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Construction Materials Prices Rise Moderately in April

05/31/2012 by Bernard M. Markstein, RCD US Chief Economist

Overview
The construction industry is finally seeing some relief in building materials inflation. Recent declines in energy prices are leading to lower prices for some materials and slower increases for others. Less than stellar increases in both residential and nonresidential construction activity are also keeping the lid on prices. Among major categories seeing price declines in April besides energy products were iron and steel scrap, gypsum products, extruded aluminum rod, and copper and copper products.

This does not mean that prices are necessarily down from a year ago. However, overall building materials inflation for the past year has been roughly in line with general U.S. inflation. For the next several months, building materials prices are likely to continue to move in line with overall inflation. Better than expected construction activity would put additional upward pressure on building materials prices, a tradeoff most in the industry would readily accept.

Construction Materials Inflation
The Bureau of Labor Statistics (BLS) reported that the seasonally adjusted (SA) Producer Price Index (PPI) for materials and components used in construction rose 0.3% in April after increasing 0.2% in March. The index was up 2.9% on a year-over-year basis, and 7.4% since April 2009. Meanwhile, prices for raw materials used in construction or to produce products used in construction rose faster, up 0.9%, after increasing 0.4% in March. The index was up 3.8% from a year earlier and 5.9% from three years earlier.

An index that measures inputs used in nonresidential construction (excluding capital equipment) was flat in April after surging 1.6% in March on a not seasonally adjusted (NSA) basis. On a year-over-year basis, the index was up 2.4%.

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
  Apr-12 Mar-12 Feb-12 Apr-12 Mar-12 Feb-12 Apr-12 Mar-12 Feb-12 Apr-12
Composite Indexes (Exclude capital equipment)      
Construction Materials*
(Unprocessed materials)
0.9 0.4 0.7 0.7 0.4 0.4 3.8 3.0 2.6 5.9
Materials and Components for Construction*
(Processed goods)
0.3 0.2 0.9 0.5 0.4 0.4 2.9 3.1 3.5 7.4
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
0.1 1.4 0.9 0.8 0.9 0.3 2.5 3.8 4.4 16.2
    Inputs to New Construction 0.1 1.3 0.9 0.8 0.9 0.4 2.6 3.9 4.5 15.6
        Inputs to Residential Construction 0.2 1.1 0.8 0.7 0.8 0.4 2.9 3.8 4.4 13.2
        Inputs to Nonresidential Construction 0.0 1.6 0.8 0.8 1.0 0.3 2.4 4.0 4.6 NA
            Inputs to Commercial Construction 0.2 1.1 0.7 0.7 0.7 0.2 2.2 3.2 3.9 NA
            Inputs to Industrial Construction 0.1 1.2 0.5 0.6 0.7 0.2 2.5 3.9 4.3 NA
            Inputs to Heavy Construction 0.0 1.7 1.0 0.9 1.1 0.3 2.4 4.2 5.1 NA
       
    Inputs to Maintenance and Repair 0.0 1.4 1.1 0.8 0.9 0.3 1.2 3.0 3.9 21.4
        Inputs to Nonresidential Maintenance
        and Repair
0.0 1.4 1.1 0.8 0.9 0.2 0.8 2.7 3.6 22.3
        Inputs to Res Maintenance and Repair 0.0 1.5 1.0 0.8 1.0 0.4 2.9 4.4 5.0 16.7
       
  (Indexes include installation and overhead)      
New Warehouse Building Construction 0.4 0.2 0.0 0.2 0.3 0.2 3.9 4.3 4.2 0.9
New School Building Construction 0.5 0.1 0.0 0.2 0.2 0.2 4.3 4.7 4.7 4.3
New Office Construction 0.2 0.2 -0.1 0.1 0.3 0.2 3.2 3.9 3.8 0.5
New Industrial Building Construction 0.6 -0.2 -0.2 0.1 0.1 0.1 3.4 3.6 3.8 0.5
       
