Construction Materials Prices Flat in November

01/03/2012 by Bernard M. Markstein

The Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) for materials and components used in construction was unchanged in November after rising 0.3% in October. The index was up 3.8% on a year-over-year basis, but stood only a modest 1.9% higher than November 2008. An index that measures inputs used in nonresidential construction (excluding capital equipment) also was flat after falling 0.7% in October. However, it was up 7.0% from November 2010. Construction machinery prices fell 0.2% following no change in October. Nonetheless, they were up 4.4% from a year ago and 5.3% from November 2008.

Cement
Cement prices rebounded 1.2% in November after falling 0.7% the previous month. Prices were essentially unchanged from a year ago (down 0.2%) and were down significantly (-9.5%) since November 2008.

Energy and Related Products
Energy and related prices have been a bit jumbled of late. Diesel fuel prices jumped 7.5% in November after falling 5.5% in October. Diesel prices were up 32.4% from a year ago and 50.8% from November 2008. On the positive side, industrial natural gas prices fell 4.5% in November after a 1.5% decline the previous month. Also, they were down 1.5% from November 2010, and dropped 28.3% from November 2008.

Asphalt prices fell 3.2% after a slight increase of 0.2% in October. However, they were up 19.0% from November 2010, though only up 1.9% from November 2008. Asphalt roofing materials prices dropped 5.4% in November after heating up 2.5% the month before. They were up a modest 1.7% from a year earlier and 2.1% from three years earlier.

Plastic construction products prices fell 1.3% in November following no change in October. Meanwhile, they were up 3.9% from a year ago and 5.1% from November 2008. However there have been some significant differences in the price movements of some of the underlying products included in this index. Plastics pipe prices dropped 5.3% after a fall of 1.6% in October. They were up 3.3% from November 2010 and 1.7% from November 2008. At the same time, plastics plumbing fixtures prices edged up 0.2% in November after rising 1.1% the previous month. They were also up more from a year earlier and three years earlier — 5.0% and 5.4%, respectively.

Copper Products
Prices for copper products have generally fallen since July of this year — spot market prices for copper have fallen roughly $1 a pound since then. Prices for copper ores fell 5.1% in November after plunging 9.1% in October. From November 2010, prices were down 14.5%, but were up 78.1% from November 2008. Prices of copper base scrap have been more erratic. They rose 8.2% in November after falling 5.5% the previous month. Since November 2010 prices were up a moderate 1.4%, but have more than doubled from three years earlier — skyrocketing 121.7%.

Copper and brass mill shapes prices fell 2.3% in November after dropping 8.3% in October, and were down 7.7% from November 2010. Meanwhile, they were “only” up 35.1% from November 2008. Recently, copper pipe (nonferrous pipe and tube) prices have fallen even more, plunging 12.7% in November after declining 1.6% the month before. They were down 10.3% from a year earlier and 37.7% from three years earlier.

Softwood Lumber and Gypsum
Single-family housing construction is the main driver of demand for softwood lumber and gypsum products, both of which have suffered since single-family housing construction peaked in 2006. The single-family housing market has shown modest improvement over the last few months. Single-family starts rose in October and November; new single-family home sales were up in September, October, and November; and single-family permits have increased in seven of the past nine months.

The PPI for softwood lumber peaked in August 2004. As of November, the index was down almost a third (-32.4%) from that peak. More recently with the modest improvement in single-family housing, softwood lumber prices have moved off their lows (as of November, the index was up 17.0% from its May 2009 cycle low). On a year-over-year basis, the index was up 1.7%. Some of the firmness in softwood prices may be due to Canada’s increased exports to Asia — China, in particular.

Gypsum producers have yet to see a real turnaround. The PPI for gypsum prices did not peak until July 2006. As of November, the index was down 30.4% from its peak. More troubling from the industry’s perspective (though not from the builder’s perspective), the cyclical index low was just back in February. As of November, the index was only up 2.9% from that low. The November reading was still down 1.0% from a year earlier and 9.3% from three years earlier.

Given continued low gypsum prices, it is not surprising that six gypsum producers have announced that they are raising prices 35% in January. However, without a significant uptick in single-family construction it is unlikely that this effort will prove any more successful than past efforts to raise prices. It will most likely result in some temporary price increases that are eventually rolled back, probably by February or March.

The gypsum case does point out that producers will raise prices at the first opportunity. With housing construction forecast to post only modest gains in 2012, these materials prices are projected to remain soft. A sharper rebound in single-family construction will send prices higher.

Outlook for Construction Materials Prices
With the economy showing modest, but improving growth, construction materials prices will firm and move roughly in line with general inflation over the next six months. Faster than projected 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 second half of 2012. Troubles in Europe and expected relatively modest growth in the rest of the world will help keep prices from more rapid gains. Faster growth in the rest of the world would add to construction materials prices inflation.

Energy prices remain the biggest risk to materials price inflation and the health of the world economy. Recent saber rattling by Iran is a reminder of how vulnerable the world’s energy supply and prices are to developments in the Middle East. A temporary spike in oil prices would be uncomfortable, but not disastrous. A prolonged, sharp increase in oil prices would hurt consumers and adversely affect economic growth, possibly pushing the U.S. back into recession.

