Copper Plunge Continues to Restrain Price Pressure in North American Construction Market

Pricing for copper-based wire and cable in April dropped to the lowest level since October 2011.

May 06, 2014
Copper Plunge Continues to Restrain Price Pressure in North American Construction Market

The materials/equipment component of the IHS PEG Engineering and Construction Cost Index totaled 52.4 percent in April, compared to 51.5 percent in March.

Fear of a disorderly liquidation of Chinese copper stocks is continuing to undercut prices in the North American construction industry this month, as the impact of the selloff moves downstream, according to IHS and the Procurement Executives Group (PEG).

The materials/equipment component of the IHS PEG Engineering and Construction Cost Index (ECCI) totaled 52.4 percent in April, compared to 51.5 percent in March. While up slightly, the ECCI materials/equipment component remains at a low level—near the 50 percent threshold that represents the boundary between prices rising and prices falling, as presented in the attached figure.

“Continuing the trends from the last few months, the construction industry is still seeing a lack of upward pressure on the equipment and materials side,” said Laura Hodges, director of the Pricing and Purchasing Service at IHS. “The impact of the copper price decline in previous months now is moving downstream to impact items that employ the metal, including wire, cable and transformers.”

Chinese manufacturers in recent years accumulated large stockpiles of copper to use as collateral to fund investments. However, tightening credit conditions are undercutting the attractiveness of these so-called copper financing deals, creating anxiety in the global copper market that large blocks of metal will suddenly be released back into the market. This fear has triggered a sharp sell-off, which is having a worldwide impact, affecting far-flung markets including the North American construction business.

“While copper prices have recovered from their lows in March because of short covering and seasonal buying, they are still headed down over the near term,” said John Mothersole, research director of the Pricing and Purchasing Service at IHS. “Fundamental analysis by IHS continues to show strong mine production growth combined with a widening surplus, which should progressively weigh on prices during the next year and a half.”

Pricing for copper-based wire and cable in April dropped to the lowest level since October 2011. Prices also decreased for pumps, compressors and transformers. Altogether, these decreases offset increases in other areas, preventing the materials/equipment component from attaining any strong upward momentum.

The other segment of the ECCI—the subcontractor labor index—declined to 52.3 percent in April, down from 54.7 in March.

“The easing in the subcontractor index belied reports of tight availability of construction labor in Western Canada and the Gulf Coast regions,” Hodges noted. “Despite the downward move, respondents in these regions again expressed concern regarding tightness in skilled labor, specifically for qualified welders in April. PR

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