How The Iron Ore Supply Glut is Bringing Down Construction Materials Prices

by on

MetalMiner’s monthly Construction MMI®, a price index tracking a basket of metals used across the construction industry, clocked in at a value of 75 in March, a 3.8% drop from 78 in February. The index appears to be in a bit of a tailspin since last year’s winter holidays and into 2015.

Construction_Chart_March-2015_FNL

While the construction industry itself has been doing great so far this year, the raw materials — such as steel, aluminum and copper — just keep falling in price. The bottom has figuratively fallen out of the iron ore market with BHP Billiton, the world’s largest miner of the ore, saying interim net profit fell by almost half in its last quarterly filing because of a supply glut partially of its own making.

Iron Ore Supply Killed the Price Goose

Iron ore prices have fallen by nearly half since June of last year. Former Rio Tinto executive Mal Randall said the iron ore spot pricing model the industry has used since 2010 has “been a disaster” and the major producers should consider returning to long-term benchmark contracts. Analysts at Morgan Stanley recently cut their ratings on the world’s four biggest iron ore exporters, Vale SA, Rio, BHP and Australia’s Fortescue Metals Group Ltd. There’s an increasing risk of declining earnings and dividend cuts, analysts led by Menno Sanderse wrote in a report dated Feb. 22.

Free Download: Lock in Prices for International Construction Materials Purchases

Back in construction, this is great news for estimators and executives in charge of greenlighting projects.

Many are stockpiling structural steel, rebar and other construction materials that trade on international exchanges and bourses. One would think that purchases would eventually lift prices but with BHP, Vale and Rio continuing to undercut smaller players that’s not happening with iron ore and its final products. The supply glut in iron ore is so big right now that responses from the demand side simply cannot keep up.

According to architecture, engineering and construction analysis firm FMI, nonresidential construction sentiment remains high in the US with strong views of future growth, the overall economy and greater opportunity. The value of new construction starts climbed 9% in January to a seasonally adjusted annual rate of $621 billion according to Dodge Data and Analytics.

While the trend of low prices looks as if it will continue for some time, a price recovery in iron ore and steel could turn things around when supplies are finally exhausted. A recovery in oil prices could slingshot other commodities, including steel and iron ore, back to positive territory. With the US running out of storage capacity for oil stocks, a recovery in oil prices could be just around the corner.

The base materials, along with scrap steel here in the US, are dragging stronger metals such as aluminum down and the Construction MMI® is a reflection of that.

Exact Price Changes: Monthly Construction MMI®

A 50.5% drop left the Chinese low price of 62% Australian iron ore fines at CNY 480.00 ($76.70) per dry metric ton. US shredded scrap prices fell 22.6% to $246.00 per short ton after rising the previous month. After rising the previous month, European 1050 aluminum prices dropped 0.4% to $2,908 per metric ton. The weekly US Rocky Mountain bar fuel surcharge saw a small decline this month, falling from $0.31 to $0.31 per mile.

Chinese aluminum bar reached $2,179 per metric ton after a 7.3% increase for the month. After rising 5.5%, the weekly US Midwest bar fuel surcharge finished the month at $0.33 per mile. The weekly US Gulf Coast bar fuel surcharge gained 1.7% to finish the month at $0.32 per mile.

Chinese H-beam steel held pat last month at $365.91 per metric ton. At a price of $396.27 per metric ton, Chinese rebar did not budge the entire month.

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.

{Comments Off on How The Iron Ore Supply Glut is Bringing Down Construction Materials Prices Comments Off on How The Iron Ore Supply Glut is Bringing Down Construction Materials Prices}