Some Canadian Construction Material Costs are Waking Up from their Slumber
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RSS FeedBased on Industrial Product Price Index information from Statistics Canada, Reed Construction Data-CanaData calculates material construction cost indices − for overall construction and major type-of-structure sub-categories. The year-over-year change for total construction in May 2009 was -7.9%. This was comprised of residential construction at +1.6%, non-residential buildings at -5.1% and engineering work at -15.7%. Material cost changes may still be sleeping lightly, but there are signs that they are starting to stir.
Residential Construction Materials
The residential materials cost index has been essentially flat for the past four years. A heavy weighting in the residential materials index goes to lumber prices. Lumber prices have been on a downward trajectory since early in 2006, which was when U.S. housing starts began their steep descent. In the most recent period, weak Canadian housing starts have had a significant impact on lumber prices regionally. For example, softwood lumber is -12.4% in Ontario versus six months ago and -6.7% in B.C. versus three months ago. (story continued below)
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Non-residential Building Materials
Non-residential building material costs are falling because of the weakness that has emerged in the privately-financed categories of construction, commercial and industrial. Weakness in product demand from the manufacturing sector is being matched by declines in retail sales and office space needs in the commercial sector. Total ICI starts in the first half of this year in Canada were down by 50% year over year, according to CanaData. A similar pattern has recently started to emerge in the United States as well.
Major material sub-components of non-residential building construction have been pulling back on the cost front. Included here would be support and framing materials such as concrete rebar (-34.6% year over year), structural steel shapes (-10.1%) and aluminum structural shapes (-6.7%). The key question concerns how long this will last.
Capital spending in China has played a big role in determining prices in these product areas in the past. There is mounting evidence that the Chinese dragon is hungry for nourishment again. Government agencies are trying to line up key raw material supply lines. This will have an impact on costs everywhere in the not too distant future. Some commodity prices (e.g., nickel and copper) are already on the move upward. For the moment, however, concrete reinforcing bar and structural steel prices are still languishing in Canada, even on a quarter-over-quarter basis (e.g., -10.3% and -16.5% respectively). (story continued below)
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Engineering Material Construction Costs
No one should be complacent about the engineering material cost index. The large year-over-year drop is due to international oil prices. They peaked in July of last year. Then they bottomed out in February of this year. The year-over-year change in gasoline prices, for example, has been -24.3% in Canada, according to the Consumer Price Index, but it is +6.8% in the latest month. Similarly, while the engineering material cost index is down dramatically when compared with last year, it has been creeping back up over the past five months. Engineering construction has a particularly large energy component.
As oil prices advance along with the world economic recovery, engineering construction costs will shake off their lethargy. This will be exacerbated by the fact that governments everywhere are pressing forward with massive infrastructure-spending stimulus packages. The current period of relaxation in construction material costs is giving definite signs of wiping the sleep from its eyes, yawning and stretching, then climbing out of bed.
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Charts: Reed Construction Data - CanaData.
