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Construction Materials Prices Generally Lower in May

07/06/2012 by Bernard M. Markstein, RCD US Chief Economist

Overview
Recent declines in energy prices, together with weaker world growth, are resulting in lower prices for some building materials and slower increases for others. Among major categories seeing price declines in May besides energy products were cement and concrete, iron and steel scrap, steel mill products, extruded aluminum rod, and copper and copper products.

This does not mean that prices are necessarily lower than a year ago (although many are). Overall price increases for building materials used in nonresidential construction 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 similar to overall inflation. Better than expected construction activity would put additional upward pressure on building materials prices.

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 increased 0.1% in May after rising 0.3% in April. The index was up 2.7% on a year-over-year basis, and 7.8% since May 2009. Meanwhile, prices for raw materials used in construction or to produce products used in construction fell 0.3% after jumping 0.9% in April. The index was up 3.3% from a year earlier and 5.8% from three years earlier.

An index that measures inputs used in nonresidential construction (excluding capital equipment) fell 0.6% on a not seasonally adjusted (NSA) basis after no change in April. On a year-over-year basis, the index was up a scant 0.6%.

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
  May-12 Apr-12 Mar-12 May-12 Apr-12 Mar-12 May-12 Apr-12 Mar-12 May-12
Composite Indexes (Exclude capital equipment)      
Construction Materials*
(Unprocessed materials)
-0.3 0.9 0.4 0.3 0.7 0.4 3.3 3.8 3.0 5.8
Materials and Components for Construction*
(Processed goods)
0.1 0.3 0.2 0.2 0.4 0.4 2.7 2.9 3.1 7.8
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
-0.5 0.1 1.4 0.3 0.7 0.9 1.0 2.5 3.8 15.0
    Inputs to New Construction -0.5 0.1 1.3 0.3 0.7 0.9 1.3 2.6 3.9 14.6
        Inputs to Residential Construction -0.3 0.2 1.1 0.3 0.7 0.8 1.9 2.9 3.8 12.8
        Inputs to Nonresidential Construction -0.6 0.0 1.6 0.3 0.8 1.0 0.6 2.4 4.0 NA
            Inputs to Commercial Construction -0.3 0.2 1.1 0.3 0.6 0.7 1.2 2.2 3.2 NA
            Inputs to Industrial Construction -0.5 0.1 1.2 0.3 0.6 0.7 1.1 2.5 3.9 NA
            Inputs to Heavy Construction -0.7 0.0 1.7 0.3 0.8 1.1 0.5 2.4 4.2 NA
       
    Inputs to Maintenance and Repair -0.8 0.0 1.4 0.2 0.8 0.9 -0.7 1.2 3.0 19.5
        Inputs to Nonresidential Maintenance
        and Repair
-0.8 0.0 1.4 0.2 0.8 0.9 -1.2 0.8 2.7 20.3
        Inputs to Res Maintenance and Repair -0.5 0.0 1.5 0.3 0.7 1.0 1.5 2.9 4.4 15.3
       
  (Indexes include installation and overhead)      
New Warehouse Building Construction 0.3 0.4 0.2 0.3 0.2 0.3 4.2 3.9 4.3 1.1
New School Building Construction 0.1 0.5 0.1 0.2 0.2 0.2 4.3 4.3 4.7 4.3
New Office Construction 0.1 0.2 0.2 0.1 0.1 0.3 3.3 3.2 3.9 0.9
New Industrial Building Construction -0.1 0.6 -0.2 0.1 0.1 0.1 3.3 3.4 3.6 0.5
       
Other Related Indexes      
PPI Finished Goods* -1.0 -0.2 0.0 -0.4 0.0 0.2 0.7 1.9 2.8 13.3
PPI Finished Goods less food and energy* 0.2 0.2 0.3 0.2 0.1 0.3 2.7 2.7 2.9 6.2
CPI Urban Consumer* -0.3 0.0 0.3 0.0 0.2 0.3 1.7 2.3 2.7 7.5
CPI Urban Consumer less food and energy* 0.2 0.2 0.2 0.2 0.2 0.2 2.3 2.3 2.3 4.8
       
Production Index: Construction Supplies* -1.2 0.7 -1.0 -0.5 0.6 0.4 5.5 7.2 7.3 16.1
Retail Sales: Building & Equipment Supplies* -1.7 -2.3 1.6 -0.8 -0.3 1.0 8.2 8.3 11.5 13.1

*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; Production Index - Federal Reserve Board; Retail Sales - Census Bureau

