Nonresidential Construction Materials Prices Flat in June

07/30/2013 by Bernard M. Markstein

Overview
Prices for inputs used in nonresidential construction were unchanged in June. Steel prices continue to fall. Copper prices are starting to move higher. Cement prices retreated a bit, helping to hold down building materials prices.

Prices of building materials primarily used in residential construction fell a bit after two months of no change. Prices for softwood lumber and oriented strand board (OSB), materials heavily used in residential construction and subject to steep price increases over the past year, were down significantly. Gypsum moved a bit lower.

The outlook is for nonresidential building materials prices to rise moderately over the remainder of the year. Stronger than expected growth would translate into greater building materials price inflation. Lower than expected growth would mean a slower rise in building materials prices.

Construction Materials Inflation
The Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) for materials and components used in construction slipped 0.1% on a seasonally adjusted (SA) basis in June following a like decline in May. The index was up 1.6% on a not seasonally adjusted (NSA) year-over-year basis and was up 7.7% from June 2010. Meanwhile, prices for raw materials used in construction or to produce products used in construction jumped 0.7% after falling 0.3% in May. The index was up 1.9% from June 2012 and was up 6.7% from June 2010.

An index that measures inputs used in nonresidential construction (excluding capital equipment) was flat (NSA) in June following a 0.2% increase in May. The index was up 1.2% from June 2012 and was up 10.7% from June 2010.

An index that measures inputs used in residential construction (excluding capital equipment) edged down 0.2% (NSA) in June following two months with no change. The index was 1.9% higher than in June 2012 and was 10.2% higher than in June 2010.

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
  Jun-13 May-13 Apr-13 Jun-13 May-13 Apr-13 Jun-13 May-13 Apr-13 Jun-13
Composite Indexes (Exclude capital equipment)      
Construction Materials*
(Unprocessed materials)
0.7 -0.3 -0.1 0.1 0.0 0.2 1.9 1.7 1.9 6.7
Materials and Components for Construction*
(Processed goods)
-0.1 -0.1 0.0 -0.1 0.0 0.2 1.6 1.8 2.2 7.7
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
-0.1 0.0 -0.1 0.0 0.0 0.4 1.5 0.8 0.4 10.4
    Inputs to New Construction -0.1 0.1 -0.1 0.0 0.0 0.4 1.5 0.9 0.5 10.5
        Inputs to Residential Construction -0.2 0.0 0.0 -0.1 0.0 0.4 1.9 1.6 1.4 10.2
        Inputs to Nonresidential Construction 0.0 0.2 -0.1 0.0 0.0 0.4 1.2 0.3 -0.4 10.7
            Inputs to Commercial Construction -0.1 0.2 -0.1 0.0 0.0 0.3 1.2 0.6 0.4 9.4
            Inputs to Industrial Construction 0.0 0.1 -0.1 0.0 -0.1 0.2 0.9 0.1 -0.4 9.3
            Inputs to Heavy Construction 0.0 0.1 -0.1 0.0 -0.1 0.4 1.1 0.0 -0.6 11.3
       
    Inputs to Maintenance and Repair 0.0 -0.2 -0.2 -0.1 -0.2 0.4 0.9 -0.1 -0.7 10.2
        Inputs to Nonresidential Maintenance
        and Repair
0.0 -0.2 -0.2 -0.1 -0.2 0.3 0.7 -0.4 -0.9 10.0
        Inputs to Res Maintenance and Repair -0.1 0.1 -0.1 0.0 0.0 0.4 1.9 1.3 0.8 11.3
       
  (Indexes include installation and overhead)      
New Warehouse Building Construction 0.0 0.7 0.6 0.4 0.5 0.1 2.7 2.7 2.2 9.2
New School Building Construction 0.1 0.0 0.4 0.2 0.0 0.0 0.5 0.4 0.4 7.0
New Office Construction -0.3 0.2 0.3 0.1 0.2 0.1 0.8 1.0 0.9 5.9
New Industrial Building Construction 0.1 0.1 0.5 0.2 0.2 0.2 1.6 1.5 1.3 6.7
New Health Care Building Construction 0.0 0.0 0.5 0.2 0.1 0.1 0.5 NA NA NA
       
Other Related Indexes      
PPI Finished Goods* 0.8 0.5 -0.7 0.2 -0.3 -0.2 2.5 1.7 0.6 10.4
PPI Finished Goods less food and energy* 0.2 0.1 0.1 0.1 0.1 0.1 1.7 1.7 1.7 6.7
CPI Urban Consumer* 0.5 0.1 -0.4 0.1 -0.1 0.0 1.8 1.4 1.1 7.1
CPI Urban Consumer less food and energy* 0.2 0.2 0.1 0.1 0.1 0.1 1.6 1.7 1.7 5.6
       
