Nonresidential Construction Materials Prices Edge Higher in December

Overview
Prices for inputs used in nonresidential construction reversed two months of decline and inched up in December. Price increases in energy (except for natural gas prices) and most other energy related materials prices were largely offset by decreases in copper, softwood plywood, and architectural metalwork prices.

Prices of building materials primarily used in residential construction also rose modestly in December. In addition to the price movements already mentioned for nonresidential construction materials, December residential construction materials prices were influenced by increases in gypsum and furnace prices and a sharp drop in oriented strand board (OSB) prices.

Bad winter storms across much of the nation have adversely affected economic activity. Production and delivery of materials and finished products have been disrupted. When the weather improves, much of this lost activity will be recouped. In the meantime, building materials prices will be volatile as both supply and demand are buffeted by the elements.

The outlook for the economy and for construction remains positive with general improvement expected throughout 2014. Building materials prices should return to “normal” by late spring. For the second half of the year, building materials prices will rise modestly at first and then accelerate by the latter part of the fall and into winter. Stronger than expected growth would mean a faster increase in building materials prices. Lower than expected growth would result in a slower rise in building materials prices.

Downside risks to the economy and construction have been diminishing. Up until recently, the biggest near-term threat to the economy was the specter of hitting the federal debt ceiling. But Congress passed legislation, which the president will sign, to suspend the debt ceiling for a year (until March 2015).

The risk that the Federal Reserve reduces its asset purchase program (known as Quantitative Easing or QE) too quickly, sending long-term interest rates significantly higher, appears to be minimal at this point. Also, the risk of adverse fallout from economic troubles in Europe has fallen. Although there are always risks from unknown sources (we don’t know what we don’t know), the outlook for continued growth is bright.

Construction Materials Inflation
The Bureau of Labor Statistics (BLS) reported that the December Producer Price Index (PPI) for materials and components used in construction slipped 0.1% on a seasonally adjusted (SA) basis after no change the previous two months. The index was up 1.5% on a not seasonally adjusted (NSA) year-over-year basis and was 7.8% higher than in December 2010.

Prices for raw materials used in construction or to produce products used in construction were down 0.3% in December for the second month in a row. The index was 2.4% higher than in December 2012 and was 6.7% higher than in December 2010.

An index that measures inputs used in nonresidential construction (excluding capital equipment) increased 0.1% (NSA) in December after decreasing 0.6% in November. The index was up 1.0% from December 2012 and was up 7.7% from December 2010.

