While trying to gauge the extent of the construction decline can be a confusing task, one thing clear is that the steel conduit market is "in the dumps," pushed down by a weak non-residential building sector that is still trying to find the bottom, several market sources said.
Conduit demand tends to be very closely connected to non-residential construction activity, according to Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa., although some conduit—used to protect electrical wiring from corrosion, certain magnetic fields and from physical damage — also is used in public works infrastructure construction and for apartment and other multi-family construction in certain regions of the United States.
U.S. conduit demand reached its recent peak of about 600,000 tons a year in 2000-01 before dropping significantly to slightly more than 400,000 tons in 2002, Plummer said. It remained in the 425,000- to 500,000-ton-a-year range through 2005 before picking up to just below 550,000 tons in 2007 and about 575,000 tons in 2008. But it has plummeted this year.
While conduit use has held fairly steady compared with other competitive methods like cabling, all wiring methods have been impacted by the decline in construction, according to Michael Johnston, executive director of standards and safety at the National Electrical Contractors Association, Bethesda, Md.
"With both non-residential construction and housing so weak, business for conduit is in the dumps," Paul Vivian, a principal at Preston Publishing Co. Inc., St. Louis, said. He estimates that demand for conduit has fallen about 55 percent from year-ago levels.
Conduit demand has been "really falling fast and could get at least a little worse, although the rate of decline could be starting to slow," Vivian said, adding that the current weakness in the market really started to take hold in January or February, when certain projects that had been on the books started to be completed, or were delayed or canceled. Very few, if any, new orders have been added to the project pipeline.
"Businesses are holding their cards close to the chest due to the weak economy," Johnston said, "and likely will continue to do so until there is some increased comfort level that the economy and the credit situation has started to improve."
The fact that non-residential construction is currently down isn't all that surprising. "It tends to go through five- to 10-year cycles, and we were due for a cyclical downturn anyhow, " said Plummer. "But certain negatives in the U.S. economy—including tight credit and high unemployment—has made the downturn more severe.
Measuring the change in non-residential construction is very complicated. There are two ways to do so, and each seems to give a very different picture of the market. The U.S. Commerce Department's "put in place" construction spending statistics indicated the market was up 1.7 percent in the first quarter vs. a year earlier, while certain "billings" or "new order" indices—such as those from Reed Construction Data of Norcross, Ga., and the American Institute of Architects—indicated a 26- to 47-percent decline year to date through April, the latest month for which statistics were available.
Ken Simonson, chief economist for the Associated General Contractors of America, Arlington, Va., said the strength in the government's "put in place" statistics was driven mainly by certain large refinery projects, ThyssenKrupp AG's new steel mill in Alabama and other large projects under way for several years.
Manufacturing construction is very likely to shrink soon, even on a "put in place" basis, he said. Valero Energy Corp., for example, said it will indefinitely suspend a $1.7-billion hydrocracker project at its Port Arthur, Texas, site.
The controversial "Buy American" provisions in the American Recovery and Reinvestment Act also might contribute to slowing, rather than stimulating, the construction market. A wastewater treatment project in Overland Park, Kan., reportedly has been held up by uncertainty over whether a piece of Austrian-made co-generation equipment qualifies for a waiver from the requirements of the legislation, Simonson said.
Much of the weakness in the non-residential construction market, and therefore conduit, has been a credit issue, Vivian said. "No one is making loans on anything that isn't absolutely guaranteed to bring in an immediate return," he said.
"Once the economy starts to show signs of stabilization, we should start seeing more construction money released, but that will not likely be until 2010-11," Johnston said.
Views are mixed as to whether the stimulus funds will benefit conduit. "I think eventually it should help, but conduit mills and distributors aren't seeing it yet," Vivian said.
If there is to be any benefit, it will be largely on the public works side, which accounts for a very small portion of the total conduit market. "Meanwhile, there doesn't seem to be any logical reason why there should be much secondary benefit from the economic stimulus plan on commercial or industrial construction," which accounts for 80 to 85 percent of conduit consumption, with the rest divided between public works and multi-family residential construction, he said.
This year will be at best a survival year for the conduit market, with demand down at least 50 percent, according to Vivian, noting that there could be a slight improvement in 2010 "simply because demand will not likely fall all year as it has in 2009. But the real question is what will happen in 2010, once many current projects are completed. It depends on what happens with the economic stimulus package and whether credit begins to flow."