Low Oil Prices, Tepid Spending Hamstring Construction Metals Index

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Outlays for US construction projects fell 0.6% in March to a seasonally adjusted annual rate of $967 billion, the US Commerce Department said last week. Commerce also revised February’s result to show almost no change.

Why Manufacturers Need to Ditch Purchase Price Variance

Despite the lower spending, the monthly Construction MMI® registered a value of 74 in May, on par with April’s value. Flat is, apparently, the new up until construction starts and spending pick up some steam. The low prices have not yet incentivized developers enough, it would seem, to sign off on new projects or increase purchasing for anything but stockpiling, as credit is still hard to obtain and consumer demand for commercial and residential space remain tepid.

Construction_Chart_May-2015_FNLThe energy sector, which accounted for much of last year’s construction gains, is still shrinking due to rebounding-but-still-low oil prices which are causing projects to get canceled. Oil, itself, has become too cheap to go to the expense of pulling it out of the ground for producers to turn a profit selling it.

Energy Loans Called In

In fact, banks in the US are cutting credit lines to energy companies and forcing the firms to cough up more collateral to guard against fallout from the fall in oil prices.

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The US International Trade Commission upheld tariffs against both rebar and, more recently, oil country tubular goods (OCTG) from China, but the flood of imports has already done its damage when it comes to both traditional construction and the steel pipes used for oil and gas drilling. Supply is high and demand is simply not high enough to push prices upward.

It’s a testament to the resilience of the US construction market that our MMI was even able to hold steady this month.

Actual Construction Material Prices

The price of Chinese H-beam steel rose 0.8% over the past month to $391.69 per metric ton. The price of US shredded scrap rose 0.8% over the past month to $250.00 per short ton, the second straight month of gains. The weekly US Gulf Coast bar fuel surcharge saw its value rise 0.5% to $0.29 per mile.

A 6.0% drop over the past month left Chinese rebar at $375.57 per metric ton. Last month, the weekly US Midwest bar fuel surcharge dropped 2.4% to $0.30 per mile. The weekly US Rocky Mountain bar fuel surcharge finished the month at $0.30 per mile after dropping 0.8%. European 1050 aluminum closed the month at $2,874 per metric ton after dropping 0.5%. After rising the previous month, Chinese aluminum bar prices dropped 0.1% to $2,245 per metric ton.

Over the past month, the Chinese low price of 62% Australian iron ore fines traded sideways, staying around $77.37 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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