PERCENT CHANGE IN MAY 2009 INDEX FROM: |
|||||||
| 6 Years Ago |
3 Years Ago |
1 Year Ago |
6 Months Ago |
3 Months Ago |
1 Month Ago |
||
| Total, all commodities | 10.6% | 1.6% | -4.3% | -3.1% | -1.3% | -1.1% | |
| Key Aggregates: | |||||||
| Lumber and other wood products | -3.9% | -8.6% | 0.2% | -5.0% | -3.1% | -1.9% | |
| Primary metal products | 32.6% | -13.4% | -16.2% | -2.3% | 0.9% | -2.4% | |
| Metal fabricated products | 25.3% | 8.8% | 2.3% | -2.8% | -2.3% | -0.2% | |
| Machinery and equipment (includes HVAC) | 5.2% | 4.2% | 6.2% | -1.0% | -1.8% | -1.5% | |
| Electrical and other communications products | -0.6% | 2.1% | 6.1% | -1.9% | -3.2% | -2.3% | |
| Non-metallic mineral products | 16.9% | 7.5% | 3.0% | 1.7% | 0.2% | 0.1% | |
| Petroleum and coal products | 56.4% | -14.1% | -39.1% | -10.4% | 6.4% | 5.2% | |
| Chemicals and chemical products | 18.7% | 9.2% | -3.3% | -6.3% | -0.5% | -0.3% | |
| Construction Inputs: | |||||||
| Veneer and plywood | -10.0% | -9.5% | -2.7% | -5.7% | -2.6% | -0.9% | |
| Particle board and waferboard | -33.2% | -35.7% | -8.6% | -10.4% | -2.9% | -0.3% | |
| Shakes and shingles | 6.9% | 5.9% | 3.6% | -8.5% | -5.5% | -4.9% | |
| Wooden doors, windows, cabinetry, millwork | 2.5% | -1.4% | -0.7% | -2.0% | -0.5% | -0.2% | |
| Gypsum wall board, lath and plaster | 11.9% | -6.0% | 2.3% | 2.8% | 3.8% | 0.0% | |
| Sand and gravel | 34.1% | 18.4% | 1.0% | 1.0% | 0.0% | 0.0% | |
| Glass and glass products | 11.4% | 9.6% | 7.3% | 1.8% | -0.3% | -0.3% | |
| Cement (portland) | 21.1% | 10.6% | 3.3% | 3.3% | -0.1% | -0.1% | |
| Ready-mix concrete | 25.5% | 11.2% | 1.3% | 1.0% | -0.1% | 0.8% | |
| Concrete brick and building blocks | 25.5% | 9.2% | 3.8% | 3.4% | 0.0% | 0.0% | |
| Clay products (brick) | 5.9% | -2.0% | -2.6% | -1.7% | -0.1% | -0.1% | |
| Aluminum structural shapes | 2.3% | -7.0% | -6.7% | -3.1% | -0.2% | 0.6% | |
| Concrete reinforcing bars (including fabricated) | 15.5% | -7.4% | -34.6% | -13.8% | -10.3% | -2.2% | |
| Structural steel shapes (including fabricated) | 56.4% | 8.9% | -10.1% | -15.0% | -16.5% | -1.7% | |
| Prefabricated metal buildings | 42.6% | 4.5% | 0.8% | 0.0% | 0.0% | 0.0% | |
| Doors and windows (metal) | 17.2% | 5.0% | -0.1% | -1.7% | -1.8% | -0.2% | |
| Roofing and siding (metal) | 61.0% | 29.4% | 13.2% | 6.2% | -0.5% | 0.0% | |
| Roof deck and flooring (metal) | 17.7% | 4.4% | 0.0% | 0.0% | 0.0% | 0.0% | |
| Thermal insulation and fibrous glass | 15.3% | 3.0% | 3.4% | 2.7% | 1.5% | -0.1% | |
| Bolts, nuts, screws, washers, fasteners | 42.0% | 16.8% | 6.5% | 1.2% | 0.6% | 0.6% | |
| Builders' hardware | 1.9% | 2.8% | 2.7% | 1.5% | -2.4% | -1.1% | |
| Plumbing fixtures and valves (metal) | 47.3% | 19.6% | 11.5% | 2.4% | 0.8% | 0.0% | |
| Plastic pipes and pipe fittings | 14.1% | -5.6% | 1.5% | -4.4% | -0.9% | -1.8% | |
