U.S. Construction Spending, News Of Chinese 'Megacity' Keep Monthly Index Afloat

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Includes: BDD, BDG, BOM, BOS, CLAW, DBB, HEVY, HOML, ITB, JJM, NAIL, PKB, RJZ, UBM, XHB
by: MetalMiner

Original Post

By Taras Berezowsky

Here's What Happened

  • The Construction MMI, tracking metals and raw materials used within the construction industry, slipped 1.3% to a value of 79 for May.
  • Chinese steel prices for forms such as rebar and H-beam dropped precipitously this month.
  • Based on the last few months' values, the last time this sub-index has performed this well was the start of 2015, back when California was the first state to pass a carbon tax and Bill Gates turned human waste into potable water.

What's Going On in the Background?

  • We're in the salad days for the U.S. construction sector, at least as far as 2017 is concerned. According to the Associated General Contractors' analysis, "Construction spending is at record levels for the second straight month in March [in spite of the month's slip] and is up 4.9% for the first three months of year compared to the same period in 2016," as quoted by ForConstructionPros.com.
  • Better days for Chinese construction markets may be coming down the pike as well. Beijing recently announced plans to build a new megacity "the size of New England," which should result in quite the appetite for industrial-grade steel, aluminum and other materials. For example, the government approved $36 billion to build 700 miles of rail within the next three years, according to this article. More salad days for the global construction industry to come, perhaps?

What Metal Buyers Should Look Out For

  • The latest drops in Chinese steel prices may have a knock-on effect on U.S. and other Western steel, which make the latter "pricier" comparatively. This could lead to lower prices on both sides of the ocean hanging around for a while.
  • We'll see if President Trump's 232 investigation begins to have any medium-term effect on steel once the determinations come down on whether imports constitute a threat to national security. In the meantime, "iron ore and Chinese steel prices could recover if China cuts overcapacity later this year," as we write in our latest Monthly Outlook Report.

Key Price Movers and Shakers

  • The China rebar price plummeted, the U.S. shredded scrap price fell below a key threshold to start the month for the third time this year, and weekly U.S. bar fuel surcharges for the Midwest, Gulf Coast and Rocky Mountain regions all fell slightly from April to May.

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