Construction Material Prices Rise Again in May

by Jonathan McGaha | June 14, 2016 12:00 am

Construction input prices expanded by 0.7 percent in May and have now expanded for three consecutive months according to an analysis of the Bureau of Labor Statistics[1] Producer Price Index[2] released today by Associated Builders and Contractors[3] (ABC). The rise follows eight consecutive months during which construction input prices fell; prices remain 3.4 percent below their year-ago level.

Nonresidential construction input prices expanded by 0.9 percent in May, but are still 3.5 percent below their year-ago level. Price gains were largely driven by iron and steel prices and steel mill product prices, which expanded 5.8 percent and 4.6 percent for the month, respectively.

“After falling sharply during all of 2015 and into the early months of 2016, an increase in global commodities prices had to happen as markets firmed,” said ABC Chief Economist Anirban Basu. “While much attention has been given to the recent rise in oil prices to around $50 per barrel, other commodity prices have also experienced a resurgence, including iron ore. Nonresidential construction input prices expanded by 0.9 percent in May, but are still 3.5 percent below their year-ago level. Price gains were largely driven by iron and steel prices and steel mill product prices, which expanded 5.8 percent and 4.6 percent for the month, respectively.

“That said, the global economy continues to disappoint relative to expectations established at the start of the year,” said Basu. “Higher prices may stimulate new rounds of production, including in energy markets, but the implication is that prices are unlikely to rise smoothly or dramatically going forward. Analyst views regarding the direction of commodity prices diverge wildly. While supply and demand play a role in fashioning commodity prices, so too does the value of the U.S. dollar. U.S. interest rates remain low and in many cases have been declining. The dollar has correspondingly weakened in recent weeks. Should that continue, commodity price increases could be sharper than we presently anticipate.”

Nine key input prices expanded or remained unchanged in May on a monthly basis:

• Crude petroleum prices expanded 0.6 percent from April 2016, but are down 32.5 percent from May 2015.
• Unprocessed energy material prices expanded 0.9 percent on a monthly basis, but have fallen 23.1 percent on a year-ago basis.
• Prices for steel mill products expanded 4.6 percent from a month ago, but are down 5.2 percent on a yearly basis.
• Iron and steel prices expanded 5.8 percent month-over-month, but are down 2 percent year-over-year.
• Softwood lumber prices expanded 2.2 percent for the month and 6.3 percent from May 2016.
• Fabricated structural metal prices remained unchanged month-over-month and are down 1.9 percent year-over-year.
• Prices for plumbing fixtures and fittings expanded 0.2 percent for the month and are up 0.3 percent from the same time last year.
• Prices for prepared asphalt and tar and roofing and siding products expanded by 0.4 percent month-to-month and 0.7 percent year-over-year.
• Natural gas prices rose 2.9 percent for the month, but are down 23.5 percent from the same period one year ago.

Two key input prices declined on a monthly basis:

• Nonferrous wire and cable prices fell 1.3 percent on a monthly basis and have fallen 9.2 percent on a yearly basis.
• Concrete product prices inched down by 0.1 percent month-over-month, but are up 3 percent year-over-year.

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