Continued from Part One.
There are two main drivers of warehouse construction demand, in Ken Simonson’s view, outside of the online retailer sphere.
First, reshoring trends are beginning to take firmer hold. More production stateside means a greater storage need, put quite simply. Natural disasters causing supply chain disruptions play a big role in reshoring.
Manufacturers have decided to relocate operations, especially after “the Icelandic volcano,” said Simonson. “The message was reinforced with the tsunami in Japan, then the flooding in Bangkok interfering with electronics supply.”
Secondly, Simonson cites Panama Canal expansion as a driver of nonresidential, namely warehouse, construction. In a few years, the Panama Canal will be able to accommodate Panamax ships. When those mommas unload, clearly more storage space will be necessary.
Of course, from a construction standpoint, the industrial warehouse component is relatively small. Of a $560 billion non-residential construction market, warehousing represents only about $7 billion, or about 1.3 percent.
Still, as retailers such as Amazon.com shorten supply chains, continue cutting down their shipping times, and getting even closer to customers, they’ll need the infrastructure to do so.
By the same token, let’s not forget server farms…but that’s a different story altogether.
What About Metal Costs?
“I think we’re going to see a little less volatility than we’ve seen in 2008 through 2011, when we’ve had big price swings in copper and steel, and in aluminum a little less so,” Simonson told me.
Copper has been more subdued, and steel prices have stayed below year-ago levels.
According to AGC’s Nov. 12-16 data newsletter, the BLS reported a decline in the producer price index (PPI) for steel mill products, which fell 1.9 percent in October and 8.5 percent over 12 months. (This roughly reflects the stagnation in MetalMiner’s monthly raw steels price index.)
Also, scrap prices have been increasing, and mills have come back with price increase announcements. Steel Market Intelligence, for example, expects to see higher long product prices following the scrap increases, according to AGC’s Data Digest, and we’d be hard-pressed to entirely disagree — especially by virtue of the steel price market likely having bottomed for 2012.
Going Into 2013?
“I think [steel and other metal commodities prices] will be driven by the same things,” Simonson told me.
“China is in a slower growth groove and Europe is still floundering. While US demand is picking up, its still not dramatic enough to set the markets on fire.”