| Electric wire and cable | 28.1% | -10.3% | -5.5% | -2.8% | -1.1% | 0.4% | |
| Lighting Fixtures (incandescent) | 1.6% | 1.4% | 1.4% | 1.1% | 0.0% | 0.0% | |
| Paint and varnish | 17.1% | 2.9% | -0.2% | -3.8% | -0.9% | 0.0% | |
| "Heavy" Inputs: | |||||||
| Construction machinery and equipment | 17.2% | 12.6% | 8.9% | 1.8% | -0.1% | 0.0% | |
| Mobile earth moving and allied equipment | 17.4% | 16.7% | 13.2% | 3.3% | 0.0% | 0.0% | |
| Mixing and paving equipment (concrete and asphalt) | 19.3% | 3.3% | 1.6% | -0.2% | -0.2% | 0.0% | |
| Steel pipe and tubing (to transport oil and gas) | 31.9% | 5.1% | 4.4% | -1.9% | -1.0% | -0.6% | |
| Concrete pipe | 13.3% | 14.5% | 4.0% | 2.4% | 0.0% | 0.0% | |
| Asphalt (one month behind) | 58.1% | 18.0% | -2.5% | -41.2% | 27.0% | 12.7% | |
| Gasoline (one month behind) | 34.7% | -22.1% | -35.5% | -24.9% | 15.5% | 1.1% | |
| Diesel fuel (one month behind) | 29.5% | -21.5% | -45.1% | -39.5% | -11.1% | 3.1% | |
| Raw Materials Prices: | |||||||
| Total raw materials | 34.6% | -11.3% | -31.6% | -0.1% | 14.3% | 2.2% | |
| Mineral fuels (thermal coal, crude oil and natural gas) | 45.4% | -20.5% | -45.9% | -1.4% | 30.6% | 6.2% | |
| Wood | -8.5% | -1.0% | -7.1% | -7.5% | -4.7% | -0.9% | |
| Ferrous materials | 48.7% | 5.8% | -19.6% | -6.2% | -6.8% | -4.5% | |
| Iron ore | 89.5% | 41.4% | 17.5% | -3.6% | -7.6% | -6.0% | |
| Non-metallic minerals | 50.8% | 24.6% | 5.8% | 1.1% | -0.5% | -0.3% | |
| Stone | 25.7% | 13.4% | 4.7% | 4.7% | 1.5% | 0.0% | |
| Some Regional Comparisons | |||||||
| Lumber, softwood, Atlantic Region | -7.1% | -14.5% | 5.5% | -3.8% | -1.7% | -1.2% | |
| Lumber, softwood, Québec | -12.9% | -18.1% | 2.3% | -6.6% | -3.9% | -2.7% | |
| Lumber, softwood, Ontario | -4.7% | -16.2% | -0.6% | -12.4% | -2.6% | -1.6% | |
| Lumber, softwood, Prairie Region | -21.1% | -32.3% | -4.5% | -5.2% | -3.1% | -2.9% | |
| Lumber, softwood, spruce-pine-fir, B.C. Interior | 2.2% | -18.6% | 6.0% | -7.8% | -6.7% | -6.0% | |
| Ready-mix concrete, Atlantic Region | 18.6% | 7.1% | 0.3% | 0.0% | 0.0% | 0.0% | |
| Ready-mix concrete, Québec | 7.2% | 3.6% | 0.0% | -0.3% | -1.7% | 0.0% | |
| Ready-mix concrete, Ontario | 26.5% | 9.6% | 3.4% | 2.6% | 0.0% | 0.0% | |
| Ready-mix concrete, Prairie Region | 44.5% | 27.9% | 5.8% | 5.2% | 3.3% | 3.2% | |
| Ready-mix concrete, British Columbia | 25.3% | 6.4% | -3.6% | -3.3% | -2.0% | 0.0% | |
| Type of Construction Indexes: | |||||||
| Residential | 9.6% | -2.0% | 1.6% | -0.8% | -0.4% | -0.3% | |
| Non-residential building | 28.7% | 5.8% | -5.1% | -3.6% | -4.2% | -0.5% | |
| Engineering construction | 31.1% | -0.4% | -15.7% | -6.5% | 2.3% | -0.1% | |
| TOTAL CONSTRUCTION | 21.9% | 0.2% | -7.9% | -3.9% | 0.0% | -0.3% | |
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