Building Products Market Overview
The building products industry has been on a roller coaster ride for the last few years. The COVID-19 pandemic, an inflationary economy, supply chain challenges, and geopolitical tensions have caused movements across a variety of building products and producer pricing.
When the Coronavirus pandemic spread around the world in 2020, many companies and manufacturing facilities were closed down for safety precautions. At the same time, there were supply chain issues and geopolitical tensions. This all contributed to shortages of construction materials, increasing costs, and building delays.
In 2021, demand continued to rise on an already stretched supply due to stimulus packages and life for consumers beginning to “normalize”. In 2022, manufacturing is still playing catch up, largely due to labor shortages, which leads us to prospects for next year.
What’s Next for the Building Products Market?
It is clear that the recent building products demand boom has begun to stabilize. Tom Park, a VP at Skanska, one of the industry’s leading construction management firms, notes that a sharp reduction in housing starts has eased material demand, where commodity lead times have shortened to 26 weeks, after peaking at 48 weeks in late 2021. There is a great deal of uncertainty as to where the market can go from here after having fallen ~20% since the highs. Should interest rates continue to rise, it is reasonable to assume that the construction market will continue to be challenged in the near term.
This being said, however, construction backlog has remained consistently high throughout 2022 as many projects had been placed on hold, and Ken Simonson, the chief economist at Associated General Contractors of America, believes there will be a big pickup in 2023 in infrastructure investment spending as a result of the Infrastructure Investment and Jobs Act. Additionally, alternative energy projects funded by tax credits and other incentives included in the Inflation Reduction Act, as well as a continuing pickup in manufacturing construction, including semiconductors, electric vehicles, and battery components, can continue to drive the building products market forward.
For building products business owners, it is important to focus on retaining the labor force and maintaining efficient operations to keep control of input costs such as energy. For building product investors, it is important to keep an eye on interest rates, as they can impact the construction market in the near term. If business owners can keep costs down to efficiently price their products to customers, building products companies should be able to weather the storm and be in a position to capitalize on the infrastructure bills being passed by the current administration.
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Sources:
https://www.bdcnetwork.com/construction-demand-will-be-double-edged-sword-2023
https://fred.stlouisfed.org/series/PPIACO