Other Related Indexes      
PPI Finished Goods* -0.2 0.0 0.4 0.1 0.2 0.2 1.9 2.8 3.3 14.5
PPI Finished Goods less food and energy* 0.2 0.3 0.2 0.2 0.3 0.3 2.7 2.9 3.0 6.0
CPI Urban Consumer* 0.0 0.3 0.4 0.2 0.3 0.2 2.3 2.7 2.9 7.9
CPI Urban Consumer less food and energy* 0.2 0.2 0.1 0.2 0.2 0.2 2.3 2.3 2.2 4.6
       
Production Index: Construction Supplies* 0.0 -1.6 2.1 0.2 0.2 1.5 5.5 6.3 9.5 15.3
Retail Sales: Building & Equipment Supplies* -1.8 2.7 0.0 0.3 1.4 1.4 9.8 11.8 17.1 8.9

*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 increased 0.5% (SA) in April after no change in March. They were up 4.6% from a year earlier and 6.8% from April 2009. Meanwhile, construction machinery rental rates rose 0.9% following a 0.9% decline in March. On a year-over-year basis, rental rates were up 5.5% and only 3.9% from three years earlier.

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
  Apr-12 Mar-12 Feb-12 Apr-12 Mar-12 Feb-12 Apr-12 Mar-12 Feb-12 Apr-12
Assembled Equipment      
Hand and Edge tools 0.1 0.3 -0.3 0.0 0.3 0.3 1.7 1.8 1.6 1.4
Power Hand Tools -0.1 0.8 0.0 0.2 0.4 0.2 2.1 2.4 1.2 2.0
Appliances* -0.3 0.9 0.0 0.2 0.8 0.4 4.3 5.5 4.7 3.7
Furnaces -0.1 0.2 0.3 0.1 0.3 0.0 4.7 4.6 5.5 4.5
Construction Machinery* 0.5 0.0 0.5 0.3 0.4 0.4 4.6 4.2 4.6 6.8
Construction Machinery Rental (incl. oilfield equip.) 0.9 -0.9 -0.3 -0.1 -0.4 0.4 5.5 2.5 6.0 3.9
Trucks over 14,000 Ibs. GVW 0.3 -0.1 0.7 0.3 0.2 0.2 3.0 2.7 2.8 8.3
Metal Doors, Sash and Trim 0.0 0.0 0.9 0.3 0.3 0.4 4.1 5.1 5.7 6.9

*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
Cement prices increased 0.4% in April following a 0.4% decline in March. Prices were up only 0.9% from a year earlier and down 9.4% from April 2009. Cement prices are likely to face upward pressure as multifamily construction and other commercial construction improve over coming months. However, the slowdown in highway construction (March year-to-date highway construction spending was down 1.3% from last year) will limit this upward price pressure.

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
  Apr-12 Mar-12 Feb-12 Apr-12 Mar-12 Feb-12 Apr-12 Mar-12 Feb-12 Apr-12
Construction Commodities      
Dimension Stone -0.2 0.5 1.1 0.4 0.3 0.2 0.9 2.0 1.8 4.1
Cement 0.4 -0.4 -2.4 -0.8 0.9 1.2 0.9 1.5 2.2 -9.4
Construction Sand, Gravel & Crushed Stone* 1.0 0.4 0.7 0.7 0.3 0.3 3.4 2.5 2.2 5.3
Softwood Plywood 1.3 3.7 6.5 3.7 3.8 3.3 8.2 9.6 4.7 28.4
Hardwood Lumber 0.1 1.1 -0.8 0.1 0.1 -0.2 -1.4 -1.9 -2.3 9.4
Softwood Lumber* -0.4 2.4 -0.1 0.6 0.7 -0.5 3.0 0.5 -1.3 23.5
Other Commodities      
Industrial Natural Gas* -1.1 -1.1 -2.7 -1.6 -2.9 -2.8 -17.5 -15.2 -14.2 -22.3
Plastic Resins & Materials 0.1 0.5 0.3 0.3 1.7 1.0 4.6 7.3 8.9 30.6
Insulation Materials 0.2 -0.2 0.4 0.1 1.0 1.1 4.0 4.4 5.0 11.5
Iron & Steel Scrap -2.2 1.4 -6.2 -2.4 0.2 1.7 -5.7 -3.5 -4.5 147.2
Iron Ore NA NA NA 2.8 0.9 1.0 NA 23.6 NA NA
Copper Ores -1.3 3.4 8.4 3.3 3.9 1.7 -11.1 -10.6 -15.3 74.8
Copper Base Scrap* -5.4 -3.8 5.2 -1.4 0.9 2.8 -4.6 -0.7 -2.3 100.5

