Construction MMI Finally Rises, Have Prices Reached Bottom?

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Our Construction MMI stopped its slide this month and gained 5% this month as products such as rebar and H-beam steel saw significant price increases.

Free Download: The February 2016 MMI Report

Construction product prices had to, eventually, increase as the US industry has remained strong and demand for new buildings continues to outpace the regular economy. Post-recession construction activity reached a new high in 2015, with office space under construction peaking at 92.8 million square feet, according to professional services and investment management company Jones Lang LaSalle (JLL).

Construction_Chart_March_2016_FNL

The American Institute of Architects‘ Architecture Billings Index showed positive growth for eight of the 12 months of 2015, as well. With such robust building and spending, why didn’t construction product prices increase sooner?

Oversupplied Side

Like many industries, US construction is a supply side business. With so much rebar, steel, aluminum sheet, copper wire and other product readily available in all locales no critical mass of demand formed during 2015 and prices actually fell as cheap transportation costs — thanks to the low price of oil — conspired with the surplus to deliver record low construction costs. Labor, on the other hand, was a different story as skilled construction laborers enjoyed high demand as fewer of them were available in the robust market — due to retirement and the wealth of projects to work on — and they could demand top dollar.

That’s one of three trends predicted to effect construction later this year, JLL said: The upcoming election’s effect on consumer behavior, the Federal Reserve increasing interest rates and the aforementioned labor shortage of trained construction employees, especially in trade positions.

Other factors might also play a role in pricing. The recent cold-rolled steel tariffs will hit China particularly hard after imports were hit with 256% tariffs. Cold-rolled steel is thought of as a manufacturing product more than for its use in construction, but it is widely used for cold-rolled structures such as frames and joists.

Free Sample Report: Our February Metal Buying Outlook

With all of this being said, the overall commodity picture is still quite bleak and — as oil prices remain weak and most metals continue their bear runs — there is little to suggest that this is a true market bottom. Construction products could have much further to fall before anything close to market equilibrium is reached. Buyers should remain cautious and continue to watch regional prices of products such as rebar and H-beam steel.

Actual Construction MMI Prices

Chinese rebar increased to $306.72 per metric ton this month from $294.95 per mt in February, a one-month jump of 3.8%. Chinese H-beam steel increased to $302.14 per mt this month after coming in at $299.49 per mt in February, a price hike of .9%. Chinese aluminum bar checked in at $1,834.20 per mt in March, a leap of 6% over its $1,731.88 per mt price in February.

 

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