Production Index: Construction Supplies* 0.1 -0.1 -1.1 -0.4 -0.8 0.0 3.6 2.6 2.5 10.4
Retail Sales: Building & Equipment Supplies* -2.2 1.2 3.1 0.7 1.2 0.9 6.1 10.7 9.9 9.3

*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 SA prices were unchanged in June following an increase of 0.2% in May. Construction machinery NSA rental rates were unchanged in June following a decline of 0.1% in May. Excluding oil field equipment, rental rates were unchanged for the second month in a row.

For about a year, many builders and developers have shifted from buying construction equipment to renting construction equipment. On a year-over-year NSA basis, rental rate increases exceeded purchase price increases — 7.6% versus 2.5%. Over a longer period, the rental rates have increased a bit less than purchase prices. Rental rates were up 9.2% from June 2010, while purchase prices were up 10.3%. However, rental rates excluding oil field equipment were up 14.7% over that three year period. For the rest of 2013, rental rate increases are likely to largely trend higher than equipment purchase prices.

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
  Jun-13 May-13 Apr-13 Jun-13 May-13 Apr-13 Jun-13 May-13 Apr-13 Jun-13
Assembled Equipment      
Hand and Edge tools -0.2 0.2 0.4 0.1 0.2 0.2 2.4 3.3 3.0 5.4
Power Hand Tools 0.0 0.0 -0.1 0.0 0.0 0.0 0.8 0.8 0.8 2.7
Appliances* -0.1 0.3 0.2 0.1 0.1 0.0 -0.3 -0.3 0.1 6.0
Furnaces -1.4 1.1 0.4 0.1 0.6 0.4 1.9 3.5 2.2 8.1
AC; Refrigeration; and Forced Air Heating Equip. Mfg. -0.6 0.3 -0.4 -0.2 0.3 0.5 2.2 2.0 1.5 8.4
Construction Machinery* 0.0 0.2 0.4 0.2 0.2 0.2 2.5 2.7 2.9 10.3
Construction Machinery Rental (incl. oilfield equip.) 0.0 -0.1 0.2 0.0 0.0 0.1 7.6 4.5 5.0 9.2
    Construction equipment rental and leasing 0.0 0.0 0.1 0.0 0.1 0.0 10.0 5.0 5.6 14.7
    Oilfield and well drilling equipment rental
      and leasing
0.0 0.0 -0.1 0.0 0.0 0.0 5.3 5.3 5.3 6.1
Trucks over 14,000 Ibs. GVW 0.4 0.3 -0.4 0.1 0.0 -0.2 1.4 1.2 1.0 5.5
Metal Doors, Sash and Trim 0.3 -0.5 -0.4 -0.2 -0.2 0.0 -0.3 0.0 0.7 8.6

*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 fell 0.3% (NSA) after increasing 0.7% in May. Prices were up 4.9% from June 2012 and up 4.2% from June 2010.

Prestressed concrete products prices, on the other hand, increased 0.5% for the second month in a row. On a year-over-year basis, prices were 4.0% higher, but were only 1.0% higher than in June 2010.

Precast concrete products prices slipped 0.2% in June following no change in May. Prices were 2.4% higher than in June 2012 and were 5.6% higher than in June 2010.

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
  Jun-13 May-13 Apr-13 Jun-13 May-13 Apr-13 Jun-13 May-13 Apr-13 Jun-13
Construction Commodities      
Dimension Stone 0.0 -0.4 -0.4 -0.3 0.2 0.7 4.5 4.0 4.5 7.8
Cement -0.3 0.7 0.8 0.4 0.7 0.4 4.9 5.2 4.9 4.2
Construction Sand, Gravel & Crushed Stone* 0.7 -0.3 -0.1 0.1 0.0 0.2 2.0 1.7 2.0 6.2
Softwood Plywood 2.3 -2.3 3.2 1.0 0.2 1.6 13.9 11.8 14.9 14.9
Hardwood Lumber 0.7 2.9 1.6 1.7 2.4 1.7 13.7 13.0 8.7 8.2
Softwood Lumber* -5.6 -8.2 2.5 -3.8 -0.7 2.8 8.0 16.7 33.1 16.9
Other Commodities      
Industrial Natural Gas* -0.5 2.6 6.2 2.7 3.2 2.4 14.9 17.4 9.6 -7.7
Plastic Resins & Materials 0.6 -1.1 -1.1 -0.6 -0.1 0.9 3.6 1.9 2.7 17.6
Insulation Materials -1.3 1.3 -1.3 -0.4 0.0 0.4 3.5 5.3 4.0 16.7
Iron & Steel Scrap -1.8 -6.0 -2.3 -3.4 -0.7 0.7 -7.4 -17.9 -13.7 -9.3
Iron Ore -1.4 1.9 -0.7 -0.1 2.6 2.0 -28.0 -30.2 -33.5 -12.8
Copper Ores 0.9 -4.9 -5.9 -3.4 -3.3 -1.1 -1.1 -7.2 -7.1 12.5
Copper Base Scrap* 1.4 0.3 -4.8 -1.1 -2.4 -3.3 -4.8 -6.8 -6.5 13.8