*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 fell for the second month in a row, down 4.2% (SA) in April after dropping 6.3% in March. Diesel prices were largely unchanged (up 0.1%) from a year ago and but doubled (+103.1%) from April 2009.

Industrial natural gas prices fell for the seventh consecutive month, down 1.1% (SA) after also decreasing 1.1% in March. On a year-over-year basis, they dropped 17.5%, and have fallen 22.3% since April 2009. The plentiful supply of natural gas, together with lower than normal demand for natural gas due to the mild winter and warm spring in much of the country, has created the downward pressure on prices.

Plastic resins and materials prices rose 0.1% (NSA) in April after advancing 0.5% in March. They were up 4.6% from a year earlier and 30.6% from three years earlier.

Previous oil price increases and reduced refinery capacity are still feeding through to asphalt prices, which rose 3.0% in April (NSA) following the same 3.0% increase in March. On a year-over-year basis, they jumped 41.2%. Since April 2009, asphalt prices rose 80.1%. Despite the rise in asphalt prices but probably due to weakness in single-family housing, asphalt roofing prices fell 2.6% after increasing 0.2% in March. On a year-over-year basis, prices decreased 3.3% and were down 7.2% from three years earlier. Demand to repair tornado and other storm damage in parts of the country may push prices higher over the next few months.

Plastic construction products prices jumped 1.9% in April after edging down 0.1% in March. They were up 6.0% from a year earlier and 12.2% from April 2009. Plastics pipe prices surged 7.6% in April after increasing 1.2% in March. They were up 9.7% from a year earlier and 29.1% since April 2009. Meanwhile, plastics plumbing fixtures prices were flat after rising 0.4% in March. Prices were up 4.6% from a year ago and 4.3% from three years ago.

World oil prices have eased off from their recent highs. The feed through effect of previously higher oil prices will slow and the effects of lower prices will soon result in small declines in prices. Some prices that are closely tied to oil prices, such as gasoline prices, are already posting declines. Gasoline prices in particular were adversely affected by higher world oil prices and normal spring maintenance of refineries, which reduced production. Given current limited refinery capacity, any disruption to refinery production translates rapidly into higher prices. The West Coast, California in particular, is feeling the effects of temporary refinery capacity shortages due to the partial shutdown of four California refineries for normal maintenance and difficulty in restarting a Washington state refinery following a February fire that forced a shutdown. Most of these plants should be back on line over the next few weeks and gas prices will begin to drop throughout the region.

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
  Apr-12 Mar-12 Feb-12 Apr-12 Mar-12 Feb-12 Apr-12 Mar-12 Feb-12 Apr-12
Manufactured Materials      
Gypsum Products -1.9 2.2 5.1 1.7 4.3 3.9 11.5 9.1 15.2 1.6
Petroleum refineries -1.2 8.1 2.3 3.0 4.4 0.6 2.3 10.0 13.4 129.1
Diesel Fuel* -4.2 -6.3 4.1 -2.2 0.9 3.5 0.1 6.6 14.5 103.1
Asphalt 3.0 3.0 2.8 2.9 2.8 3.0 41.2 31.7 28.3 80.1
Asphalt paving mixture & block mfg. 1.2 0.2 2.2 1.2 1.3 1.3 9.8 10.8 10.8 20.8
Asphalt shingle and coating materials mfg. -2.6 -0.1 1.1 -0.5 -0.4 0.0 1.4 6.0 4.8 0.1
Asphalt Roofing -2.6 0.2 -0.5 -1.0 -1.1 -0.8 -3.3 0.0 -1.9 -7.2
       
