The Construction MMI (Monthly Metals Index) held its sideways trend, dropping by a slight 1.09%. Despite a torrent of construction news, the index didn’t budge much month-over-month and had a minimal reaction to recent interest rate drops. The Fed will likely need to drop interest rates more aggressively for the construction index to display any type of significant reaction to this macroeconomic price driver.
Despite the lackluster reaction to The Fed’s more recent, dovish stance, the construction market witnessed a few significant developments month-over-month. Chief among these is China’s cancellation of the export tax rebates on both aluminum and copper products. As these two metals (mainly aluminum) see wide use in applications across the construction sector, this cancellation is having some impact on the U.S. construction market.
Another concern weighing heavily on the minds of U.S. construction firms and contractors is President-elect Donald Trump’s proposal to tariff Chinese imports. Most construction news outlets agree that the long-term outlook for the U.S. construction market could witness some volatility if these tariffs come to light.
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China’s Export Tax Rebate Cancellation on Copper and Aluminum Now in Effect
China’s recent cancellation of export tax rebates for aluminum and copper products became effective on December 1, sending ripples through global industrial metal markets. According to construction news sources, this recent action by China will have significant implications for the U.S. construction sector,
It’s anticipated that eliminating the 13% VAT refund on Chinese exports of copper and aluminum will make these commodities more competitive on global markets. Therefore, analysts predict a drop in Chinese export levels, which would result in more limited global supply and pricing pressure.
As a result of market concerns about decreased Chinese supply, aluminum prices began to rise around the world. According to Reuters, the London Metal Exchange saw prices jump by more than 8% after the announcement.
While steel products were not directly affected by the recent rebate cancellations, the policy might still have an indirect impact on global steel markets. As aluminum and copper prices rise, industries may turn to steel as an alternative for some uses. This could boost demand and drive steel (and other alternative metal) prices higher. Read The 5 golden rules for sourcing metal to help avoid metal market volatility from geopolitical policy shifts.
Construction News: Implications for the U.S. Construction Sector
The U.S. construction industry relies heavily on metals like aluminum and steel for various applications, including structural components, wiring and plumbing. Rising global prices for aluminum and copper will likely elevate material costs for U.S. construction projects, potentially leading to higher overall project expenses.
If steel prices also rise due to increased demand or shifts in global supply chains, the financial impact on the construction sector could be more pronounced.
Strategic Considerations for U.S. Construction Companies
Given these changes, U.S. construction companies should look into alternative suppliers and materials to reduce the impact of price fluctuations and supply interruptions. Additionally, using financial tools to hedge against rising costs can offer increased price stability for major projects.
Finally, establishing long-term contracts and forming strategic partnerships with suppliers could also help lock in better prices and ensure a more reliable supply chain.
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Construction News Reveals Various Boons for Metal Sourcing Builders
The U.S. construction industry continues to show cautious optimism following the recent interest rate reductions by the Federal Reserve. In September 2024, the Fed lowered the federal funds rate by 0.5 percentage points. It then made another 0.25 percentage point cut in November.
Reuters reports that U.S. construction spending rose by 0.4% in October, exceeding economists’ predictions. The growth was mainly fueled by a 1.5% increase in residential construction spending, which included a 0.8% rise in new single-family home projects. The gains surprised many construction news analysts, as they occurred despite mortgage rates rising.
However, the commercial real estate sector remains skeptical. According to MarketWatch, the $3.5 billion refinancing deal for Rockefeller Center signals a slight return of investment and construction industry stimulation. Despite this, the construction sector still faces obstacles. Nonetheless, investors see the current market conditions as a significant opportunity, with yields at their highest in more than ten years and property values below pre-pandemic levels.
Overall Industry Outlook
Construction firms are hopeful but cautious, acknowledging that the effects of lower interest rates will take time to be fully realized as financing terms and project plans adapt to the changing landscape.
Developers also remain cautiously optimistic, with some projects transitioning from the planning phase to active development. However, any substantial growth in activity will also depend on more favorable loan-to-value ratios and equity requirements.
Construction MMI: Noteworthy Price Shifts
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- Chinese aluminum bar prices traded flat, remaining at $2,962.63 per metric ton.
- Chinese steel rebar prices prices remained sideways, declining by 1.97% to $510.21 per metric ton.
- Chinese 200mm h-beam steel prices also traded sideways. In all, prices dropped a slight 1.23% to $443 per metric ton
- Lastly, European commercial 1050 sheet aluminum also moved sideways. Prices dropped a slight 0.88% to $3,674.15