Spend Matters welcomes this guest post from Deni Koenhemsi, economist at pricing and purchasing, IHS Markit.
Cement and concrete prices are mostly flat in the fourth quarter. They are forecast to rise once again in the first few months of 2017.
After two rounds of price increases in January and April, prices of cement are forecast to slow down in the third quarter and stay flat for the fourth quarter. Looking into 2017, price escalation is not expected to slow dramatically. We expect another round of price increases in January and April, but the growth level will be slower compared with 2015 and 2016.
Ready-mix concrete prices are seeing some pressure in the third quarter, mainly driven by the increase recorded in July. Regionally, prices are accelerating the most in the U.S. West, rising about 5.5% year-over-year. Prices in the U.S. Midwest and the U.S. South are also high, escalating around 4% year-over-year, but they have seen some easing from 2015 figures. We expect further easing for August and September. For the fourth quarter, prices will be mostly flat.
Cement demand is expected to rise in 2017, driven by the continuing strength in the construction sector. Residential construction, infrastructure spending and commercial construction drive the majority of cement demand. After higher-than-expected increases in the first quarter, real residential spending stagnated in the second quarter. IHS Markit expects growth to resume in the third and fourth quarters. In the first quarter of 2017, real residential investment is forecast to rise 2.5% quarter-over-quarter, maintaining the demand we've seen for cement and concrete products. Real private investment in nonresidential structures (including mines) has been falling since the beginning of 2015. This quarter, we expect an increase in spending, mainly driven by the return to growth in mine and well investment. The pace of growth in commercial and healthcare structures has slowed compared with the beginning of the year. However, it is forecast to pick up once again in the fourth quarter of this year and first quarter of 2017.
Cement supply continues to rise in the United States. According to the U.S. Geological Survey, cement shipments in the first half of the year increased 7.5% compared with 2015. Foreign imports increased 20.5%, while domestic shipments rose 6.1%. Imports' share of the market continues to increase but remains below the pre-recession levels. Cement supply will only go back to the pre-recession levels when capacity utilization rates rise back to historical averages. Overall, with increasing supply both domestically and internationally, IHS Markit does not expect any shortages in cement for the rest of 2016 and into 2017.