Construction MMI® Falls Again, Estimators Try to Avoid Falling Price Knives

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The Construction MMI® fell again in July, despite strong US non-residential construction and accelerating growth in Europe.

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Metals and energy commodities, such as oil and liquid natural gas, continue to fall on international indexes mostly due to the weak economy and lax demand in China, the world’s second-largest economy. The recent volatility in Chinese stock markets shows no sign of abating.

Construction_Chart_August_2015_FNL

The private Caixin/Markit manufacturing purchasing managers’ index (PMI) for China dropped to 47.8 in July from 49.4 in the previous month.

Chinese Economy Still Falling

It is worse than a preliminary reading of 48.2 and is the fifth consecutive month of contraction in the sector. With falling demand in such a large market, it is difficult to foresee a turnaround in the metals that make up our index. The Construction MMI® registered a value of 72 in August, a decrease of 2.7% from 74 in July.

While construction activity is strong in the US and Europe, emerging markets and China continue to drag down prices and overproduction of materials for export is actually exacerbating oversupply.

Try Not to Catch Falling Knives

The oversupply in aluminum, in particular, is worsening. Alcoa, Inc., recently raised its forecast for the global aluminum surplus, expecting a surplus of 760,000 metric tons this year which is almost double Alcoa’s previous forecast.

Three Best Practices for Buying Commodities

It remains a good time to be a buyer with double-digit declines in fuel surcharges and lower prices across the board for all construction products including rebar and H beams tracked in the index. With the price of oil back below $50 a barrel we are likely to continue to see falling US fuel surcharges and lower cost transportation and shipping charges.

Construction purchasing in the US is now a waiting game as estimators and project executives questions become some version of “how long do I wait before buying” to achieve a truly low price before markets bottom out, rather than how quickly to purchase to avoid non-existent price spikes.

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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