Video: The North American construction materials market

If market conditions permit, a significant upturn in residential/non-residential building could result in 2015. If housing starts jump, so will lumber prices.

Interview Transcript

What is the near-term outlook for pricing?

Generally, building material prices today are higher than they were this time last year. However, it hasn't been a steady climb higher. There's been a significant amount of volatility in building material prices over the last twelve months. This is largely a function of the start/stop nature of construction recovery. Looking toward 2015, however, as a lot of the headwinds that have been challenging the market begin to dissipate, we would expect to see a significant upturn in both residential and construction and non-residential construction spending. This is going to help fuel demand for building materials, whether it's cement, wallboard, lumber; in turn we think this is going to help give suppliers the pricing leverage they need to push through the sort of price increases we typically associate with a construction recovery.

What key categories and regions should be monitored closely?

Regionally, state municipalities with significant shale, oil and gas formation are giving purchasing managers quite a headache in the North American building materials space. This is largely a function of the pull on cement, unintelligible it makes an aggregate demand from the energy sector that's helping to buoy prices across the industry. The challenge in these locations is that you've got significant demand from the energy sector, which is helping to lift capacity utilization rates in these specific industries, well above pre-recession levels, and as a result, in these key markets - such as Texas, Colorado, North Dakota - you see producers now have a kind of firm grasp on pricing leverage. And they're able to institute pricing increases that are really twice to three times the national average. So really to sum it all up, it's Gulf Coast states, it's North Dakota, it's wherever you have shale plays that represent a significant threat to buyers of cement and ready-mix.

What risks or buying opportunities are presented near-term?

So in a volatile environment like we have now in North America, there are certainly several opportunities present. Currently lumber prices, which are trading at around $340 per thousand board feet represent a significant buying opportunity in our opinion. This is partly a function of what we expect to see in single family housing starts in the US next year, if we do see a ramp up in starts, which we at IHS currently forecast, we should see a commence or an increase in lumber prices from what we consider to be fairly low levels right now. At the same time, an important risk that buyers need to be mindful of is what we expect to happen in gypsum and insulation markets - so wallboard and insulation - where we thing suppliers are going to be quite effective at instituting another round of annual hikes. It's certainly a risk that buyers need to be mindful of. And either incorporate it into their current budgets for next year, or plan accordingly.

Charlie McCarren, Senior Economist, IHS Pricing & Purchasing