Construction machinery prices increased 0.3% in May (SA) after advancing 0.5% in April. They were up 4.5% from a year earlier and 7.0% from May 2009. Meanwhile, construction machinery rental rates were flat (NSA) after leaping 0.9% in April. On a year-over-year basis, rental rates were up 8.0% but only 3.0% 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
  May-12 Apr-12 Mar-12 May-12 Apr-12 Mar-12 May-12 Apr-12 Mar-12 May-12
Assembled Equipment      
Hand and Edge tools 0.0 0.1 0.3 0.1 0.2 0.4 1.4 1.7 1.8 1.2
Power Hand Tools 0.3 -0.1 0.8 0.3 0.2 0.4 1.6 2.1 2.4 2.2
Appliances* 0.5 -0.3 0.9 0.4 0.1 0.8 4.5 4.3 5.5 4.1
Furnaces -0.2 -0.1 0.2 0.0 0.0 0.3 3.9 4.7 4.6 4.3
Construction Machinery* 0.3 0.5 0.0 0.3 0.5 0.4 4.5 4.6 4.2 7.0
Construction Machinery Rental (incl. oilfield equip.) 0.0 0.9 -0.9 0.0 0.2 -0.4 8.0 5.5 2.5 3.0
Trucks over 14,000 Ibs. GVW 0.0 0.3 -0.1 0.1 0.1 0.2 2.7 3.0 2.7 7.7
Metal Doors, Sash and Trim 0.2 0.0 0.0 0.1 0.3 0.3 3.2 4.1 5.1 7.2

*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

Cement
Cement prices dropped 0.3% in May following a 0.4% increase in April. Prices were up only 1.1% from a year earlier but down 9.0% from May 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 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
  May-12 Apr-12 Mar-12 May-12 Apr-12 Mar-12 May-12 Apr-12 Mar-12 May-12
Construction Commodities      
Dimension Stone -0.1 -0.2 0.5 0.1 0.1 0.3 0.1 0.9 2.0 4.7
Cement -0.3 0.4 -0.4 -0.1 0.5 1.0 1.1 0.9 1.5 -9.0
Construction Sand, Gravel & Crushed Stone* -0.3 1.0 0.4 0.3 0.7 0.3 2.9 3.4 2.5 5.1
Softwood Plywood 2.2 1.3 3.7 2.4 3.1 3.8 19.8 8.2 9.6 29.9
Hardwood Lumber -0.5 0.1 1.1 0.2 0.3 0.1 -1.6 -1.4 -1.9 8.7
Softwood Lumber* 5.8 -0.4 2.4 2.6 0.6 0.7 10.5 3.0 0.5 31.5
Other Commodities      
Industrial Natural Gas* -5.4 -1.1 -1.1 -2.5 -1.6 -2.9 -21.2 -17.5 -15.2 -23.2
Plastic Resins & Materials 0.6 0.1 0.5 0.4 1.1 1.8 0.7 4.6 7.3 29.7
Insulation Materials 0.5 0.2 -0.2 0.2 0.5 1.0 5.2 4.0 4.4 12.3
Iron & Steel Scrap -1.0 -2.2 1.4 -0.6 -2.4 0.2 -4.8 -5.7 -3.5 115.2
Iron Ore NA NA NA NA NA NA 22.8 NA 23.6 38.2
Copper Ores -3.9 -1.3 3.4 -0.6 1.5 3.8 -10.2 -11.1 -10.6 64.7
Copper Base Scrap* 1.6 -5.4 -3.8 -2.6 -2.2 0.9 -4.2 -4.6 -0.7 72.8

*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 fell for the third month in a row, down 1.4% (SA) in May after dropping 4.2% in April and plunging 6.3% in March. Diesel prices were down slightly (-0.2%) from a year ago but almost doubled (+96.9%) since May 2009.

Industrial natural gas prices fell for the eighth consecutive month, tumbling 5.4% (SA) after sinking 1.1% in April. On a year-over-year basis, they plummeted 21.2%, and have fallen 23.2% since May 2009. The plentiful supply (including rising imports) has outstripped rising demand putting the downward pressure on prices. This trend is likely to reverse over the next six months to a year as supply increases taper off (and supply may even fall somewhat) due to lower prices and demand for natural gas rises faster to take advantage of the relatively low prices.

Plastic resins and materials prices rose 0.6% (NSA) in May after advancing 0.1% in April. However, they increased a scant 0.7% from a year earlier though they were up 29.7% from three years earlier.

Previous oil price increases and reduced refinery capacity are still feeding through to asphalt prices, which rose 2.1% (NSA) in May following a 3.0% increase in both April and March. On a year-over-year basis, they increased 16.3%. Since May 2009, asphalt prices rose 65.3%. Asphalt roofing prices rebounded 1.8% after dropping 2.6% in April. Recent tornado and other storm damage in parts of the country may have contributed to the upward pressure on prices. On a year-over-year basis, prices were still down 4.5% and were down 4.3% from three years earlier, undoubtedly due to weak housing demand.

