Cement
Cement shortages may be easing for the time being as cold weather brings an end to concrete placement in many regions. About 15 states are experiencing shortages down from 32. There has been an upsurge in U.S. cement importing, despite increased costs to purchase and transport the cement. The U.S. will import 33 million tons in 2005, roughly 27% of the cement consumed and 35 million tons in 2006. The Portland Cement Association projects that more than 120 million metric tons of cement will be used in 2005, an increase of 5.2% from 2004, with consumption rising an additional 3.7% in 2006. Within four years, another 13 million-plus tons might be added to national construction need. Figures for announced new and modernized plant projects indicate a possible capacity addition of about 15 million tons. That would be before full approval processes, environmental, and anti-building opponents take their toll in time and investment. The near-term scenario does not look greatly changed from the current shortage. Because cement plants take several years to get construction permits and to complete, there is not likely to be much additional domestic production in 2006. Demand from nonresidential building, highway, water and sewer construction is likely to keep growing. Housing may dip in 2006, but that sector is far less concrete-intensive. Also, cement production and the quarrying, mixing, and delivery of other concrete components (sand and crushed stone), are energy-intensive, making the cost sensitive to oil prices. It appears likely that cement and concrete prices will rise an additional 10 to 15% in 2006, with even more widespread shortages than in 2005 barring an economic downturn.

Cement prices continued to break with tradition, posting unusually strong increases near the end of the year, after rising steadily through the year. During the fourth quarter of 2005, cement prices rose 0.9%, for a year-end gain of 4.7%. A further price increase of $10 to $15 per ton has been announced effective January 1, 2006. In 2004, cement prices increased 1.4% in the fourth quarter for a 3.9% annual increase. In 2003 and 2002, prices showed no gains during the last quarter and finished with annual increases of 0.1% and 1.1%, respectively.

Steel
Strong demand from China for scrap iron and steel in early 2004 contributed to a sudden, steep, and unexpected increase in construction steel prices that spring. Prices for structural steel and reinforcing bar products gradually leveled off, then retreated slightly in the summer of 2005 before starting up again. But in the last three months, the average price for these products has shown that inflation still has some fight in it. The average prices of channel, wide-flange, and I-beams are up 13% above a year ago, when they were boasting 31% year-to-year price increases. Rebar prices have rebounded from last August’s low and are now 3% above last year’s record high.

Press reports are very mixed about the outlook for steel prices. China is alternating between being a net exporter and net importer of steel, and India and other Asian economies are contributing to the uncertainty. Worldwide steelmaking capacity is increasing, but so is demand. It is predicted that by the fourth quarter of 2006 structural steel prices should decline 6% to $534 per ton. This is still higher than the $300 per ton cost in 2003.

Wood Products
Plywood prices are on the rise, increasing 3.1% during the last four months as prices recovered from May’s drop. Plywood prices ended in 2005 2% above a year ago. Plywood prices are still 35% above 2002 levels, never recovering from 2003’s huge price spike. Softwood lumber prices have come down from a year ago as antidumping duties have been reduced by half. With the housing market weakening, prices of lumber products in 2006 should be flat to 10% lower than in the same period in 2005.

Petroleum Products
On-highway diesel fuel in mid-November averaged $2.48 per gallon. This price is 68 cents less than the record set after the hurricanes, but is still 36 cents higher than a year ago. This cost is widely used by truckers to adjust fuel surcharges. The price of diesel in the next several months will be influenced by how much demand there is for heating oil, which is made from the same “fraction” of production as is crude oil. If the winter is cold in the Northeast, where most heating oil is used, refiners will put more into that market and less into the diesel fuel market, pushing up diesel fuel prices. After the winter, diesel prices should drop. Therefore, it is likely that diesel prices for the first quarter of 2006 will be 20-30% higher than a year ago, but perhaps lower than current prices in the fourth quarter. Gasoline prices have dropped, but are still 21 cents higher than a year ago.

Natural gas used as a heat source soared to more than $14 per thousand cubic feet (mcf) right after Hurricane Rita hit. With production slowly climbing, the price dropped to $12 per mcf but is still more than 50% higher than a year ago.