If an increase in residential construction bears fruit, an increase in the prices of building materials might be on the horizon, an economist for the research group IHS Global Insight said today. But she also said you shouldn't expect cement, lumber, and steel prices to skyrocket.
In the past year U.S. lumber production has dropped 35%, U.S. cement shipments are down 21% and global steel production has fallen 16%, according to Armine Thompson, a pricing and purchasing economist who delivered an outlook on building materials during IHS' 6th Annual Construction Web Event.
As we move into a housing market recovery, cuts in production and idle capacity have kept prices in check to date, Thompson said. "But don't be fooled," she warned. "We could see temporary shortages that might cause minor process hikes."
Going forward, cement prices are expected to dip in the first half of 2010, but soon increase in the second half of the year amid a projected increase in residential construction. In the near term, that means cement pricing moving to about $110 per ton after remaining at about $100 per ton in the past year. Although cement shipments began to decline in 2006, the pace hastened in 2008.
Lumber production has been down 36% year-over-year since August, largely due to a shutdown of mills. Lumber prices began declining in 2005 and will fall 8.2% this year. But prices are expected to rise by as much as 6.3% in the 2010 after a recovery in the residential sector.
"The bottom line for lumber is there is ample capacity in the industry which will keep prices from to extraordinary levels in the recovery," Thompson said. "We don't expect lumber prices to move to 2004 levels during the near term."
Half of North American steel production is idle, the same as in Europe. With production hovering at about 54%, production might rise to about 82%, but not until 2012. A lower demand translates into a buyer's market, with little to no increase in pricing, IHS said. Structural steel prices are expected to decrease in the next six months and not rebound until 2011.
The U.S. gypsum market and prices began to rebound in the first half of 2009, but then they dipped again after a pricing recovery that the market deemed as "too early," according to Thompson. "It seems (prices) could not have fallen any further," she said.