*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
Industrial natural gas prices fell for the first time in 11 months, down 0.5% (SA) in June after increasing 2.6% in May. Prices were 14.9% (NSA) higher than in June 2012, but were 7.7% lower than in June 2010.

Natural gas remains cheap relative to oil. The price difference between the two has prompted a shift in demand from oil and coal to natural gas (many companies and utilities are able to switch among fuels relatively easily), putting downward pressure on oil prices and upward pressure on natural gas prices. The difference has also encouraged U.S. producers to shift from natural gas production to oil production. However, as a result of the rise in natural gas prices, some utilities have switched their fuel source for power generation once again, in most cases to coal.

Petroleum refineries prices fell for the fourth month in a row, down 0.1% (NSA) in June following a 0.2% decrease in May. Prices were down 0.3% from June 2012, but were up 31.5% from June 2010.

Diesel fuel prices jumped 1.1% (SA) in June after rising 0.3% in May. Prices were up 3.6% (NSA) from June 2012, but were up 38.0% from June 2010.

Plastic resins and materials prices rose 0.6% (NSA) in June after dropping 1.1% in May. Prices were 3.6% higher than in June 2012 and were 17.6% higher than in June 2010.

Asphalt prices declined 0.7% (NSA) in June following a 5.5% surge in May. Prices were down 13.9% from June 2012, but were up 6.4% from June 2010. Asphalt roofing prices advanced 1.7% in June after increasing 1.6% in May. Prices were up 3.0% from June 2012 and were up 5.1% from June 2010.

Plastics pipe prices rose 0.5% (NSA) in June after heading 1.8% higher in May. Prices were up 1.2% from June 2012 and were up 18.2% from June 2010. However, plastics plumbing fixtures prices were unchanged in June after slipping 0.1% lower in May. Prices were 0.9% lower than in June 2012, but were 4.0% higher than in June 2010.

Events in Egypt have added to uncertainty about the reliability of oil supplies from the Middle East, sending prices higher. As a result, increases in petroleum and related prices will likely show up starting in July and continue as long as the uncertainty persists.

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
  Jun-13 May-13 Apr-13 Jun-13 May-13 Apr-13 Jun-13 May-13 Apr-13 Jun-13
Manufactured Materials      
Gypsum Products -0.2 0.5 0.3 0.2 0.6 1.8 15.6 19.3 19.6 23.8
Petroleum refineries -0.1 -0.2 -1.8 -0.7 -1.6 1.0 -0.3 -6.1 -9.8 31.5
Diesel Fuel* 1.1 0.3 -3.5 -0.7 -5.8 -3.6 3.6 -5.5 -6.0 38.0
Asphalt -0.7 5.5 5.2 3.3 2.4 -0.3 -13.9 -14.0 -16.2 6.4
Asphalt paving mixture & block mfg. -0.3 0.8 -0.8 -0.1 0.0 -0.3 -1.6 -0.8 -1.8 10.8
Asphalt shingle and coating materials mfg. 1.2 1.3 1.7 1.4 1.1 0.4 1.9 3.3 4.2 7.6
Asphalt Roofing 1.7 1.6 2.1 1.8 1.4 0.5 3.0 4.7 6.0 5.1
       
Paint -0.8 0.8 -1.2 -0.4 0.0 -0.4 -0.6 0.3 -0.6 17.9
Plastic Construction Products 0.2 0.3 -1.2 -0.2 -0.3 -0.1 0.3 0.4 0.2 9.0
    Plastics Pipe 0.5 1.8 -1.6 0.2 -0.3 -0.4 1.2 1.9 0.9 18.2
    Plumbing Fixtures 0.0 -0.1 -0.3 -0.1 0.0 0.2 -0.9 -0.9 -0.9 4.0
Vitreous Plumbing Fixtures -0.2 2.8 0.7 1.1 -0.1 -0.9 0.1 0.3 -2.0 3.7
Ceramic Tile -3.9 1.7 -1.6 -1.3 1.2 2.0 0.9 5.1 3.8 0.1
Flat Glass 0.3 2.2 -0.9 0.5 0.5 -0.2 4.2 4.0 2.1 7.8
       
