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OEM Report: Heavy Equipment/Construction
Monday | 26 March, 2012 | 7:50 am

Cost of living

By Gretchen Salois

Apartment living may benefit some but does it bode well for the metals industry?

March 2012 -  Still reeling from the aftermath of the recession, many people find being a homeowner is no longer viable. Whether unable to afford mortgages for underwater homes or weary of what the future holds for the job market, many people are looking to rent rather than purchase housing.

Buildings taller than four stories are considered nonresidential construction, according to Lisa Reisman, co-founder and editor of MetalMiner.com. That matters when considering nonresidential construction has done well recently with more than 16 percent growth from a demand perspective compared to a year ago. “This is certainly a bullish indicator particularly for steel (rebar and H-beam in particular but also the key raw materials used to make steel: iron ore, coking coal and scrap) as well as copper (nearly 50 percent of copper production goes into construction),” Reisman says, adding the effect is less so for aluminum, of which only 15 percent goes into construction.

Both nonresidential and residential construction since 2008 has put a “big dent in steel demand,” Reisman says, adding, “pricing has been supported by tighter management of capacity utilization.” Reisman points out “demand hasn’t been there.” However, recent reports suggest construction is headed upward, impacting pricing for steel and copper.

According to John Anton, director, steel service at IHS Global Insight, Washington, D.C., multifamily construction uses more steel per unit than single family units. “This is a plus for steel,” he says, and adds much of the impact on steel depends on the type of construction.

“Some single family has concrete slab, some doesn't, but almost all multifamily will have poured concrete and thus, rebar,” he says. Anton says structural components, such as I-beams and H-beams, are prime examples. Although one beam may be all that is required in a single-family unit for central support, a multifamily unit requires an entire framework of beams.

Although the outlook is taking on a positive direction, numbers are still lower than before the economic downturn. “In all grades of construction steel, there is massive idle capacity,” Anton says. “Rebar and structurals are operating at approximately 70 percent of their pre-recession output, and imports are way down. It will take more than just apartments to push output to pre-recession levels.”

Steel’s significance
The current rebound in the multifamily sector, where larger building sizes and building code restrictions on combustible construction favor steel-based solutions, is advantageous for steel, according to Robert Wills, vice president, construction market development, Steel Market Development Institute, a business unit of the American Iron and Steel Institute, Washington, D.C. “However, I do not anticipate it creating any adverse demand conditions,” he says.

“The construction market will continue to rebound slowly in 2012, but some sectors, such as multifamily construction, are seeing this upswing quicker than others,” Wills says. “Similarly, some regions of the country will feel the impact of this recovery more immediately due to their local economies and the surplus in building stock in that area.”

Optimistic but equally cautious, Pat Newport, U.S. economist at IHS, says, “The housing market is slowly getting back on track. Progress in the multifamily sector is due, in part, to the foreclosure problem as well as the difficulty for many people to qualify for mortgages,” he says. “We will see this continue for several more years and so we will see more apartments being built. It’s not a huge market when compared to a $16 trillion economy.”

Anton agrees, noting while there is some impact, the multifamily market “prevents things from getting worse,” he says.

Newport believes the housing market is improving. “But the proof will be in the multifamily sector and it won’t be until 2014 or 2015 where things get back to normal,” he says, adding 200,000 apartments are being constructed currently, whereas the normal level is 400,000. Getting back to that number will take “at least another three to four years,” he says. MM

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