Plastic construction products prices fell 0.7% in May after rising 1.9% in April. They were up 3.6% from a year earlier and 11.2% from May 2009. Plastics pipe prices dropped 1.9% after surging 7.6% in April. They were up only 2.0% from a year earlier though 25.9% higher since May 2009. Meanwhile, plastics plumbing fixtures prices inched up 0.1% after no change in April. Prices were up 4.7% 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 are receding and the effects of lower prices are beginning to produce small declines in some energy related prices. Prices that are closely tied to oil prices, such as gasoline prices, have been falling more rapidly.

Gasoline prices 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, felt the effects of temporary refinery capacity shortages due to the partial shutdown of four California refineries for normal spring maintenance and difficulty in restarting a Washington state refinery following a February fire that forced a shutdown. These plants are back online and gas prices have dropped 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
  May-12 Apr-12 Mar-12 May-12 Apr-12 Mar-12 May-12 Apr-12 Mar-12 May-12
Manufactured Materials      
Gypsum Products 1.2 -1.9 2.2 -24.6 1.7 4.3 13.6 11.5 9.1 4.9
Petroleum refineries -4.1 -1.2 8.1 0.8 3.0 4.4 -5.6 2.3 10.0 95.7
Diesel Fuel* -1.4 -4.2 -6.3 -4.1 -2.2 0.9 -0.2 0.1 6.6 96.9
Asphalt 2.1 3.0 3.0 2.7 3.0 2.8 16.3 41.2 31.7 65.3
Asphalt paving mixture & block mfg. -0.1 1.2 0.2 0.4 1.2 1.3 5.9 9.8 10.8 17.7
Asphalt shingle and coating materials mfg. 1.6 -2.6 -0.1 -0.4 -1.2 -0.4 -0.3 1.4 6.0 2.7
Asphalt Roofing 1.8 -2.6 0.2 -0.2 -1.8 -1.1 -4.5 -3.3 0.0 -4.3
       
Paint 0.0 0.0 -0.2 0.0 -0.1 3.3 11.8 11.9 11.9 14.9
Plastic Construction Products -0.7 1.9 -0.1 0.4 1.1 0.8 3.6 6.0 4.5 11.2
    Plastics Pipe -1.9 7.6 1.2 2.2 2.7 1.4 2.0 9.7 3.8 25.9
    Plumbing Fixtures 0.1 0.0 0.4 0.2 0.1 0.3 4.7 4.6 4.6 4.3
Vitreous Plumbing Fixtures 0.4 0.0 0.0 0.1 0.0 0.5 2.7 2.3 2.9 5.6
Ceramic Tile 0.1 0.4 -0.7 -0.1 0.1 0.1 -0.7 -0.3 -1.1 0.5
Flat Glass 0.0 -0.1 0.3 0.1 0.1 -0.1 1.4 1.4 1.5 -1.0
       
Steel Mill Products -0.9 0.2 -0.6 -0.4 0.2 0.2 -3.0 -1.9 0.4 40.7
Steel Pipe and Tube* -2.6 0.9 -3.2 -1.7 -0.2 -0.3 2.6 4.1 6.1 36.4
Hot rolled bars, plates & structural shapes -1.6 0.0 0.0 -0.5 -0.2 0.0 -1.5 0.7 3.5 38.3
Extruded Aluminum rod, bar and other shapes -1.4 -1.8 1.5 -0.6 0.7 1.1 -7.3 -3.1 -0.4 18.8
Architectural Metalwork 0.2 0.5 -0.6 0.0 0.1 -0.1 2.0 1.7 2.2 5.7
Metal Plumbing Fixtures* 0.0 -0.7 0.6 0.0 0.0 0.3 1.8 2.6 3.3 5.2
Builders’ Hardware 0.6 0.6 -0.3 0.3 0.1 -0.1 1.4 2.1 3.5 10.0
Sheet Metal Products -0.2 -0.3 0.0 -0.2 -0.1 0.0 -1.3 -1.0 1.3 7.3
       
Copper and Copper Products -2.8 -1.2 1.1 -1.0 1.5 2.2 -8.5 -10.4 -7.2 48.9
Copper and Brass Mill Shapes -1.6 -2.7 0.5 -1.3 1.3 1.9 -8.3 -11.4 -6.0 29.3
    Nonferrous Pipe and Tube -1.2 -1.1 1.0 -0.5 1.2 0.8 -11.0 -14.6 -9.0 44.2
       