Steel Mill Products -0.7 -1.3 0.4 -0.5 -0.3 -0.2 -8.1 -9.5 -8.9 -5.8
Steel Pipe and Tube* 0.0 -2.4 -0.2 -0.9 -1.6 -1.7 -13.3 -13.2 -12.3 -0.2
Hot rolled bars, plates & structural shapes -1.7 -1.8 2.0 -0.5 0.1 0.3 -7.2 -7.1 -7.1 -0.9
Extruded Aluminum rod, bar and other shapes -0.3 -1.7 -3.2 -1.8 -1.5 -1.3 -4.1 -6.1 -5.7 -0.3
Architectural Metalwork 0.4 0.0 -0.5 0.0 -0.2 -0.1 1.4 0.9 0.7 6.5
Metal Plumbing Fixtures* 0.0 0.3 -0.5 -0.1 -0.1 -0.1 1.0 1.0 0.8 5.4
Builders’ Hardware -0.2 0.6 0.1 0.2 0.2 0.1 -0.4 0.2 -0.1 6.1
Sheet Metal Products -0.3 0.2 -0.7 -0.3 -0.2 -0.2 -2.3 -2.4 -2.0 3.1
       
Copper and Copper Products 0.0 -3.0 -4.1 -2.4 -2.7 -1.4 -2.8 -7.3 -6.6 8.5
Copper and Brass Mill Shapes -0.5 -2.9 -2.7 -2.1 -2.6 -1.5 -3.8 -7.4 -6.0 6.7
    Nonferrous Pipe and Tube -0.6 -2.1 -2.0 -1.6 -1.9 -1.8 -2.3 -8.0 -7.2 3.6
       
Building Brick 0.6 -0.8 0.6 0.1 -0.1 0.3 -0.4 -0.8 -0.4 -6.8
Ready Mix Concrete* -0.1 -0.3 1.6 0.4 0.5 0.7 3.3 3.4 3.8 4.8
Concrete Block & Brick -0.5 0.7 0.6 0.3 0.6 0.3 1.8 2.2 1.5 3.5
Prestressed Concrete 0.5 0.5 -0.4 0.2 0.4 0.1 4.0 3.3 2.5 1.0
Precast Concrete Products -0.2 0.0 0.5 0.1 0.3 0.1 2.4 1.4 1.5 5.6
Concrete Pipe 0.4 -0.3 0.6 0.2 0.0 0.2 4.2 3.6 4.8 7.4
       
Engineered Wood Products 0.0 0.0 0.8 0.3 0.8 1.1 13.1 13.6 16.0 19.1
Wood Kitchen Cabinet and Countertop Mfg. -0.7 0.8 0.4 0.2 0.5 0.5 2.9 4.4 3.6 6.6
Millwork (window, door, cabinet)* -0.3 0.4 0.4 0.2 0.4 0.4 2.7 3.4 3.0 6.8
Wood Window and Door Mfg. 0.1 0.2 0.1 0.1 0.2 0.4 1.7 1.5 1.4 8.4
Metal Window and Door Mfg. 0.3 -0.5 -0.3 -0.2 -0.3 -0.1 -0.5 -0.2 0.5 8.2
Laminated Plastics -0.1 0.0 0.0 0.0 0.1 1.1 3.9 4.0 4.3 8.4
Nonresidential Electric Lighting Fixture Mfg. 0.0 -0.1 0.0 0.0 0.0 0.0 0.4 0.1 0.2 5.7

*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

Copper and Copper Products
Copper ores prices rebounded 0.9% (NSA) in June after plunging 4.9% in May. Prices were 1.1% lower than in June 2012, but were 12.5% higher than in June 2010.

Copper base scrap prices jumped 1.4% (SA) in June after rising 0.3% in May. Nonetheless, prices were down 4.8% (NSA) from June 2012, but were up 13.8% from June 2010.

Prices for copper and copper products were unchanged (NSA) in June after tumbling 3.0% in May. Prices were 2.8% lower than in June 2012, but were 8.5% higher than in June 2010.