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-11 Oct-11 Sep-11 Nov-11 Oct-11 Sep-11 Nov-11 Oct-11 Sep-11 Nov-11
Construction Commodities      
Dimension Stone 0.6 -0.2 0.5 0.3 0.1 0.2 1.5 2.3 1.6 8.6
Cement 1.2 -0.7 1.3 0.6 -0.5 0.1 -0.2 -1.7 -1.5 -9.5
Construction Sand, Gravel & Crushed Stone* 0.1 0.1 0.0 0.1 0.0 0.0 1.4 1.2 1.7 5.7
Softwood Plywood 1.5 5.0 -4.2 0.7 2.1 -0.3 3.9 -0.4 -7.5 0.4
Hardwood Lumber -0.3 -1.1 -0.6 -0.7 -0.7 -0.2 -3.6 -3.9 -3.2 1.3
Softwood Lumber* -1.2 3.6 -1.2 0.4 1.6 0.4 1.7 5.1 3.8 5.9
Other Commodities      
Industrial Natural Gas* -4.5 -1.5 -0.6 -2.2 -0.4 -0.6 -1.5 -2.7 -1.4 -28.3
Plastic Resins & Materials 2.0 -3.9 3.1 0.3 -0.2 0.9 14.1 9.5 16.2 19.8
Insulation Materials -0.4 0.2 -2.1 -0.8 0.2 0.4 5.4 6.0 6.3 9.5
Iron & Steel Scrap -6.6 -2.0 0.8 -2.6 -0.6 0.1 13.0 23.1 20.7 157.6
Iron Ore 1.2 7.9 0.0 3.0 0.0 0.0 14.3 12.9 4.7 19.2
Copper Ores -5.1 -9.1 -7.8 -7.4 -6.5 -0.9 -14.5 -13.4 7.0 78.1
Copper Base Scrap* 8.2 -5.5 5.9 2.7 -2.6 -0.2 1.4 1.9 18.6 121.7
Manufactured Materials      
Gypsum Products -0.4 3.0 -1.7 0.3 -0.1 -1.3 -1.0 -1.0 -4.6 -9.3
Diesel Fuel* 7.5 -5.5 7.3 2.9 -1.5 -0.4 32.4 27.3 39.4 50.8
Asphalt -3.2 0.2 -4.9 -2.7 -1.1 -1.4 19.0 25.1 23.1 1.9
Asphalt Roofing -5.4 2.5 -2.3 -1.8 -0.3 -0.3 1.7 7.5 3.7 2.1
       
Paint 0.0 0.3 0.1 0.1 0.1 0.0 3.5 5.4 5.3 2.9
Plastic Construction Products -1.3 0.0 -0.5 -0.6 0.0 0.1 3.9 5.6 6.3 5.1
    Plastics Pipe -5.3 -1.6 -0.6 -2.5 -1.0 -0.7 3.3 10.3 14.9 1.7
    Plumbing Fixtures 0.2 1.1 -0.9 0.1 0.1 0.2 5.0 4.8 2.6 5.4
Vitreous Plumbing Fixtures 0.0 0.0 0.0 0.0 0.0 0.1 1.6 1.6 1.6 6.1
Ceramic Tile -2.0 0.0 0.0 -0.7 0.1 0.1 -0.7 -0.1 -0.5 -3.9
Flat Glass -0.3 -0.2 0.3 -0.1 0.2 0.7 1.8 2.1 2.8 -5.0
       
Hot rolled bars, plates & structural shapes -0.4 -0.5 0.1 -0.3 0.1 0.6 16.8 16.7 18.6 8.6
Extruded Aluminum rod, bar and other shapes 0.0 -1.4 -1.6 -1.0 -2.1 -1.0 2.1 6.6 8.5 3.4
Architectural Metalwork 1.4 -0.3 -0.3 0.3 -0.1 0.2 5.2 4.8 5.4 -0.4
Metal Plumbing Fixtures* 0.0 0.3 0.1 0.1 0.2 0.3 2.8 2.8 2.8 4.6
Builders' Hardware -0.6 0.2 -0.6 -0.3 0.6 0.4 6.2 7.5 7.0 3.8
Sheet Metal Products -0.5 0.6 0.3 0.1 0.3 0.3 5.8 6.6 5.8 3.8
       
Steel Mill Products -1.1 0.4 -0.6 -0.4 -0.3 -0.4 13.0 13.6 13.5 0.8
Steel Pipe and Tube* 2.1 1.9 0.0 1.3 -0.1 -0.8 13.5 12.9 10.5 4.2
Copper and Copper Products -2.7 -8.0 -2.6 -4.5 -4.6 -0.3 -6.8 -2.2 13.8 50.3
Copper and Brass Mill Shapes -2.3 -8.3 -0.7 -3.8 -3.9 0.3 -7.7 -0.2 14.8 35.1
    Nonferrous Pipe and Tube -12.7 -1.6 -0.4 -4.9 -1.1 1.3 -10.3 8.3 15.1 37.7
       