An index that measures inputs used in residential construction (excluding capital equipment) also increased 0.1% (NSA) in December after declining 0.3% in November. The index was up 1.6% from December 2012 and was up 8.7% from December 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
	Dec-13	Nov-13	Oct-13	Dec-13	Nov-13	Oct-13	Dec-13	Nov-13	Oct-13	Dec-13
Composite Indexes (Exclude capital equipment)
Construction Materials* (Unprocessed materials)	-0.3	-0.3	0.4	-0.1	0.5	0.8	2.4	2.6	3.0	6.7
Materials and Components for Construction* (Processed goods)	-0.1	0.0	0.0	0.0	0.1	0.2	1.5	1.7	1.9	7.8
Inputs to Construction (Residential and Nonresidential) (Includes inputs to maintenance and repair)	0.1	-0.5	-0.5	-0.3	-0.3	0.0	1.3	1.1	0.6	8.0
Inputs to New Construction	0.1	-0.5	-0.5	-0.3	-0.3	0.0	1.3	1.1	0.7	8.2
Inputs to Residential Construction	0.1	-0.3	-0.4	-0.2	-0.2	0.1	1.6	1.5	1.2	8.7
Inputs to Nonresidential Construction	0.1	-0.6	-0.5	-0.4	-0.4	0.0	1.0	0.7	0.0	7.7
Inputs to Commercial Construction	0.0	-0.4	-0.4	-0.2	-0.2	0.0	1.0	1.0	0.6	7.3
Inputs to Industrial Construction	0.1	-0.4	-0.5	-0.2	-0.3	0.0	0.8	0.6	0.0	7.0
Inputs to Heavy Construction	0.1	-0.8	-0.7	-0.5	-0.5	0.0	0.9	0.5	-0.3	7.9
Inputs to Maintenance and Repair	0.1	-0.6	-0.7	-0.4	-0.4	0.0	0.8	0.6	-0.1	6.1
Inputs to Nonresidential Maintenance         and Repair	0.1	-0.7	-0.7	-0.4	-0.4	0.0	0.6	0.4	-0.3	5.6
Inputs to Res Maintenance and Repair	0.1	-0.5	-0.6	-0.3	-0.3	0.0	1.5	1.3	0.7	8.9
(Indexes include installation and overhead)
New Warehouse Building Construction	0.0	1.0	5.5	2.1	0.2	-0.2	2.9	2.9	1.9	9.5
New School Building Construction	0.1	0.1	1.6	0.6	0.6	0.6	3.4	3.3	2.9	9.6
New Office Construction	0.0	0.0	1.5	0.5	0.5	0.5	2.8	2.8	2.8	8.0
New Industrial Building Construction	0.1	0.1	1.8	0.6	0.6	0.7	4.1	4.0	4.0	8.8
New Health Care Building Construction	0.0	-0.2	1.0	0.3	0.4	0.5	3.1	3.0	3.1	NA
Other Related Indexes
PPI Finished Goods*	0.4	-0.1	-0.2	0.1	-0.1	0.1	1.2	0.7	0.3	7.4
PPI Finished Goods less food and energy*	0.3	0.1	0.2	0.2	0.1	0.1	1.4	1.3	1.4	6.6
CPI Urban Consumer*	0.3	0.0	-0.1	0.1	0.1	0.1	1.5	1.2	1.0	6.3
CPI Urban Consumer less food and energy*	0.1	0.2	0.1	0.1	0.1	0.1	1.7	1.7	1.7	6.0
Production Index: Construction Supplies*	0.4	0.6	0.4	0.5	0.7	0.6	4.6	4.7	6.3	14.7
Retail Sales: Building & Equipment Supplies*	-0.4	0.4	-2.1	-0.7	-0.5	-0.9	4.2	0.6	4.8	10.1
*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 prices advanced 0.2% (SA) in December after falling 0.4% in November. Prices were 1.3% (NSA) higher than in December 2012 and were 9.5% higher than in December 2010.

Construction machinery rental rates jumped 1.4% (NSA) in December following a 0.3% increase in November. Rental rates were up 3.4% from December 2012 and were up 8.7% from December 2010.

Excluding oil field equipment, rental rates climbed 0.9% in December following no change in November. Oilfield and well drilling equipment rental and leasing rates remained unchanged for the eleventh month in a row. Rental rates excluding oil field equipment were up 2.9% from December 2012 and were up 11.3% from December 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
	Dec-13	Nov-13	Oct-13	Dec-13	Nov-13	Oct-13	Dec-13	Nov-13	Oct-13	Dec-13
Assembled Equipment
Hand and Edge tools	0.0	0.0	0.0	0.0	0.1	0.0	1.4	1.1	1.4	5.5
Power Hand Tools	0.1	0.0	0.7	0.3	0.2	0.2	3.2	3.3	3.3	5.8
Appliances*	0.5	0.2	-0.2	0.2	-0.1	-0.1	-0.9	-0.7	-0.9	5.8
Furnaces	1.0	0.6	-1.3	0.1	0.1	-0.1	2.2	1.8	1.0	9.6
AC; Refrigeration; and Forced Air Heating Equip. Mfg.	-0.1	1.0	-1.2	-0.1	0.3	-0.1	2.0	2.8	2.4	8.1
Construction Machinery*	0.2	-0.4	0.1	0.0	0.0	0.2	1.3	1.5	2.5	9.5
Construction Machinery Rental (incl. oilfield equip.)	1.4	0.3	-0.6	0.4	0.3	0.1	3.4	1.5	3.3	8.7
Construction equipment rental and leasing	0.9	0.0	-1.0	0.0	0.3	0.1	2.9	1.4	4.4	11.3
Oilfield and well drilling equipment rental       and leasing	0.0	0.0	0.0	0.0	0.0	0.0	1.7	1.7	1.8	6.1
Trucks over 14,000 Ibs. GVW	0.2	0.1	0.8	0.4	0.3	0.2	1.9	1.9	2.3	6.9
Metal Doors, Sash and Trim	0.0	0.4	0.0	0.1	0.1	0.0	-0.1	-0.1	-0.5	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 slipped 0.1% (NSA) in December following a 0.4% decline in November. Prices were 5.0% higher than in December 2012 and were 6.1% higher than in December 2010.

