The once-robust global construction market fell further this month as, here in the US, oil price-cutting by OPEC has caused large oil and gas projects to fall below their breakeven payback points.
Heavy energy construction has fallen and the fragile single-family home market is not strong enough to pick up the slack.
The monthly Construction MMI® registered a value of 74 in April, a decrease of 1.3% from 75 in March.
Oil is Now Too Cheap to Pull Out of the Ground
The effects of oil and gas drilling suspensions have been felt by producers of steel pipe used in the field (oil country tubular goods) and that lack of production showed up the past two months in the form of canceled or postponed exploration projects.
Without the robust growth in civil drilling projects here in the US, construction spending fell in February as the numbers were also pulled down by a drop in single-family home building. Private spending on construction of single-family homes declined 1.4%.
The pullback in exploration is, however, not just a US problem. A key “supply-based” response to low oil prices has been a sharp decline in rig counts and reductions in 2015 capital expenditure budgets from major oil companies, including ConocoPhillips, Chevron, Hess, and BP. These multinationals spend much of their exploration budgets 0n projects in the US but Brazil and other energy-rich nations could see projects canceled as well.
The “power” category of the US Census Bureau — which includes oil and gas facilities — is down by 17.2% year-on-year and 4.5% for the month. That sector of the construction industry is simply going to have to wait until energy prices rise again.
While design billings are not the indicator of future construction activity the once were, they do represent a generally accurate picture of future project growth and spending. The American Institute of Architects’ Architecture Billings Index continues to show barely-there growth. The February ABI score was 50.4, up slightly from a negative mark of 49.9 in January.
With such low documented design activity it’s difficult to forecast the commercial or residential sectors getting much stronger in the next eight to 12 months. Most major government civil projects are still mired in red tape at the federal level and state level, too. It looks like oil prices will have to go back up to revive the engine of the construction metals market.
Actual Fuel Surcharge, Iron Ore, H-Beam and Aluminum Prices
After rising the previous month, weekly US Gulf Coast bar fuel surcharge prices dropped 7.6% to $0.29 per mile. Weekly US Midwest bar fuel surcharge prices fell 7.5% to $0.30 per mile after rising the previous month. The weekly US Rocky Mountain bar fuel surcharge fell a slight 2.3% over the past month to $0.31 per mile. The price of European 1050 aluminum drifted 1.2% lower to $2,766 per metric ton.
Chinese H-beam steel prices rose 5.2% to $388.53 per metric ton. The price of Chinese aluminum bar rose 2.3% over the past month to $2,249 per metric ton, the second straight month of gains. The price of US shredded scrap rose 0.8% to $248.00 per short ton after falling the previous month.
The Chinese low price of 62% Australian iron ore fines experienced a quiet month, staying around $77.38 per dry metric ton. Last month was consistent for Chinese rebar, which did not move from $399.81 per 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.