CRU Aluminum: Housing Market Top Question Mark for Demand

Supply and demand dynamics are also shifting, notably for multifamily housing. On the demand side, household formations are key, as that measures the number of new households formed through various channels. An example would be college students graduating and moving out on their own. It tends to capture both demographics and birth trends as well as general consumer preferences. Usually this sits between 1.5-2% growth year on year (y/y). However, the pre- and post-pandemic world has shifted the trend. In 2020, household formations peaked at 2.5% before falling to just a half percent in 2021, and then just over 1% in 2022.

On the supply side, multifamily housing new construction is expected to continue to grow in 2023. Over the last few months, new permits have outpaced both completions and starts. This signals that coming projects should continue at a pace well above historical norms. While this is good for short-term metal demand, it could create a downside risk when combined with the above statistics. Many are calling for rents to drop in 2023, and part of that argument revolves around this supply overshooting demand in the long term.

The single-family housing market should help a bit, though. With home prices still well above previous averages and mortgage rates climbing, more entry-level, would-be buyers could choose to stay in rentals longer than anticipated. Single-family housing starts and permits declined over the past 3-4 months, perhaps signaling this shift in buyer preferences. It is important to note, however, that even with the drastic decline seen over the past few months, housing permits are still above pre-pandemic levels.

The trends will also likely be very regional based with some areas affected more than others. The suburbs of major middle American cities are already seeing a bit of rate reductions. But in the large, coastal cities such as New York and Los Angeles, there are still large projected housing shortages. The Northeast has been hit the hardest, with permits dropping close to 60%, while other regions were down 20%. This had led overall sentiment around building and construction (B & C) to weaken significantly. At a recent home builders show, some builders were claiming to have experienced as much as a 20% drop throughout the first two months of the year.

B&C Extrusion Imports Will Be Tested Mid-2023

This potential drop-off in demand could highlight another area of importance for the extrusion industry: imports. Last year, the percentage of imports as compared to total shipments steadily climbed. In November, this reached as high as 17%, whereas the historical average was somewhere between 8-10%. The demand rush of last year is partly responsible as presses were full and lead times were extended. In Q4, however, shipments and new orders slowed down dramatically, but imports continued at the same rate.

It is likely many of these imports are headed towards B & C. Again, at the homebuilders show, extruders from Turkey, Mexico, and Poland had a large presence. Imports from extruders such as Kingtom Aluminio, previously found guilty of evading tariffs, have also started to show on the bill of landing lists. There is also worry that the current 232 exclusion process, in which all extrusions are excluded, creates an unfair environment. Imports could potentially work their way into the country through various avenues at lower tariff rates, making it difficult for domestic producers to remain competitive. With demand potentially declining by double digits in 2023, this issue could likely come to a head at some point throughout the year.

By Matthew Abrams, matthew.abrams@crugroup.com