Prestressed concrete products prices rose 0.5% in December after increasing 0.9% in November. On a year-over-year basis, prices were up 2.7%, but were up only 1.3% from December 2010.

Precast concrete products prices increased 0.3% in December after rising 0.1% in November. Prices were 1.7% higher than in December 2012 and were 7.0% higher than in December 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
	Dec-13	Nov-13	Oct-13	Dec-13	Nov-13	Oct-13	Dec-13	Nov-13	Oct-13	Dec-13
Construction Commodities
Dimension Stone	1.8	0.0	0.1	0.6	0.0	0.0	5.7	3.9	3.9	8.8
Cement	-0.1	-0.4	0.6	0.0	0.1	0.3	5.0	4.6	5.3	6.1
Construction Sand, Gravel & Crushed Stone*	-0.4	-0.3	0.4	-0.1	0.5	0.8	2.5	2.8	3.2	6.4
Softwood Plywood	-2.0	-1.5	0.9	-0.9	-0.3	1.1	-1.5	2.0	3.0	22.0
Hardwood Lumber	2.0	1.2	3.2	2.1	1.9	2.1	22.7	20.8	20.5	21.9
Softwood Lumber*	-3.3	2.8	2.9	0.7	2.6	2.3	6.6	12.8	16.2	24.3
Other Commodities
Industrial Natural Gas*	-0.6	1.0	1.1	0.5	1.0	-0.7	1.4	3.1	3.2	-9.8
Plastic Resins & Materials	-0.4	1.2	-0.3	0.2	0.5	0.1	5.9	6.1	4.7	18.8
Insulation Materials	0.0	-0.1	-1.6	-0.6	0.4	1.4	7.9	8.2	7.7	19.9
Iron & Steel Scrap	5.9	5.8	0.0	3.9	1.1	-0.7	8.2	3.2	8.4	-0.7
Iron Ore	-0.1	0.0	3.6	1.1	0.6	-0.5	-25.0	-25.0	-25.3	-15.8
Copper Ores	-4.4	-0.1	-0.2	-1.6	-0.7	1.6	-11.7	-4.5	-11.1	-22.4
Copper Base Scrap*	-3.1	2.2	0.5	-0.2	1.0	1.4	-6.2	-2.3	-3.7	-5.2
*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 0.6% (SA) in December following three consecutive monthly increases. Prices were 1.4% (NSA) higher than in December 2012, but were 9.8% lower than in December 2010.

Petroleum refineries prices rebounded slightly in December, increasing 1.0% (NSA), following sharp drops of 3.7% in November and 3.4% in October. Prices were 0.9% lower than in December 2012, but were 12.4% higher than in December 2010.

Diesel fuel prices surged 7.9% (SA) in December following a plunge of 5.6% in November and a fall of 2.2% in October. Prices were 0.9% (NSA) lower than in December 2012, but were 21.3% higher than in December 2010.

Plastic resins and materials prices declined 0.4% (NSA) in December after spurting up 1.2% in November. Prices were up 5.9% from December 2012 and were up 18.8% from December 2010.