Building Brick 0.5 0.2 -0.4 0.1 -0.1 -0.2 -2.4 -4.3 -3.4 -3.8
Ready Mix Concrete* 0.7 0.4 0.0 0.3 0.1 0.0 0.1 -0.2 -0.2 -1.9
Concrete Block & Brick* -0.1 0.8 0.0 0.2 0.3 0.0 1.8 1.9 0.9 1.1
Prestressed Concrete -0.5 0.0 0.2 -0.1 0.0 -0.2 -2.2 -1.6 -1.8 -9.4
Precast Concrete Products 0.6 0.8 0.2 0.5 0.1 -0.2 3.4 2.6 2.0 6.2
Concrete Pipe 0.4 0.0 0.3 0.2 0.0 0.0 1.6 1.7 1.4 -4.5
       
Wood Kitchen Cabinets 0.2 0.1 0.0 0.1 0.0 0.0 2.2 2.0 1.9 3.9
Millwork (window,door, cabinet)* 0.1 0.2 0.0 0.1 0.1 0.2 1.0 1.1 0.8 2.4
Engineered Wood Products* 0.9 -0.2 0.3 0.3 -0.4 -0.2 1.3 1.0 1.4 -0.8
Laminated Plastics 0.2 -0.2 1.7 0.6 0.5 0.8 4.4 3.5 3.8 4.6
Assembled Equipment      
Hand and Edge tools 0.0 0.0 0.3 0.1 0.1 0.2 1.0 1.1 1.1 1.1
Power Hand Tools -0.1 0.1 0.0 0.0 0.0 0.0 0.8 1.0 0.8 0.7
Appliances* 1.1 0.3 0.3 0.5 0.1 0.2 2.9 1.9 1.5 3.9
Furnaces 1.0 1.4 0.3 0.9 0.6 0.4 6.8 6.2 2.3 5.5
Construction Machinery* -0.2 0.0 0.7 0.2 0.5 0.6 4.4 4.1 3.8 5.3
Construction Machinery Rental (incl. oilfield equip.) -0.4 0.6 -0.3 0.0 0.2 0.4 1.2 2.6 2.1 0.3
Trucks over 14,000 Ibs. GVW 0.1 1.3 0.1 0.5 0.4 0.2 2.6 2.6 1.3 9.9
Metal Doors, Sash and Trim 0.0 0.3 -0.2 0.0 0.1 0.1 6.6 6.6 6.8 4.3
Summary      
    Composite Indexes (Exclude capital equipment)      
Construction Materials* (Unprocessed materials) 0.1 0.1 0.0 0.1 0.0 0.0 1.7 1.4 1.8 5.8
Materials and Components for Construction* (Processed goods) 0.0 0.3 -0.4 0.0 0.0 0.0 3.8 4.0 3.9 1.9
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
-0.1 -0.6 0.0 -0.2 -0.4 -0.1 6.2 6.9 8.1 8.8
    Inputs to New Construction 0.0 -0.5 0.0 -0.2 -0.4 0.0 6.2 6.7 7.8 8.4
        Inputs to Residential Construction 0.0 -0.4 0.0 -0.1 -0.3 0.0 5.5 5.9 6.7 7.4
        Inputs to Nonresidential Construction 0.0 -0.7 0.1 -0.2 -0.5 -0.1 7.0 7.5 9.0 NA
            Inputs to Commercial Construction -0.1 -0.3 -0.1 -0.2 -0.3 -0.1 5.9 6.4 7.1 NA
            Inputs to Industrial Construction 0.5 -0.4 0.3 0.1 -0.2 0.0 6.4 6.3 7.3 NA
            Inputs to Heavy Construction -0.1 -0.9 0.2 -0.3 -0.6 -0.1 7.4 8.1 10.0 NA
       
    Inputs to Maintenance and Repair -0.4 -1.1 0.0 -0.5 -0.6 -0.1 6.6 8.2 10.2 13.3
        Inputs to Nonres Maintenance and Repair -0.5 -1.2 0.0 -0.6 -0.7 -0.2 6.7 8.4 10.7 14.1
        Inputs to Res Maintenance and Repair 0.0 -0.5 0.0 -0.2 -0.4 -0.1 6.4 6.9 8.1 9.4
       
  (indexes incl. installation and overhead)      
New Warehouse Building Construction 0.0 1.6 0.0 0.5 0.6 0.4 3.9 3.9 2.8 -0.2
New School Building Construction 0.1 1.8 -0.1 0.6 0.5 0.3 4.5 4.3 3.0 7.9
New Office Construction 0.2 1.0 0.0 0.4 0.3 0.3 3.7 3.3 2.7 0.0
New Industrial Building Construction -0.1 1.5 0.1 0.5 0.5 0.4 3.4 3.5 2.4 -1.0
       
Production Index: Construction Supplies* 0.4 0.3 0.4 0.4 0.1 0.4 3.7 4.2 4.9 -6.0
Retail Sales: Building & Equipment Supplies* -0.3 1.4 0.0 0.4 1.0 0.3 6.2 6.1 6.9 13.9

*Seasonally-adjusted data for monthly 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
Source: Production Index - Federal Reserve Board
Source: Retail Sales - Census Bureau