Monthly Construction MMI® Rises, 2015 Predictions Point to Strong Growth

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The monthly Construction MMI® registered a value of 90 in December, a 1.1% rise over November. This increase has been consistent with the slow and steady recovery seen in the construction market this year.

FREE Download: The Monthly MMI® Report – compare with November’s prices.

US construction spending rose more than expected in October as both private and public outlays increased. Construction spending rose 1.1%, the largest gain since May, to an annual rate of $970.99 billion, the Commerce Department said yesterday.  The 2015 Dodge Construction Outlook seems to back those numbers up, predicting that total construction starts in the US will climb 9% to $612 billion next year.

“The construction expansion should become more broad-based in 2015, with support coming from more sectors than was often the case in recent years,” said Robert Murray, chief economist and vice president for Dodge Data & Analytics. “The economic environment going forward carries several positives that will help to further lift total construction starts. Financing for construction projects is becoming more available, reflecting some easing of bank lending standards, a greater focus on real estate development by the investment community, and more construction bond measures getting passed. While federal funding for construction programs is still constrained, states are now picking up some of the slack. Interest rates for the near term should stay low, and market fundamentals (occupancies and rents) for commercial building and multifamily housing continue to strengthen.”

The September numbers were revised upward by Commerce, too. September’s construction outlays now show only a 0.1% drop instead of the previously reported 0.4% fall. Economists polled by Reuters had forecast construction spending rising 0.6% in October.

Lower Oil Prices?

Another factor in the rosy outlook for construction in 2015 is oil prices that look like they will stay low for most of next year. This means more than just cheaper transportation costs for building materials, but also means that costs will stay low for production of structural steel, architectural aluminum and copper.

The other good news from Commerce was what particular type of construction remained strong. Outlays on residential projects recorded their biggest rise since December of last year. Residential spending was boosted by increases in both single and multi-family homes as well as renovations. Spending on public construction projects increased 2.3% in October, buoyed by a 19.3%  surge in federal government outlays, the largest such increase since October of 2006.

We have previously written about the importance of residential construction for economic growth. Few goods are as durable as housing and robust single-family and multi-family home construction was responsible for the US economy’s strong growth from 2001 to 2007. With China still mired in recession, US spending, particularly construction spending, is propping up the world economy right now. But if US residential construction can deliver these results, it could give a boost to construction worldwide.

International developer Lend Lease – which has operations in Australia, the UK and the US – has echoed this positive residential outlook. CEO Steve McCann recently told shareholders the company’s strategy was on track and delivering growth.

“The outlook for Lend Lease continues to be very positive, ” he told the company’s annual general meeting in Sydney last week, according to Yahoo News. “Macro trends continue to support our residential businesses in Australia and the UK.”

McCann said $2.5 billion in presold revenue from apartment buildings would become cash and underpin profits over the next 3 years.

“Our Construction business is well placed to participate in the estimated $50 billion of foreshadowed Australian infrastructure-spend,” he said.

Lend Lease forecasts a development pipeline of $38 billion, more than $16 billion in backlog construction and more than $16 billion in funds under management.

Complete Metal Price Movements

After rising 6.2%, Chinese H-beam steel finished the month at $529.67 per metric ton. The price of European 1050 aluminum jumped 4.7% last month to $3,258 per metric ton. For the second month in a row, the price of Chinese rebar increased, rising 3.6% over the past month to $510.17 per metric ton. The weekly US Midwest bar fuel surcharge climbed 3.2%, settling at $0.50 per mile. The weekly US Rocky Mountain bar fuel surcharge inched up 0.6% to $0.50 per mile.

A 6.3% drop over the past month left US shredded scrap at $328.00 per short ton. Chinese aluminum bar prices dropped by 4.8% this month to $2,197 per metric ton. The weekly US Gulf Coast bar fuel surcharge fell a slight 1.3% over the past month to $0.46 per mile.

Over the past month, the Chinese low price of 62% Australian iron ore fines traded sideways, staying around $157.60 per dry metric ton.

The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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