1.0% higher than in December 2011 and were 2.4% higher than in December 2009.

Other Metals

Steel mill products prices rose 0.9% (NSA) in December after declining 1.3% in November. Prices were 7.9% lower than in December 2011, but were 16.2% higher than in December 2009. Hot rolled bars, plates, and structural shapes prices were up 1.6% in December after dropping 2.0% in November. Prices were down 9.6% from December 2011, but were up 21.1% from December 2009.

Extruded aluminum rod, bar, and other shapes prices fell for the second month in a row, down 0.5% (NSA) in December after decreasing 0.7% in November. Prices were 3.4% lower than in December 2011, but were 5.5% higher than in December 2009.

Softwood Lumber and Gypsum
Single-family housing construction is the chief driver of demand for softwood lumber and gypsum products. The single-family housing market continues to improve, although from a low level, increasing demand for these materials.

The PPI for softwood lumber moved sharply higher for the second month in a row, rising 2.1% (SA) in December following a 5.3% surge in November. Prices were up 17.3% from December 2011 and were up 23.4% from December 2009.

Canadian softwood lumber exports to the U.S. are regulated by the Softwood Lumber Agreement (SLA). 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 and fees on Canadian softwood lumber exports to the United States

There has been significant variation in the price of softwood lumber over the past several months, frequently changing the relevant tier for Canadian exports. 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. With tier 2 restrictions still in place and single-family construction activity ramping 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. Despite no restrictions on Canadian exports, higher prices have persisted with the result that the average price for February was $385 and for March was $395, keeping tier 4 in place for both months.

In 2011, six gypsum producers sent letters indicating they would raise prices 35% in January 2012. But the December 2012 PPI was up less than half that amount (14.0%) from December 2011. Meanwhile, prices were up 15.8% since December 2009.

Although only partially successful with their 2012 price increase, last year several gypsum producers announced price increases of 25% to 30% effective at the beginning 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
The United States economy is on a solid, if unspectacular growth path. However, the dual threats of sequestration as of March 1 and of expiration of the temporarily higher federal debt ceiling have weighed heavily on business decision making, delaying planned investment projects and hiring plans, restraining economic activity. Both are artificial impediments that the politicians could quickly eliminate but are unlikely to do so.

Meanwhile, Europe continues to struggle with its problems, muddling through even with many countries in recession. The slower growth in Europe hurts world economic growth and is a drag on U.S. exports of construction machinery and products to Europe.

Despite these and other economic challenges, 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 removed, or at least reduced. 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. economy outpaces our forecast of real (inflation-adjusted) gross domestic product (GDP) growth of 2.5% for the year, there will be greater construction activity and faster materials price inflation. Faster growth in the rest of the world would also mean higher construction materials prices. Significantly higher energy prices for a sustained period would contribute to a faster rate of increase in building materials prices, but would also be a drag on economic growth, eventually hurting construction activity and limiting building materials price increases.

by Bernie Markstein

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