Spend Matters welcomes this guest post from Deni Koenhemsi, economist at IHS.
Last year was a good one for construction activity in the United States, with real construction spending increasing by 8.7%. This, in turn drove demand higher for construction sand, gravel and stone which are important inputs for concrete, asphaltic aggregates, construction fill, road construction and maintenance.
The production and shipment of sand, gravel and stone rose in-line with regional U.S. construction activity. According to United States Geological Survey (USGS), production of crushed stone increased to 188.3 million metric tons in 2015 from 171.9 million metric tons in 2014 for the U.S. Northeast region. This 9.5% gain was the highest among all U.S. regions. The U.S. South remained the largest producer at 638 million metric tons, which is not a surprise since the region had the highest construction spending level. In 2015, price for crushed stone was highest in the Northeast, at $11.8 per metric tons. This represents a 4% increase compared to 2014 price levels. The U.S. Midwest had the lowest priced crushed stone at $8.9 per metric ton with the national average being $10.6 per metric ton.
The USGS reports a similar trend for sand and gravel. Construction sand and gravel production increased the most in the Northeast, which pushed prices to $9.6 per metric ton. However, the U.S. West produced the most sand and gravel at 338 million metric tons, more than triple the amount in Northeast. Although the South had the highest construction spending, the West was the close second. Both the West and the Northeast posted increase in sand and gravel production and prices.
Construction sand, gravel and stone differ from other commonly traded building materials because they are relatively cheap and therefore it is not economical to ship them long distances. These two factors make regional differences in construction activity a key driver behind deviations from the national price average. Nevertheless, price growth seems to follow a similar pattern across most regions. For 2015, prices increased in the range of 4.0%.
IHS expects production of sand, gravel and stone to continue to rise in 2016, along with construction activity. Some regions in the U.S., such as Northeast, will not see as strong of a construction activity. After rising 7.3% in 2014 and 11.4% in 2015, real construction spending in US Northeast, partially driven by tax breaks in the last year, is expected to fall in 2016 and 2017. Falling demand in this region should put downward pressure on prices, presenting better buying conditions in 2016. Other regions, such as West, are expected to make up for the contraction in spending in the Northeast. In 2016, construction spending is expected to rise 12.4%. This low double digit increase, following the 11.8% rise in 2015, should continue to put an upward pressure on sand, stone and gravel prices in the West. Total U.S. construction is forecasted to increase 4.1% in 2016, which means rising prices for construction sand, gravel and stone in most of United States.