Paint 0.0 -0.2 10.5 3.2 3.4 3.6 11.9 11.9 15.2 14.3
Plastic Construction Products 1.9 -0.1 2.3 1.3 0.8 0.8 6.0 4.5 5.4 12.2
    Plastics Pipe 7.6 1.2 2.6 3.9 1.4 0.8 9.7 3.8 4.2 29.1
    Plumbing Fixtures 0.0 0.4 0.0 0.1 0.3 0.2 4.6 4.6 4.1 4.3
Vitreous Plumbing Fixtures 0.0 0.0 0.1 0.0 0.5 0.5 2.3 2.9 2.9 5.1
Ceramic Tile 0.4 -0.7 0.8 0.1 0.1 0.4 -0.3 -1.1 -0.7 0.5
Flat Glass -0.1 0.3 0.2 0.1 -0.1 0.0 1.4 1.5 1.0 -2.4
       
Steel Mill Products 0.2 -0.6 0.6 0.1 0.2 0.2 -1.9 0.4 4.0 38.4
Steel Pipe and Tube* 0.9 -3.2 -1.2 -1.2 -0.3 1.0 4.1 6.1 10.0 36.5
Hot rolled bars, plates & structural shapes 0.0 0.0 -1.3 -0.4 0.0 -0.4 0.7 3.5 5.9 38.7
Extruded Aluminum rod, bar and other shapes -1.8 1.5 2.7 0.8 1.1 -0.2 -3.1 -0.4 0.4 21.8
Architectural Metalwork 0.5 -0.6 0.4 0.1 -0.1 0.1 1.7 2.2 4.2 4.2
Metal Plumbing Fixtures* -0.7 0.6 -0.1 -0.1 0.3 0.2 2.6 3.3 2.9 5.2
Builders’ Hardware 0.6 -0.3 -0.2 0.1 -0.1 0.0 2.1 3.5 3.6 8.1
Sheet Metal Products -0.3 0.0 -0.5 -0.3 0.0 -0.3 -1.0 1.3 2.4 7.0
       
Copper and Copper Products -1.2 1.1 6.9 2.2 2.2 1.6 -10.4 -7.2 -10.9 58.9
Copper and Brass Mill Shapes -2.7 0.5 5.9 1.1 1.9 1.6 -11.4 -6.0 -11.2 32.9
    Nonferrous Pipe and Tube -1.1 1.0 3.0 0.9 0.8 0.4 -14.6 -9.0 -17.3 39.5
       
Building Brick 0.8 -0.3 0.2 0.2 -1.2 -1.2 -2.7 -3.4 -3.0 -6.4
Ready Mix Concrete* 0.4 0.3 -0.1 0.2 0.1 0.1 2.0 1.8 1.5 -1.8
Concrete Block & Brick 0.4 -0.1 -0.1 0.1 0.3 0.3 1.6 1.2 1.8 1.2
Prestressed Concrete -0.8 0.0 0.2 -0.2 0.0 0.1 -0.9 0.1 -4.8 -3.5
Precast Concrete Products 0.4 0.7 0.1 0.4 0.4 0.3 3.4 3.6 3.1 6.0
Concrete Pipe -0.8 0.9 0.1 0.1 0.5 0.1 0.6 1.4 0.8 -4.2
       
Wood Kitchen Cabinets 0.0 1.2 0.1 0.4 0.5 0.1 2.0 2.3 2.4 4.0
Millwork (window, door, cabinet)* 0.0 0.2 1.7 0.6 0.2 0.1 3.2 3.2 3.4 4.2
Engineered Wood Products 2.2 0.3 0.2 0.9 0.0 -0.1 1.0 -1.4 -1.1 6.5
Laminated Plastics 0.0 0.0 0.0 0.0 0.0 0.0 2.5 2.5 2.5 4.3

