Construction Tumbles As Low-Cost Metals, Raw Materials Fuel a Building Boom

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The monthly Construction MMI® registered a value of 78 in February, a decrease of 6% from 83 in January.

Commodity metals keep on falling as our construction index has experienced major drops in the last two months. With prices falling ever lower, the boom that US construction experienced in 2014 looks likely to continue.

Construction_Chart_February-2015_FNL

Construction spending was the highest it’s been since 2008 last year, proving again that low prices draw consumers and stimulate economic activity. Even home prices are down as residential construction has picked up.

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Forecasts for US construction to be put in place this year are bullish. While Europe continues to be dragged down by the recession in Russia and China is attempting to stimulate its sluggish economy. Both the bear and the dragon are exporting large amounts of low-cost construction materials to make up for inflation in their sluggish home markets, particularly steel and iron ore.

So, if demand is strong and supplies are inexpensive things will eventually have to turn around for construction metals, right? Not quite. Efficiency is still the name of the game in US construction and while general contractors are spending more, they’re cutting the fat from big projects at a ridiculous rate. It may be some time before domestic construction spending is able to outstrip abundant supplies of construction products such as rebar and scrap steel.

Aluminum is supposedly in deficit as we speak, but how can you really tell? Even if it is in deficit will any potential uptick in aluminum make a dent in construction budgets so long as iron ore, copper and steel remain at historically low levels? General contractors and even subcontractors are seeing their costs for gasoline and petroleum-based materials plummet thanks to that other historic low, oil prices. The strong dollar is affecting building product manufacturers more than end users so actual building and construction are highly profitable right now.

Expect low prices for construction materials to continue until action by the Federal Reserve or a critical mass of US construction activity have an effect.

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A 22.5% decline for the weekly US Rocky Mountain bar fuel surcharge left it at $0.31 per mile. After falling 22.1%, the weekly US Midwest bar fuel surcharge finished the month at $0.31 per mile. Following a 18.4% decline, the weekly US Gulf Coast bar fuel surcharge reached $0.31 per mile. The price of Chinese H-beam steel closed the month at $365.73 per metric ton after dropping 17.6%. A 12.4% drop over the past month left Chinese rebar at $396.08 per metric ton. After rising the previous month, US shredded scrap prices dropped 4.8% to $318.00 per short ton. Chinese aluminum bar prices decreased by 2.2% this month, ending at $2,030 per metric ton.

European 1050 aluminum finished the month at $2,968 per metric ton after gaining 4.7%.

The Chinese low price of 62% Australian iron ore fines held pat last month at $154.92 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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