Building Brick -0.6 0.8 -0.3 0.0 -0.1 -1.2 -3.3 -2.7 -3.4 -6.5
Ready Mix Concrete* -0.7 0.4 0.3 0.0 0.3 0.1 1.2 2.0 1.8 -2.2
Concrete Block & Brick -0.6 0.4 -0.1 -0.1 0.2 0.3 0.7 1.6 1.2 0.6
Prestressed Concrete 2.0 -0.8 0.0 0.4 -0.2 0.0 1.0 -0.9 0.1 -1.8
Precast Concrete Products -0.3 0.4 0.7 0.3 0.4 0.4 2.2 3.4 3.6 5.4
Concrete Pipe -0.1 -0.8 0.9 0.0 0.3 0.5 0.6 0.6 1.4 -3.4
       
Wood Kitchen Cabinets 0.0 0.0 1.2 0.4 0.4 0.5 2.0 2.0 2.3 3.6
Millwork (window, door, cabinet)* -0.3 0.0 0.2 0.0 0.2 0.2 2.9 3.2 3.2 3.8
Engineered Wood Products 2.4 2.2 0.3 1.6 0.8 0.0 3.9 1.0 -1.4 9.7
Laminated Plastics 0.3 0.0 0.0 0.1 0.0 0.0 2.6 2.5 2.5 5.8

*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
Spot copper prices rose quickly at the beginning of this year, then held around the $3.80 to $3.90 per pound level until mid-April. By late June spot prices were around $3.30 a pound, although there was some evidence of upward pressure into the $3.40 to $3.50 a pound range into the first few days of July. Copper prices currently appear to be closely tied to expectations for world economic growth with developments in Europe and China the chief focus at present.

The drop in spot copper prices is showing up in most PPI copper prices. Copper ores prices fell 3.9% (NSA) in May after a 1.3% decline in April, and were down 10.2% from a year earlier. However, reflecting the overall rise in copper prices over the past few years, they were up 64.7% from May 2009.

In an indication that copper prices may are not likely to fall further in the near term, copper base scrap prices rose 1.6% (SA) in May after falling 5.4% in April and 3.8% in March. Prices were still down 4.2% from May 2011 but up 72.8% from three years earlier.

Prices for copper and copper products were down 2.8% (NSA) in May after sliding 1.2% in April. Prices were down 8.5% from May 2011 but up 48.9% from May 2009.

Copper and brass mill shapes prices fell 1.6% after dropping 2.7% in April. On a year-over-year basis, they were down 8.3% but were up 29.3% from three years earlier. Copper pipe (nonferrous pipe and tube) prices decreased 1.2% after slipping 1.1% in April. They were down 11.0% from a year earlier but up 44.2% from three years earlier.

Slow growth in the U.S., recession in much of Europe, and slower growth in China and India have kept downward pressure on spot copper prices. In the near term, expect somewhat lower prices for copper products.

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 jumped 5.8% (SA) in May after edging down 0.4% the previous month. On a year-over-year basis, prices were up 10.5% and have moved 31.5% higher since May 2009.

Recent increases in softwood lumber prices have been sufficient to hit trigger points allowing more imports from Canada under the Softwood Lumber Agreement (SLA). The SLA has four tiers to determine the permissible level of exports from Canada to the United States. The first, and most restrictive, tier occurs when the average price of softwood lumber is $315 per thousand board feet or lower. The second, somewhat less restrictive tier is for an average price from $316 to $335. The third, and again, less restrictive tier is for an average price from $336 to $355. The fourth tier, which removes all restrictions on Canadian softwood lumber exports to the U.S., is for an average price is $356 or higher. There has been only one month when tier 4 prevailed since the SLA has been in force.

The average price for softwood lumber to determine June’s export limit was $321, resulting in tier 2 restrictions. The average price for July was $343, resulting in tier 3 restrictions. Increased imports from Canada have already sent softwood prices lower. The average price to determine export restrictions for August is on track to be in the range of $316 to $335, which would place tier 2 restrictions on August Canadian exports. June and July mark only the third and fourth months that tier 1 has not been in force since the SLA went into effect in October 2006.

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, the April PPI fell 1.9%. This decline was partially reversed in May with a 1.2 increase and left prices 13.0% higher than December prices, but well short of the advertised 35% increase. On a year-over-year basis, prices were up 13.6% in May but only up 4.9% from three years earlier. The mild improvement in the single-family housing market may be giving some support to higher gypsum prices, but we remain skeptical that the full 35% increase will prevail anytime soon.

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) would 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. The recent action to bail out Spanish banks without adding to Spanish government debt is a positive for the European Union, as are moves to limit or partially rollback some of the harsher austerity measures being required by the Germans.

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 and should begin to show up in increased consumer spending. 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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