Positive Outlook 2005

Material prices

The big wild card in determining how the economy and the construction market will perform next year is volatile prices for raw materials. While some long--term relief may be on the way, it appears 2005 will see more shortages.

“We’re not hearing of any improvement in the availability of cement,” Simonson said. “Worldwide demand will remain strong and U.S. cement demand is going to continue to outstrip cement production.”

Simonson is more hopeful that steel prices – which soared 80 percent last year – will stabilize this year, because it is easier for companies to increase production.

Oil prices, on the other hand, will continue to fluctuate.

“That affects the cost of doing business from operating expenses for equipment to surcharges on freight deliveries,” Simonson said.

The PCA now estimates that there are tight cement supplies in 35 states and predicts that those shortages will continue well into 2005. Although demand for residential projects will decrease, that shortfall will be made up by the increase in nonresidential activity. Domestic production will slowly increase over the next few years, but the best chance of reducing shortages is an increase in the availability of imported cement, according to PCA.

That availability will depend on the ability of importers to find available shipping capacity, which has been tied up by record construction activity in China, said John Mothersole of Global Insight, an economic consulting firm.

“A year ago, a tanker cost $35,000 a day. Today that cost is $135,000,” he said.

Several industry groups, including NAHB and AGC, have urged the federal government to remove tariffs on Mexican cement imports to help meet the shortage. Mothersole said there is no indication that issue will be resolved soon. He said he expects cement prices to continue to increase, peaking this spring before making modest declines.