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By Bassem Hamdy
August 30, 2016
Construction remains solid in the USA. The national Construction Health Indicator (CHI) score remains steady at 86 this week with the strongest contributor being investments in residential construction. An uptick in housing starts and completions are a good reflection of the U.S.’s optimism in the current market––fueled by low mortgage and unemployment rates. This boom in construction is being accomplished despite a major nationwide skilled labor shortage that is ironically taking place during a time of low unemployment rates in our industry. So, if you are in the residential building market, expect to continue paying your workers more by the hour/week. That’s supply and demand, folks.
Concrete is the culprit. In the commodities market we have seen a dip in rebar futures on the Shanghai Futures Exchange (SHFE). Several factors are contributing to this dip. Oversees, China has announced steps to tackle overcapacity to stabilize steel prices. However, the country’s recent credit surge has triggered a trading frenzy in iron ore and steel futures, which have made it harder for the government to cut the proposed excess. Domestically, steel demand typically weakens in the fall as construction activities in northern regions slow down, hitting steel consumption.
To what extent will these future contracts actually impact your bottom line? Well, it could potentially foreshadow a widening of your margins since a low demand of rebar in the futures means a low cost of steel. This would be great news for those in the sister-market of concrete, but rebar hasn’t been strong enough to justifiably reinforce normal prices in that realm. This is because the PPI of sand, gravel, and stone have increased to historical highs pulling ready-mix and other concrete products with it.
Unfortunately, a drop in oil prices and economic slowdown in China have yet to take effect in these industries. According to the Portland Cement Association (PCA) real construction activity grew 6.1%, but cement consumption is only up 3.8%. It is possible that although we are experiencing lower fuel costs, a decline in oil production is having a short-term negative impact on cement demand. However, they are optimistic that consumption can further increase 5.7% in 2017.
The west is outperforming the rest of the country with an average CHI of 87 shared between the Southwest, Pacific Northwest, and California regions. New opportunities brewing in these areas are highlighted by stadium construction in Los Angeles, towers in San Francisco, and a (potential) record-breaking telescope in Hawaii.
Meanwhile the rest of the country is being plagued by a lack of available employee hours and earnings. Austin is a weird exception in the middle of the map as it is thriving with a slew of new construction opportunities. Although most of July’s largest project starts were positioned in the East, this part of the country is still trailing behind with a CHI score of 80. Similar to the exception with Austin, Orlando is representing well for the Southeast with an enormous increase in apartment building construction.
That’s all we have for now. Keep building and we’ll keep crunching the numbers. Check back here daily as numbers refresh and we’ll continue to translate this into meaningful digests that will help you make informed decisions all week long.
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