Asphalt prices jumped 1.7% (NSA) in December after a dramatic drop of 7.9% in November. Prices were 3.3% lower than in December 2012, but were 24.4% higher than in December 2010. Asphalt roofing prices decreased 0.8% in December following a 3.8% drop in November and a 1.6% drop in October. Prices were 0.6% lower than in December 2012 and were 1.7% higher than in December 2010.

Plastics pipe prices slipped 0.1% (NSA) in December after rising 0.9% in November. Prices were 2.0% lower than in December 2012, but were 13.0% higher than in December 2010. Plastics plumbing fixtures prices declined 0.1% for the second month in a row. Prices were up 1.4% from December 2012 and were up 5.8% from December 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
	Dec-13	Nov-13	Oct-13	Dec-13	Nov-13	Oct-13	Dec-13	Nov-13	Oct-13	Dec-13
Manufactured Materials
Gypsum Products	2.2	-1.6	-0.8	-0.1	-0.7	-0.3	16.1	13.7	15.6	30.4
Waferboard and oriented strandboard (OSB)	-4.8	-1.0	0.5	-1.8	-1.0	-0.4	-25.4	-16.8	-10.0	28.5
Petroleum refineries	1.0	-3.7	-3.4	-2.1	-2.5	-0.5	-0.9	-4.2	-9.0	12.4
Diesel Fuel*	7.9	-5.6	-2.2	-0.1	-1.7	0.4	-0.9	-5.6	-9.4	21.3
Asphalt	1.7	-7.9	-0.6	-2.4	-2.9	0.5	-3.3	-8.2	-5.6	24.4
Asphalt paving mixture & block mfg.	-0.3	-0.2	-0.3	-0.3	-0.1	0.4	0.9	1.0	1.1	13.6
Asphalt shingle and coating materials mfg.	-0.5	-2.9	-1.3	-1.6	-1.4	-0.3	-0.8	-0.7	0.3	4.9
Asphalt Roofing	-0.8	-3.8	-1.6	-2.1	-1.8	-0.4	-0.6	-0.3	1.0	1.7
Paint	0.2	0.1	0.0	0.1	0.0	-0.1	-0.7	-1.0	-1.0	14.3
Plastic Construction Products	0.0	0.4	-0.3	0.0	0.0	-0.2	-0.6	-1.0	-0.7	7.6
Plastics Pipe	-0.1	0.9	-1.6	-0.3	-0.3	-0.6	-2.0	-2.3	-1.4	13.0
Plumbing Fixtures	-0.1	-0.1	0.6	0.1	0.2	0.2	1.4	-1.1	-0.9	5.8
Vitreous Plumbing Fixtures	NA	NA	NA	NA	NA	NA	NA	NA	NA	NA
Pottery; ceramics; and plumbing fixture mfg.	-1.5	1.4	-0.3	-0.1	0.1	-0.6	0.9	2.4	0.9	9.1
