CanaData's construction material price indexes for residential (+3.9%), non-residential building (+6.4%) and engineering (+5.2%) work, on a year-over-year basis, currently stand just about where one would expect. Residential prices are advancing relatively the slowest due to a weakening market. On-site activity levels in non-residential building are still high, but the worldwide and domestic recessions will soon have an impact. And engineering work is most tied to fossil fuel prices, but that is a "double-edged sword." Lower oil prices reduce the incentive to spend on mega energy projects, but they also lower costs for the major infrastructure program that is upcoming from public spending.

Why the Urgency over Costs?
Movements in construction costs take on added significance at this time as recession's grip tightens on the economy. There should be some bargains available on the costing side for those companies that still have the funds and optimism to undertake expansions. Plus, there is the potential for governments in Canada to get full value for their money as they embark on the massive infrastructure spending program that was outlined in the recent federal budget.

The three major types of construction are comprised of many input categories (see table below for examples), but each of residential, non-residential building and engineering has some main determinants. In residential, it's lumber markets. In non-residential building, it's concrete, reinforcing steel and structural steel. And in engineering, it's the structural materials, plus fossil fuels such as asphalt.

Lumber Markets
In lumber markets, prices have been in remission for several years, ever since U.S. housing starts began their slump. On an aggregate basis, lumber prices are +4.6% year over year, but that is due to the decline in value of the Canadian dollar versus the U.S. dollar rather than any pickup in markets. In fact, Canadian housing starts are stepping down on a month-to-month basis and U.S. housing starts remain firmly entrenched in the basement.

Cement and Steel Prices
The cement price index remains near a record high and the year-over-year percentage change has softened only slightly, to about +2.5% versus +5.0% a year ago. Ready-mix concrete prices have plateaued within a +4.0% to +6.0% year-over-year range. They have been at this level since early 2006, a period of three years.

Some steel prices have started to relent, especially for rebar, which has slipped into the negative (-5.5%) on a year-over-year basis. Structural steel prices, however, remain lofty and on a year-over-year basis (nearly +30.0%) are only down by a little.

Iron and Coal as Inputs into Steel
Part of the reason for the high steel prices is the contracts signed earlier for iron ore as part of the production process. Year-over-year iron ore prices are still in excess of +50%. Since a great deal of iron ore production is shipped outside the country, to the United States and China, the drop in the value of the Canadian dollar is also contributing to the bump up in prices in this commodity category. However, a significant tailing off in coal prices should help to mitigate some of this input cost dilemma for the steel industry.

Products with base metal components have most prominence in non-residential building markets. Copper prices have been on the decline since the middle of last year. As a consequence, the electric wire and cable price index has been sloping downward and its year-over-year change has touched a low point of about -5.0%. At the same time, the metal plumbing fixture price index has continued to climb and the year-over-year gain now exceeds +10.0%.

Products with a Fossil Fuel Component
Finally, there are the products with the closest tie-ins to global oil prices. Asphalt and diesel fuel have come off their highs dramatically since last summer. That's because July 2008 was the peak for international oil prices, "clocking" in at $147 USD per barrel. The international price of oil has since fallen by more than two-thirds.

Asphalt and diesel prices, while down versus their peak levels, have still proven a little sticky in reacting to their feedstock cost decline. Asphalt prices have dropped by 40.0% but still remain 50% ahead of their year-ago level. Diesel prices have similarly fallen by 40.0%, but are actually flat when compared with their year-previously figure.

The Regions

In the two regional index comparisons in the table, the Prairies are lagging in softwood lumber prices. This is undoubteldy due to a deteriorating housing market in Alberta, where starts declined significantly in 2008. Also, the home price drops in Calgary and Edmonton have been among the most severe in the country.

Note: An industrial product price is recorded when the good leaves the producer's door. It does not include costs incurred between then and when customers take possession of it. Therefore, it excludes indirect taxes, transportation, wholesaling and retailing costs.