Construction MMI: Russian invasion of Ukraine impact on US real estate market minimal

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Metal Prices

The Construction Monthly Metals Index (MMI) rose by 4.7% for this month’s reading, as metal prices continue to see support from geopolitical turmoil, in addition to ongoing supply fears.

Invasion impact on US real estate? Minimal, NAR says

We have overviewed the impact of the Russian invasion of Ukraine on everything from oil prices to automotive.

But what about the real estate market? In the U.S., at least, the invasion impact is minimal, the National Association of Realtors said.

“Any decline in international real estate transactions will have little direct impact on the U.S. housing market,” NAR said this week. “Russian foreign buyers account for less than 1% of foreign buyer purchases, and overall, foreign buyers account for about 2% of existing-home sales, according to NAR’s 2021 International Transactions in U.S. Residential Real Estate Report. Moreover, the decline in foreign demand will ease supply constraints for domestic buyers.”

Metal prices for construction could see impacts from Russia-Ukraine war

As the conflict continues, however, material shortages and supply disruptions will continue to bite.

This is particularly for European buyers who source materials — or energy — from either Russia or Ukraine.

In particular, inflation stemming from surging energy costs will continue to weigh on consumers, including the construction sector.

Furthermore, sanctions on Russia continue to roll in, with more potentially to come depending on the course of the war.

NLMK chairman cites ‘serious changes’ in operating environment

Russian steelmaker NLMK is a producer of rebar, among other products, at its Ural operations in Russia. Ural received certification to sell rebar into Europe in 2016.

Last month, MetalMiner experts walked through the potential impacts on the company of the (then-hypothetical) Russian invasion.

Furthermore, NLMK operates multiple U.S. mills, including in Pennsylvania and Indiana.

“Sanctions against Russia, in the event that it invades Ukraine, might not directly impact NLMK’s assets abroad,” the MetalMiner team explained last month. “However, the restrictions could potentially extend to metals exports and lead to closure of Western ports to Russian ships, the first analyst warned. That would, in turn, make NLMK unable to supply slabs as feedstock to its assets in the United States and in Europe.”

In a statement posted to networking site LinkedIn, NLMK Chairman Vladimir Lisin addressed employees, citing the company’s international presence.

“I am convinced that peaceful diplomatic conflict resolution is always preferable to the use of force,” Lisin said. “NLMK is an international company. We operate production facilities in three continents and strongly believe in a dialogue between countries and cultures.”

However, like other Russian firms or entities that have already been hit with sanctions, that possibility also looms over NLMK.

“In the context of these events, our company is facing serious changes in its operating environment,” Lisin added. “The situation continues to evolve rapidly. All together, we have to adapt our business to the new context.”

Metals buyers should make sure to familiarize themselves with best sourcing practices to mitigate risk and cut costs, particularly in times of volatility. 

Firms suspend business activities in Russia

Many firms across a variety of sectors have announced suspension of business activities in Russia on the heels of the invasion of Ukraine. From McDonald’s to Shell to Goldman Sachs, companies have released statements indicating their intent or plans to end or suspend their business arrangements in Russia.

Shell this week said it would stop buying Russian crude oil on the spot market. In addition, it would not renew term contracts.

“We are acutely aware that our decision last week to purchase a cargo of Russian crude oil to be refined into products like petrol and diesel – despite being made with security of supplies at the forefront of our thinking – was not the right one and we are sorry,” Shell CEO Ben van Beurden said in a statement this week.

In addition, firms involved in the construction sector also announced plans to suspend their business operations in Russia. Among those are U.S.-based equipment makers Caterpillar and John Deere.

“Two weeks ago, we suspended shipments of machines to Russia and then subsequently, Belarus,” John Deere said in a statement. “We continue to monitor the situation closely while we fully abide by U.S. and international sanctions.”

ABI: billings growth for 12th straight month

The Architecture Billings Index (ABI), a leading indicator of nonresidential construction activity, showed growth for the 12th straight month in January.

The ABI checked in at 51.0 for January, matching the previous month’s index value. Any reading greater than 50 indicates growth.

Meanwhile, the design contracts index reached 56.1 in January, up from 55.5 the previous month.

Despite the positive trend, the pace of billings growth has slowed.

“Over the past three months, the average score was barely over 51,” the ABI report states. “This more modest growth in the ABI no doubt reflects challenges in the construction sector – supply challenges for both labor and materials – as well as ongoing staffing constraints at architecture firms.”

Actual metal prices and trends

In this month’s basket of metals prices in the Construction MMI, the Chinese aluminum bar price rose 2.68% month over month to $3,770 per metric ton.

Meanwhile, the U.S. shredded scrap steel price rose 0.63% to $482 per short ton. The Chinese rebar price fell marginally to $768 per metric ton. Furthermore, Chinese H-beam steel fell 0.73% to $790 per metric ton.

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