Construction BOOM? The Government’s Construction Material Prices Have Been On a Swoon, Why???

As a communication network, the market price system coordinates integrates and harmonizes the value judgments of the consumers, which represents demand, with the cost and revenues for producers in service of the consumers, which accounts for the supply.

Hence, the market price system serves as a very important guide to economic conditions.

The government’s Philippine Statistics Authority (PSA) released a few data last week relevant to the construction industry.

As a side note, though government price indices are hardly reliable because distinct products have different utilities for these to be aggregated or averaged, given that there is hardly any alternative, I will use them anyway.

 

Along with dwindling M3 growth, price indices of construction material retail and wholesale prices have been in a funk.

Construction material wholesale prices seem to endure a bigger price slowdown relative to the retail counterparts. June prices slowed to 1.4% from May’s 2.4%. Here’s the PSA: “Negative annual rates were still noted in the indices of cement at -1.8 percent; plywood, -0.9 percent; and PVC pipes, -0.2 percent.”

From a month on month basis: “The indices of the following commodity groups went down during the month:Cement (-0.5%), Lumber (-0.4%), Reinforcing Steel (-1.4%), Plumbing Fixtures and Accessories/Waterworks (-0.1%), Fuels and Lubricants (-1.5%).”

Cement prices have been falling at the wholesale level??? Why??? Too much inventories accumulated fromultrahigh expectations of a perpetual boom??? Or has such growth deceleration emanated from lackadaisical demand from retail, from the major developers and from the government??? If the latter, just what happened to the proposed aggressive infrastructure spending???

The retail segment of my question is answered below.

Construction material retail price (CMRPI) growth moderated less than the wholesale counterpart. The price index grew .88% in June from 1% in May. Like the wholesale index, since its recent climax last February, retail prices have been in a downtrend

Here’s the PSA: A negative annual rate was still observed in carpentry materials index at -0.7 percent. Moreover, slower annual mark-ups were registered in the indices of the following commodity groups: Electrical Materials (1.1%), Masonry Materials (0.2%), Plumbing Materials (1.8%), Tinsmithry Materials (0.5%)

 

The growth rate of the banking system’s loans to the construction industry increased to 20.85% in May from 19.12% in April. Though the growth rate has been in a cascade since 2013, which registered highs of over 50%, diminishing returns from the previous sharp rate of increases could be part of such dynamics.

By next month, the major cement manufacturers will be disclosing their performance for the second quarter. We should see if quarterly revenues of these companies will resonate with the quarter’s price activities.

This should be interesting.