*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

Copper and Copper Products
Spot copper prices rose quickly at the beginning of this year, then held around the $3.80-$3.90 per pound level until just recently (there was a temporary dip in prices in mid-April). As of the middle of May, spot prices were off their recent highs, back down to roughly their level at the beginning of the year — about $3.50 a pound. Spot copper prices are approximately $0.40 a pound lower than the same time last year. The drop in spot copper prices is now showing up in various PPI copper prices. Copper ores prices fell 1.3% (NSA) in April after rising 3.4% in March, and down 11.1% from a year earlier. However, reflecting the overall rise in copper prices over the past few years, they were up 74.8% from April 2009.

Copper base scrap prices fell for the second month in a row, down 5.4% (SA) in April and 3.8% in March. Prices were down only 4.6%, from a year earlier but were still double (+100.5%) from three years earlier.

Prices for copper and copper products were down 1.2% (NSA) in April after rising 1.1% in March. Prices were down 10.4% from April 2011 but up 58.9% from April 2009.

Copper and brass mill shapes prices fell 2.7% in April after advancing a modest 0.5% in March. On a year-over-year basis, they were down 11.4% but were up 32.9% from three years earlier. Copper pipe (nonferrous pipe and tube) prices decreased 1.1% after increasing 1.0% in March. They were down 14.6% from a year earlier but up 39.5% from three years earlier.

Slow growth in the U.S., recession in much of Europe, and slower growth in China and India are likely to keep downward pressure on spot copper prices. This, in turn, will mean lower prices for copper products in the near term.

Softwood Lumber and Gypsum
Single-family housing construction activity is the major driver of demand for softwood lumber and gypsum products, both of which have suffered since single-family housing construction peaked in 2006. There has been some slight improvement in the single-family housing market over the last few months, giving some price support for both products.

The PPI for softwood lumber slipped 0.4% (SA) after increasing 2.4% in March. On a year-over-year basis, prices were up 3.0% and have moved 23.5% higher since April 2009.

Late last year, six gypsum producers announced they were raising prices 35% in January of this year. The PPI for gypsum product prices increased in each of the first three months of the year, and was up 13.8% from December to March. However, in the first indication that prices may not hold at their recent elevated level, let alone at the target level set by gypsum producers, given the still weak, though slightly improved, single-family housing construction sector, the April PPI fell 1.9%. This still left prices 11.6% higher than December prices, but well short of the advertised 35% increase. On a year-over-year basis, prices were up 11.5% but only up 1.6% from three years earlier.

Outlook for Construction Materials Prices
Recent economic reports indicate that the U.S. economy is on a slow, but steady growth path. Although much of Europe is in recession and those countries not in recession are either headed there or face slower growth, the rest of the world should continue to grow albeit at a somewhat slower pace.

Thus the Reed Construction Data forecast is still for rising construction activity. This will result in modest upward pressure on construction materials prices. As the economy advances at a moderate pace, prices will move roughly in line with general inflation.

Faster than projected sustained U.S. economic growth (3% or higher at an annual rate) will accelerate commercial construction activity and push materials price inflation higher than general inflation. This seems unlikely to happen before the latter part of this year or early next year. Similarly, faster growth in the rest of the world than forecast would add to construction materials price inflation as would stimulative action by some European economies, which is not likely despite growing opposition to German imposed austerity.

Rapidly rising energy prices remain the biggest risk to materials price inflation and a major risk to the health of the world economy, though that risk has dropped and the benefits of somewhat lower energy prices are moving through building materials prices. However, as always, a prolonged spike in oil prices (higher than recently experienced) would hurt consumers and adversely affect the growth of the economy, possibly pushing the U.S. back into recession.


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