HARDI/ITR Construction Forecast (Part 2)

“Galvanized Steel Prices are moving sideways. Steel Prices fell $6 per ton in September and averaged $806 per ton in the third quarter. This is only slightly higher than prices were 12 months ago. 

With the US construction market (both housing and commercial) in Phase C of the business cycle, slower growth, we expect that the upward price pressure on steel will be minimal over the next 12 months. 

Foreign markets are also not providing the customary lift to steel prices. Japan and Europe are in recession, China in slower growth. Canada, Brazil, India and Russia all have economic growth rates under 1.0%. 

Any rise in steel prices over the next year will be mild and likely short lived. The added costs of buying forward and holding the inventory are not likely to pay off in this pricing environment.” 

SMU Note: ITR uses SMU galvanized price indices for their analysis. Prices referenced by ITR are based on .060” G90 master coils. 

In our last issue we covered forecasts for the Northeast, Mid-Atlantic, and Southeastern Region. Today we will cover the Great Lakes, Central, Southwestern and Western regions. 

Great Lakes Region 

Housing permit issuance is growing by double digits in the Great Lakes region.  Permits are up 32.7 percent from 2012 levels with Pennsylvania leading the permit trend with a 58.6 percent improvement over last year. ITR and HARDI suggest that oil and gas development in the region is driving demand for housing. Home prices are also on the rise with Michigan showing the strongest gains and Kentucky close to all time highs.  Weak population growth in many states may cool the market along with milder economic conditions in 2014.  ITR forecasts 2013 will finish at a 15.5 percent growth rate that will fall to -15.0 percent in 2014.  Industry conditions will improve in 2015 pushing the housing construction growth rate back up to 11 percent. 

Commercial construction is expected to be flat to negative in the coming months.  Although activity picked up 12.9 percent over the past 12 months, the last three months have been 4.8 percent lower than the same period in 2012. Western Pennsylvania and Michigan have the strongest commercial market while Ohio and West Virginia are below 2012 construction levels. ITR forecasts commercial construction growth to be -3.6 percent for 2013, -0.8 percent in 2014, and rebound nicely to 18.9 percent in 2015. 

Central Region 

Housing permits have risen 32.2 percent in the past 12 months but the trend is losing momentum. North Dakota has the highest housing construction growth rate on record but the other states in the region, although showing impressive permit issuances, are still below pre-crash levels. Home prices are rising in Colorado. North Dakota prices are increasing due to shortage of housing in new oil and gas drilling areas.  ITR predicts 2013 to finish at a growth rate of 18.3 percent that will drop to -1.5 percent in 2014 before surging back to 21.4 percent in 2015. 

Commercial construction is in accelerating in the Central Region but has been erratic.  Value of projects is rising but square footage and number of projects is declining. Competition for limited numbers of jobs is fierce but new opportunities are on the horizon.  The market is expected to increase modestly for the next few quarters before flattening in the latter half of 2014.  ITR forecasts 7.9 percent growth for 2013, flattening to 0.9 percent in 2014 and bouncing back to 7.6 percent in 2015. 

Southwestern Region 

The Southwest has seen an 18.8 percent increase in permits in the past 12 months but permit issuance has been slowing since summer. Increased home prices, due to population growth and a healthier economy, are expected to support remodeling and building activity in the region.  ITR predicts 9.8 percent growth for 2013, 3.6 percent in 2014 and 13.6 percent in 2015. 

Commercial construction has been improving in the Southwest in a variety of sectors such as Hotels & Motels, Office & Bank and Warehouses. Texas and Louisiana are leading the growth trend while Arkansas, New Mexico and Oklahoma are at sub-2012 levels. Large projects with high dollar value are driving the market in Texas rather than quantity of projects.  Construction growth is expected to continue through the first half of 2014 before softening.  ITR forecasts 19.7 percent growth for 2013, 1.6 percent for 2014, and a drop to -4.4 percent in 2015. 

Western Region 

The housing market in the West has been expanding over the past year with permit levels 30.4 percent higher than in 2012.  Only Hawaii is not seeing year-over-year growth.  That said, the market is beginning to slow down and will continue with slower growth into 2014.  Home prices are rising but are still at pre-recession levels in most states. Improved home values are expected to encourage renovations by homeowners and, in fact, the Western Region Remodeling Index is the highest of all other US areas. ITR forecasts 2013 growth at 23.7 percent, 2014 at -2.5 percent, and 2015 at 13.8 percent. 

Commercial construction was flat in the first half of 2013 but new projects with higher value are providing optimism for some states in the coming months.  Opportunities are improving in Alaska, California, Montana, Oregon and Washington. Construction activity is weakening in Arizona, Hawaii,

Nevada, Idaho and is flat in Utah. The best performing sectors in the Western Region are Hotel & Motel construction and Warehouse construction. A quicker growth pace than expected led ITR to revise its commercial construction forecast upwards.  ITR predicts 10.1 percent growth for 2013, 5.7 percent in 2014, and 5.4 percent for 2015.