Price trends are now very hard to read. The mortgage generated turmoil in financial markets is now spilling into the real economy causing abrupt changes in exchange rates, credit availability and investment in commodities. Each of these impacts prices and sets off changes in commodity purchases unrelated to the need for commodities for final use. Much of the world’s oil and natural gas and an increasing share of the worlds’ metals are today being bought or sold by financial entities rather than processors or users.

Short term price trends will be usually volatile in this environment. For example, on St. Patrick’s Day, commodity prices are rising because investors decided over the last month that that commodities were safer to hold for the short term than financial assets whose value again became hard to determine as the bond rating system began to collapse. This impact will dominate price trends for a few months then vanish.

But longer term price trends still depend on the purchase of commodities for final use. These trends have soured significantly since the beginning of the year and will be a restraint on commodity pride increases for the rest of the year. You should focus on this trend for facility cost planning.

The US GDP growth outlook for the rest of the year is now at least 0.5% lower than a month ago. Worldwide, the growth outlook has ebbed 0.2-0.3%. Theses changes will have a magnified impact on construction commodity pricing as any decline in economic growth is always quickly expressed in an outsized decline in the capital goods industries.

Our price outlook for 2008 continues to be weak pricing, including some declines, for construction commodities priced in domestic markets and not of interest to financial market speculators. Gypsum is the best example. Domestically priced commodities that occasionally attract speculative buyers from outside the construction market have a similar price outlook with a probability of a speculative boost in pricing late in the year. Lumber and plywood are best examples of this category.

The outlook for manufactured construction materials is for pricing to continue to weaken in 2008 apart from changes in the price of the key raw material. Energy, metal and cement prices will rise strongly due to still rapidly growing world demand. But the manufacturing process share of the cost of builder’ hardware, precast concrete, etc is steady of declining due to still strong growth in labor productivity.

The price outlook for commodities has become grimmer, especially for energy products and metals but not cement products. While US oil demand is now declining, the associated price decline will not come at least until late in the year. Commodities are remaining an attractive alternative to investors for longer than first expected. The demise of Bear Stearns on March 16th is a reminder to investors that some financial assets are still not properly priced. Bear Stearns was worth only a few cents on the dollars when the FRB and JP Morgan looked closely at its assets.

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