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Mixed construction outlook for wire rod

Keywords: Tags  construction, steel, American Wire Producers Association, Ken Simonson, Samuel Frizell

ORLANDO, Fla. — The domestic wire rod market will continue to get a boost from growth in private and residential construction, but larger infrastructure projects will be a little slower in getting off the ground this year, market participants say.

Positive growth is being seen in smaller construction projects, with housing permits increasing 1.8 percent in January to an annual rate of 925,000, the highest level since June 2008, according to attendees at the American Wire Producers Association (AWPA) annual meeting in Orlando, citing U.S. Census Bureau data. Spending on nonresidential construction, however, grew only 1 percent in 2012 from the previous year.

"Just this morning, we’ve already gotten some mixed news that I view as largely positive," Ken Simonson, chief economist for the Associated General Contractors of America, told the AWPA meeting Feb. 20. He said that while housing starts and building permit figures show there was a pullback on the multifamily side, there continues to be "spectacular" gains in both permits and starts for single-family homes.

Total construction spending is likely to be up 5 to 10 percent in 2013 over last year, Simonson said, with private nonresidential construction likely to be up 10 to 15 percent and residential construction up 10 to 15 percent. But spending on public construction projects is likely to be down 2 to 5 percent, he said.

The outlook for growth in 2013 for some larger infrastructure projects is rosy, Simonson said, with increasing shale gas plays and the Panama Canal expansion project likely to lead to growth for the steel industry.

Natural gas has "tremendously diversified effects on construction and on manufacturing," he said. "Downstream (for the wire industry), it seems every week there are new announcements about plants that are being built to process natural gas liquids, steel plants that are using natural gas as a fuel, power plants that are replacing coal-fired plants, enormous export terminals and, perhaps most pervasive, the possibility that we’ll soon see fueling stations across the country."

Overall construction spending was up 9 percent in 2012 compared with 2011, Simonson said. Sectors with stronger growth in spending included power and natural gas, with 11-percent growth to $94 billion, and transportation, which saw a 14-percent increase in spending to $41 billion.

Some market participants expressed skepticism about the positive outlook, however, pointing to Census data showing a 4-percent decrease in highway maintenance spending in 2012 compared with the previous year.

"I continue to see slow, steady growth," a wire fabricator source told AMM. Housing starts are positive, but bigger projects have continued to lag, he said.

"I think it’s going to be a second-half-of-the-year issue," another wire fabricator source told AMM. "I’m not bullish on roads or infrastructure. Our roads got a D-minus (rating from the American Society of Civil Engineers) and it’s not improving. Our roads and bridges are just horrible."

Simonson echoed the sentiment. "The medium-term outlook beyond the next few months is not at all healthy for highway spending," he said.

AWPA meeting attendees said that a Congress crippled by partisan wrangling could continue putting off the issue of repairing the infrastructure.

"I think budget talks are going to weigh on people if Congress continues to punt this down the road," the second wire fabricator source said.

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