STEEL YOURSELF Home construction requires a lot of steel, a commodity that has been heavily impacted by the ongoing war in Ukraine (the world’s third-largest steel exporter), as well as COVID-related supply chain instability in China (the world’s largest steel exporter). As such, there’s no clear consensus on what path steel prices will take. Here’s some food for thought from manufacturing platform Metal Miner: “With the war a ecting trade so dramatically, normal metrics for evaluating the steel market no longer apply. As we stated several months ago, the steel market seems to have moved away from traditional supply-and-demand- based predictability. Instead, economists are rushing to produce new models that better reflect the 2022 marketplace. For now, it’s a waiting game being played by some very stubborn participants.” MARKET FORECAST: CLOUDY, WITH A CHANCE OF SUN A recent overview of the construction materials market by FMI Capital Advisors paints a murky outlook for the near future. While clouds roll in from an economic downturn brought on by historic levels of ination as well as interest rate hikes and supply chain constraints, there are some reasons to expect some sunny upsides peeking through. Two mitigating factors are keeping recession impacts at bay for the construction materials market, FMI Capital notes. 1. Committed federal funds from The Infrastructure Investment & Jobs Act (IIJA) bill will help to keep the construction industry moving forward. 2. Construction is a local industry, so some of the individual and unique
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markets where producers operate may remain strong. Here’s a breakdown of FMI’s overall predictions:
• Ination has increased energy and steel prices, which hurts construction materials producers’ prots. Producers who pass on increased costs to customers will fare much better than those who cannot. • Interest rate hikes are a necessary evil to set prices back to sustainable levels. The increases mean that home borrowing costs will increase signicantly (a negative effect on home construction) and nancing equipment through loans will continue to become more expensive. • The strained supply chain directly impacts the construction materials sector as it pertains to equipment purchases. The expected easing of supply chain constraints should allow producers to get much-needed equipment in a timelier fashion. • M&A activity: Buyers remain active and are willing to pay premium valuations for strategic targets in attractive markets.
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