Ceramic Tile	-1.5	0.8	0.8	0.0	0.0	-0.4	4.9	5.0	2.8	2.5
Flat Glass	-0.4	1.3	-0.9	0.0	0.1	-0.3	2.3	2.2	1.8	6.4
Steel Mill Products	0.3	0.8	0.0	0.4	0.4	0.1	-1.0	-0.6	-2.4	2.2
Steel Pipe and Tube*	-0.5	1.0	0.0	0.2	0.6	1.1	-5.1	-4.2	-4.5	1.3
Hot rolled bars, plates & structural shapes	0.2	0.5	-0.1	0.2	0.5	0.1	-1.6	-0.5	-2.3	0.6
Extruded Aluminum rod, bar and other shapes	-0.3	1.1	-1.0	-0.1	-0.2	-0.8	-3.9	-4.0	-5.8	-7.0
Architectural Metalwork	-2.4	0.0	0.2	-0.7	0.0	0.0	-1.8	0.5	0.5	3.2
Metal Plumbing Fixtures*	0.1	0.1	0.2	0.1	0.1	0.0	1.6	1.6	1.5	6.0
Builders’ Hardware	-0.7	0.8	0.0	0.1	0.3	0.3	0.9	1.4	0.4	7.3
Sheet Metal Products	0.1	-1.2	0.0	-0.4	-0.3	0.1	-1.8	-2.0	-1.1	0.5
Copper and Copper Products	-1.2	-0.6	-0.4	-0.7	-0.4	1.0	-8.2	-4.8	-7.8	-16.5
Copper and Brass Mill Shapes	1.0	-1.1	0.0	0.0	-0.2	1.2	-6.1	-6.0	-7.5	-13.5
Nonferrous Pipe and Tube	3.0	-1.0	0.0	0.7	0.2	1.9	-4.7	-7.5	-10.2	-17.1
Building Brick	0.1	0.5	0.1	0.3	0.3	0.2	1.2	1.2	0.4	-4.5
Ready Mix Concrete*	-0.1	-0.2	0.3	0.0	0.0	0.1	2.5	2.9	3.4	5.6
Concrete Block & Brick	0.2	0.2	-0.3	0.0	0.0	-0.1	2.2	2.2	1.9	4.6
Prestressed Concrete	0.5	0.9	-2.0	-0.2	0.0	0.1	2.7	4.3	3.4	1.3
Precast Concrete Products	0.3	0.1	0.0	0.2	0.1	0.1	1.7	2.0	1.6	7.0
Concrete Pipe	0.6	-0.2	0.7	0.4	0.2	0.3	3.1	2.6	3.2	9.0
Engineered Wood Products	0.1	-0.3	0.8	0.2	0.3	0.6	7.8	8.1	11.8	21.9
Wood Kitchen Cabinet and Countertop Mfg.	0.2	0.0	-0.1	0.0	0.0	0.0	2.3	2.3	2.5	6.9
Millwork (window, door, cabinet)*	0.2	0.3	0.0	0.1	0.1	0.1	2.7	2.6	2.5	7.3
Wood Window and Door Mfg.	-0.1	0.5	0.1	0.2	0.2	0.1	2.6	2.8	2.4	8.5
Metal Window and Door Mfg.	0.0	0.7	0.0	0.2	0.2	0.0	0.0	0.0	-0.7	8.5
Laminated Plastics	-0.1	-0.1	-0.1	-0.1	0.0	-0.1	3.7	3.7	3.7	8.9
Nonresidential Electric Lighting Fixture Mfg.	0.1	0.0	0.0	0.0	0.0	0.0	-0.3	0.1	-0.1	5.6
*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

