Construction Materials Prices Drop 0.3% in January

The construction materials price index fell 0.3% in January while the price index for the whole economy rose for the second month, Reed Construction Data reported. This was the fourth consecutive monthly decline. Sources for the data in Reed's price index include the Producer Price Index, Bureau of Labor Statistics, US Department of Labor, Federal Reserve Board, and Census Bureau.

"The index is now at the year ago level before the world wide commodity boom spiked prices in the middle of 2008. Further declines in the overall construction price index are possible but the expected trend into the fall is for a very modest rise in the index. This will be a combination of further drops in energy and metal based products but progressive price firming in products that include more manufacturing labor," Reed reported.

According to the report, energy prices have been stable and metal prices fell further from mid-January to mid-February when the survey for the next PPI report was taken. Declining energy and metal prices have not yet fully been passed through to the prices of products manufactured from these commodities. The final pass through, including into freight rates, will be the key driver of weak materials pricing in the next few months.

The most significant declines last month were 34% for copper ore, 23% for asphalt (at the refinery), 7% for extruded aluminum, 5% for steel pipe and 4% for plastic resins and structural steel. The asphalt price drop will partially reverse when the additional $30 B for highways begins to be spent later this year. “Paving” is the most shovel ready of any road project.

There most significant price increases in January was 2.3% for ready-mix concrete. Aggregates prices continue to increase, rising 1.3% in January. Also steel scrap prices rose 22% in January on top of a January increase.

"But this is random noise in an extremely volatile market," Reed stated. "Steel product prices are still declining. Recent scrap price trends probably signal that the drop in steel product prices will be ending soon."

Columns