Construction Landscape

By Loren Faulkner | September 28, 2010

Construction Landscape

A few hours after the first proposed $700-billion financial market rescue package failed passage by Congress, Ken Simon, chief economist at AGC, sent out this timely summary of the way things are trending in the construction industry. (Full story is at Highlights of his report:

Financial market turmoil is causing ever-wider problems for construction. More than 30 Data DIGest readers in the past two weeks said lenders were demanding higher collateral or equity participation from borrowers and developers, or had stopped lending altogether, although a few respondents said conditions had not changed.

An upside to this, at least temporarily, Simonson reports, is the following:

“Demand for rebar steel, often used to build roads, bridges and office buildings, has fallen dramatically in the U.S. because some projects are being delayed or put on hold amid the uncertainty in financial markets, steelmakers said,” the Journal reported today. “Exports for rebar steel fell in July, after six straight months of increases, indicating that demand from foreign markets likely won’t be a substitute for weak domestic growth….Steel service centers, which act as middlemen between steelmakers and steel end users, also are reporting that their inventories have been ticking steadily upward over the past few months. Steel users are limiting their steel purchases and only buying what they immediately need, fearing that they will be stuck with high-priced steel sitting in their factories. Hot-rolled steel, a basic building block for most all steel products, is selling for about $1,000 a short ton, off about $110 from earlier this year. That is still relatively high, which should cushion steelmakers’ profits.”

Prices and demand for many other construction materials are dropping. The price of crude-oil futures for October delivery on the New York Mercantile Exchange fell more than $10 per barrel today, or nearly 10%, to settle at $96.37. Futures prices for heating oil, a close substitute for diesel fuel, fell 23 cents. Futures prices for natural gas, the feedstock for many construction plastics, fell more than 5%. Copper futures dropped nearly 6% to $2.91 per pound, lower than the year-ago price. “Shipments of aluminum extruded products by domestic producers totaled an estimated 260 million pounds during August 2008, a drop of 18% from August 2007,” the Aluminum Association reported today.