Construction materials pricing remains weak

Construction materials prices increased at a slim 2.5% annual pace in the three months ending in February. This is the consequence of the small decline in overall construction spending since last May as well as the flight of international financial speculators from the oil and copper markets.

However, price increases have been slightly higher in the last few months at the commodity level, including metals, oil and aggregates, suggesting that pricing will strengthen for products delivered to the job site in the spring. Some of the quicker price gains are in place already because commodity prices have increased significantly since the last price survey in the second week of February.

Reed Construction Data expects price increases in 2007-08 to be clearly lower than in 2004-06 but still higher than inflation in the rest of the economy. This anticipated slowing in inflation is primarily due to the decline in inflation-adjusted construction spending in 2006-07 and the improved reserve position of oil suppliers so that any supply disruptions can be accommodated more with inventory and less with price rationing.

The significant price changes expected during the spring include brief, modest surges in steel and diesel prices. Spring is the upside of the frequent inventory cycles in the steel market. Price rises will be much less than the steel mills try to obtain.The spring price rises for diesel and other oil-based products is a hurricane aftershock. Refiners finally feel comfortable catching up with preventive maintenance shutdowns deferred last spring when they had to operate at full capacity to offset their hurricane shutdowns.

Cement and concrete prices have declined recently both because of the housing slowdown and the delay of civil projects waiting for scheduled federal funds or redesigns to keep costs within budgets. This weakness will persist into the spring but probably not longer.