Source: Jeff Yoders/MetalMiner
US construction spending in August was up 0.7%, to a seasonally adjusted $1.09 trillion, reaching its highest level in 7 years, according to data from the Commerce Department.
Government projects and home building were big contributors to the gains, even as office and shopping-center projects declined.
The construction sector added 8,000 jobs, and the unemployment rate remained steady at 5.1% here in the US. Increased employment and a 7-year high spending high should be good news for construction product prices eventually rising, yet oversupply in steel, aluminum and copper is still keeping materials prices low.
China’s Housing Collapse
The flip side to the positive US growth numbers is the continued collapse of the Chinese construction industry, based heavily on stalled urbanization in the world’s second-largest economy.
This month, China tried some new measures to jump-start home buying and, hopefully, construction there. The central bank and banking regulator said they would be lowering minimum down payments for first-time home buyers to 25%, from the previous 30%, in cities that do not have restrictions on purchases.
The problem immediately facing China’s construction industry, however, is production, there, to be entirely export-oriented as construction activity has fallen there.
Global steel production fell by 3% in August, according to the Brussels-based World Steel Association (WSA), its biggest fall this year, which was led by a decline in Chinese production.
Lower Your Expectations
It’s still difficult to envision US construction offering much more than shelter from the storm going on in China right now. Chinese growth and urbanization fueled a boom in construction there that we likely won’t ever see again. That being said, if the current oversupply situation can be dealt with, prices of steel, aluminum and copper could increase in 2016. Oversupply is the biggest problem for products such as H-beams, rebar and steel pipes.
We echo the sentiments of analysts who are advising caution before investment in construction materials.
MetalMiner co-founder and editor-at-large Stuart Burns had this to say recently: “It’s definitely a bullish tone that bank and senior research analysts have taken…in our view, there’s still plenty of excess capacity out there, demand is weak, and the dollar is strengthening.”
While US construction might be a safe haven as compared to the markets in other parts of the world, investors should temper their expectations.
Actual Construction Material Prices
Chinese H-beam steel rose 2.27% to 67.94 CNY per metric ton from 66.43 CNY per mt in September. US shredded steel scrap saw its price erode 11.6% from $48.40 per short ton to $42.80 per short ton last month. Australian 62% iron ore fines saw their price rise a slight 0.39%, a rarity for iron ore these days, to 7.55 CNY per dry metric ton from 7.52 CNY per dry mt in September.