Copper and Copper Products
Copper ores prices plummeted 4.4% (NSA) in December after declining 0.1% in November. Prices were down 11.7% from December 2012 and were down 22.4% from December 2010.

Copper base scrap prices dropped 3.1% (SA) in December following a 2.2% increase in November. Prices were 6.2% (NSA) lower than in December 2012 and were 5.2% lower than in December 2010.

Prices for copper and copper products fell for the fourth consecutive month—down 1.2% (NSA) in December and down 0.6% in November. Prices were 8.2% lower than in December 2012 and were 16.5% lower than in December 2010.

Copper and brass mill shapes prices rebounded 1.0% (NSA) in December following a 1.1% drop in November. Prices were 6.1% lower than in December 2012 and were 13.5% lower than in December 2010.

Other Metals
Steel mill products prices rose 0.3% (NSA) in December following a 0.8% increase in November. Prices were down 1.0% from December 2012 and were up 2.2% from December 2010. Hot rolled bars, plates, and structural shapes prices edged up 0.2% in December after moving up 0.5% in November. Prices were down 1.6% from December 2012 and were up 0.6% from December 2010.

Iron and steel scrap prices—often a good indicator of the future near-term direction of steel prices, shot up 5.9% in December following an almost as strong increase in November, up 5.8%. Prices were up 8.2% from December 2012, but were down 0.7% from December 2010.

Extruded aluminum rod, bar, and other shapes prices sank 0.3% (NSA) in December after jumping 1.1% in November. Prices were 3.9% lower than in December 2012 and were 7.0% lower than in December 2010.

Architectural metalwork tumbled 2.4% in December following no change in November. Prices were 1.8% lower than in December 2012, but were 3.2% higher than in December 2010.

Softwood Lumber and Gypsum
Single-family housing construction activity largely drives demand for softwood lumber and gypsum products. As the single-family housing market has improved, demand for these materials has increased.

Softwood lumber price movements are complicated by fluctuations in Canadian softwood lumber exports to the U.S., which are regulated by the Softwood Lumber Agreement (SLA). Each month, the level of exports permitted and relevant export fees are determined by a schedule based on average weekly Random Lengths (RL) Framing Lumber Composite prices for a specified period. The schedule determining the permitted level of exports and export fees consists of four tiers. The four tiers, from most to least restrictive and the related average prices per thousand board feet determining which tier is in force for the month, are as follows:

• Tier 1: average price of $315 or lower
• Tier 2: average price of $316 to $335
• Tier 3: average price of $336 to $355
• Tier 4: average price of $356 or higher; eliminates all restrictions and export fees on Canadian softwood lumber exports to the United States

For November 2013 through February 2014, tier 4—no restrictions—has been in force. Reed Economics estimates that the average price for March will be $401, again resulting in tier 4 and no restrictions.

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

Average Prices Used to Determine SLA Canadian Softwood Export Restrictions
	2013
	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Average Price	$357	$385	$395	$416	$443	$407	$356	$326	$353	$353	$380	$387
Tier	4	4	4	4	4	4	4	2	3	3	4	4
	2014
	Jan	Feb	Mar*	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Average Price	$396	$389	$401
Tier	4	4	4
Source: Foreign Affairs and International Trade Canada *Reed Construction Data estimate

On a seasonally adjusted basis, the PPI for softwood lumber dropped 3.3% in December after surging 2.8% in November and 2.9% in October. Prices were 6.6% higher than in December 2012 and were 24.3% higher than in December 2010.

In 2012, several gypsum producers announced price increases of 25% to 30% effective at the beginning of 2013. Their efforts yielded only partial success. In December, prices climbed 2.2% (NSA) following a 1.6% plunge in November. That left gypsum prices 16.1% higher for the year (from December 2012 to December 2013), a little over half the declared increase. Over the three year period from December 2010, prices were 30.4% higher.

Last year, several gypsum producers announced price increases of 20% effective at the beginning of this year. If single-family construction picks up in the spring, as we fully expect, gypsum prices are likely to eventually increase by about 10% to 15%.

Outlook for Construction Materials Prices
Despite recent bad weather across much of the country, the outlook for the U.S. economy is for moderate growth. Residential construction continues to strengthen. The economies in Europe are showing steady if only modest improvement.

Political obstacles to growth are fading along with some of the uncertainty created by political infighting. Some important legislation has moved forward thanks to the reemergence of the willingness to compromise. Federal government operations are now funded for this fiscal year.

There is a low probability of a too rapid unwinding of the Federal Reserve’s program of long-term debt purchases, which would send long-term interest rates sharply higher, hurting the economy and construction.

The Reed forecast assumes that nonresidential construction activity rebounds once the weather improves and increases at a moderate pace, strengthening throughout the second half of 2014 and into 2015. The impact on construction materials prices is a possible bump upwards with better weather in the spring as construction activity rebounds when delayed projects resume. After that, expect moderate upward pressure on prices in the summer and most of the fall, followed by more rapid increases in the latter part of this year and into next year.

via:http://www.reedconstructiondata.com/market-intelligence/articles/nonresidential-construction-materials-prices-edge-higher-in-december