IHS Content

Chemicals: Moderate Energy Prices and Improving Supply Make 2016 a Good Year for Buyers

Spend Matters welcomes this gust post from Ted Semesnyei, senior economist at IHS.

While chemical price pressures will increase somewhat in the near term, due to a heavy spring maintenance season, prices are expected to stay competitive for chemicals in 2016, as supply levels remain sufficient and energy costs are low. Thus, the window of opportunity remains open to restock inventories ahead of moderately escalating energy and feedstock costs longer term.

Tightening Labor Market and Rising Construction Wages for 2016

Spend Matters welcomes this guest post from IHS.

Fundamentals are finally catching up with construction wages. The average industry wage grew 2.3% in 2015 and will grow 3.1% in 2016. Unemployment in the construction industry is falling quickly, averaging 6.6% in the fourth quarter of 2015. Improving activity in the residential and infrastructure sectors will offset weaker growth in the nonresidential sector, further tightening U.S. labor markets.

Favorable Buying Conditions for Corrugated Containers

Spend Matters welcomes this guest post from IHS.

Both linerboard and corrugated medium prices slipped marginally in the fourth quarter of 2015 amid plentiful supply. The benchmark price for 42-pound Linerboard East Coast Market is now $730/short ton, down from $735/short ton in the third quarter. Corrugating medium (26 pound) declined from $690/short ton to $680/short ton.

Cement Prices Post Highest Escalation in Almost a Decade

Spend Matters welcomes this guest post from IHS.

Cement prices shifted in favor of buyers in the fourth quarter, mainly because of seasonal factors. Despite this quarter-over-quarter respite, prices are still expected to grow approximately 7.0% compared with last year. Cement prices have diverged significantly from other building materials throughout the year.

Computer Prices Continue to Fall

Spend Matters welcomes this guest post from IHS.

Computer prices continue their inexorable decline. Average selling prices (ASPs) in all categories of computers are expected to slip over the next several years, even as the characteristics of the computers continue to rise — faster processors, more memory, more storage. This follows persistent price declines for computers over the recent past.

Trucking Prices Will Begin to Rise Once Again

Prices in trucking will begin to rally this quarter, while remaining vulnerable to fluctuations in the oil market. Trucking is one of the first modes of freight transportation to see prices gain traction due to the drop in oil prices. As expected, slight price declines came through in the second quarter of this year. Now the industry is poised to begin increasing prices once again on the basis of healthy demand and continued difficulty in finding qualified drivers.

Time to Lock in Electricity Prices This Fall

Spend Matters welcomes this guest post from IHS.

In early 2015, US electricity prices were running more than 50% below January 2014. This drastic easing was driven by plentiful natural gas supplies and also milder weather that persisted until late winter. The discount to 2014 prices has since declined, coincidentally in line with a temporary plateauing of natural gas production. In the coming months, however, average prices are expected to reach an autumn trough of around $32 per megawatt-hour (Mwh) before ratcheting back to above $35/Mwh in December.

Polyethylene Prices Remain Subdued

Spend Matters welcomes this guest article from IHS.

Packaging producers saw some cost savings last year as the drop in oil prices lowered the cost for a variety of chemical products. Polyethylene (PE) is one of the largest volume thermoplastics and is utilized in a wide range of applications, with packaging accounting for the single largest market. Europe has the highest level of price increase activity as a result of the extremely short supply situation following numerous force majeure outages. This is not representative of grassroots consumption growth but rather an effort to backfill waning inventories. The situation appears to be resolving itself as we enter into the beginning of the summer vacation season when demand takes a breather, allowing supply to catch up.

Lumber Prices Begin Their Climb

Spend Matters welcomes this guest article from IHS. Spot lumber prices, as reported by the industry publication Random Lengths, headed lower in the final months of 2014 before tumbling in the first 4months of 2015. At the end of April, spot spruce pine fir (S-P-F) 2x4 #2&Btr mill prices stood at $249 per thousand board feet (mbf). Last year in April, this figure was $367/mbf. The volatility in lumber prices can be traced back to changes in the demand and supply drivers.

Boxboard Prices Flat Amid Sluggish Demand

Spend Matters welcomes this guest article from IHS. The buying environment for boxboard will be favorable in 2015. Both solid bleached sulfate kraft board (SBS) and clay coated recycled board prices softened by 1.5% in the first quarter of 2015 amid ample supply. Prices are expected to stabilize from the second quarter onward as demand slowly picks up. However, US exports will continue to suffer from an unfavorable exchange rate. Since the spring of 2014, SBS prices have been $1,170/short ton, but recent softness in demand pushed them down by $5/ton at the beginning of 2015. With sluggish improvement in demand, prices could soften by further $5/ton before stabilizing through the second half of the year. Look for a very gradual price increase back to $1,170/ton by late 2016.

Dropping Oil Prices Keep Airfreight Rates Low

Spend Matters welcomes this guest article from IHS. The dramatic decline in oil prices is trickling down to airfreight customers. Airfreight rates have been drifting downward for much of 2014. However, they began falling more precipitously since the fourth quarter of last year, in line with plummeting oil prices. The recovery in freight prices is expected to begin in the third quarter of this year, but we will not see positive growth in year-on-year terms until 2016. The delay in higher price escalation is due to ample capacity in this industry, which has caused prices to be extremely flat for the past couple of years. Unlike passenger air travel, where suppliers still have market power, air cargo suppliers have little leverage to counteract the decline in oil prices.

US Economy Prepares for Falling Unemployment and Rising Wage Growth

Spend Matters welcomes this guest article from IHS. All eyes are on the Federal Reserve Bank (FED) for a possible interest rate hike in July or September. As a result, the various measures of unemployment published by the Bureau of Labor Statistics are being closely followed by markets as indicators of potential FED action. FED Chair Janet Yellen uses these measures of unemployment, among several other indicators, to assess the well being of the economy. While unemployment fell throughout 2014 and is expected to come down further in 2015, wage growth has been relatively flat. The question markets should be asking is what will happen to wage growth in 2015?