Copper and brass mill shapes prices fell for the fourth month in a row, down 0.5% in June after sinking 2.9% in May. Prices were 3.8% lower than in June 2012, but were 6.7% higher than in June 2010.

Other Metals
Steel mill products prices declined 0.7% (NSA) in June after falling 1.3% in May. Prices were 8.1% lower than in June 2012 and were 5.8% lower than in June 2010. Hot rolled bars, plates, and structural shapes prices fell 1.7% in June after decreasing 1.8% in May. Prices were 7.2% lower than in June 2012 and were 0.9% lower than in June 2010.

Slower growth in much of the world is putting downward pressure on steel prices. Iron and steel scrap prices, often a good predictor of steel prices in the near term, tumbled 1.8% in June after plunging 6.0% in May. Prices were 7.4% lower than in June 2012 and were 9.3% lower than in June 2010.

Extruded aluminum rod, bar, and other shapes prices slid 0.3% (NSA) in June after declining 1.7% in May. Prices were down 4.1% from June 2012 and almost unchanged from June 2010 (down 0.3%).

Softwood Lumber and Gypsum
Single-family housing construction activity is the primary driver of demand for softwood lumber and gypsum products. As the single-family housing market has recovered, demand for these materials has recovered as well.

Initially, softwood lumber, plywood, and oriented strand board (OSB) prices increased rapidly, mainly due to supply limitations. More recently, as supply has expanded, these prices have backtracked a bit.

The Random Lengths (RL) weekly average framing lumber composite price peaked at $451 per thousand board feet the week ending April 5. The price proceeded to fall to $322 the week ending June 21. Since then the composite price has moved upward again.

The PPI for softwood lumber tumbled 5.6% (SA) in June after nose-diving 8.2% in May. Meanwhile, softwood lumber prices were up 8.0% from June 2012 and were up 16.9% from June 2010.

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 RL composite price of softwood lumber over a specified four week period prior to that month falls within a four tier regime. The categories (or tiers), from most restrictive to least restrictive, and the related prices per thousand board feet determining which category is in force for the month are as follows:

Increased single-family construction activity and repair activity following Hurricane Sandy, together with supply bottlenecks, drove prices for softwood lumber to a level that resulted in tier 4 — no restrictions on Canadian exports — for the first seven months of 2013. The price to determine restrictions on Canadian exports to the U.S. for July was just over the wire at $356 — just high enough for tier 4 to prevail for the month. The price to determine the tier that will be in force for August was $326, resulting in tier 2, the second most restrictive category. If prices remain around their current level, exports limits and fees for September will be governed by tier 3.

The table below summarizes recent average prices and the resulting tier (category).

Average Prices to Determine
SLA Canadian Softwood Export Restrictions

  2012 2013
  November December January February March April May June July August
Average Price $326 $334 $357 $385 $395 $416 $443 $407 $356 $326
Tier 2 2 4 4 4 4 4 4 4 2

Source: Foreign Affairs and International Trade Canada

Last year several gypsum producers announced price increases of 25% to 30% effective at the beginning of this year. To date, the gypsum producers have had partial success implementing the higher prices, but the increases have moderated over the last few months and even declined slightly in June. Gypsum prices decreased 0.2% (NSA) in June after advancing 0.5% in May. Since December, gypsum prices were up 18.3%. They were 15.6% higher than in June 2012 and were 23.8% higher than in June 2010.

Outlook for Construction Materials Prices
The effects of the end of the two-year Social Security tax holiday at the beginning of the year (increasing the payroll tax by 2%) and the reduction in federal spending, including sequestration, are a drag on economic growth. In spite of these and other impediments to growth, the U.S. economy is moving ahead at a moderate pace. Challenges for economic growth remain. These include the need to fund the federal government beyond the end of the current fiscal year at the end of September and to raise the federal debt ceiling towards the latter part of the year. Meanwhile, Europe is in recession, reducing demand for imports from the U.S. and for building products.

The Reed forecast is for nonresidential construction activity to recover from the recent slowdown and to advance at a moderate pace in the second half of this year and to strengthen more in 2014. Along with rising residential construction activity, there will be moderate upward pressure on construction materials prices. The outlook is for 2013 building materials prices to rise at roughly the same pace as or slightly slower than overall inflation.

If the U.S. economy exceeds our forecast of real (inflation-adjusted) gross domestic product (GDP) growth of 1.9% for the year, there will be increased construction activity and greater increases in materials prices. Faster growth in the rest of the world would also mean higher construction materials price inflation. Significantly higher energy prices for a sustained period would contribute to a greater rate of building materials price inflation.