The producer price index (PPI) for finished goods climbed 0.3% in January, seasonally adjusted, the Bureau of Labor Statistics (BLS) reported today. More alarming, the “core” PPI, which omits energy and food costs, jumped 0.8%, the highest monthly increase in six years. The PPI for intermediate goods rose 0.4% for the month and 8.7% since January 2004. The PPI for construction materials and components rose 1% for the month, following a 0.5% rise in December, and 10.8% since January 2004. BLS noted, “The concrete products index advanced 2.2% in January, following a 0.6% gain in the preceding month. Prices for fabricated structural metal products, softwood lumber, heating equipment, and paving mixtures and blocks also increased more than they did in December, while the indexes for plastic construction products and treated wood turned up in January. By contrast, prices for asphalt felts and coatings turned down 3.5% in January, after posting a 1.5% gain in the previous month….Prices for plywood, steel mill products, and nonferrous wire and cable rose less than they did in December.” Notable 12-month increases included steel mill products, 46.5%; fabricated structural metal products, 17.5%; gypsum products, 21%; cement, 9.5%; and concrete products, 9.3%. The PPI for crude materials for construction climbed 2.7% in the month and 6.9% over 12 months. The PPI for construction machinery and equipment rose 0.9% in January and 5.9% over 12 months. BLS introduced a new PPI for construction equipment rental and leasing, which rose 1.9% for the month but fell 7.2% from January 2004. This series begins with December 2003, too recent to establish seasonal adjustment patterns.
The outlook for steel prices remains murky. The PPI for iron and steel scrap (not seasonally adjusted) fell 5.6% in January, following a 9.2% drop in December, but was up 23% over the past 12 months. The PPI for iron ore rose 7.5% in January, 9.7% in December, and almost 20% for the past 12 months, after seven years of minimal price movements. The “Global Business Briefs” column of today's Wall Street Journal reported, “Anglo-Australian miner BHP Billiton Ltd. has signaled a US$2.7 billion expansion of its Western Australian iron-ore operations….Prices for iron ore-an important steel-making ingredient-could rise by more than 50% this year if steel producers cave in to miners' aggressive demands during current price talks.” The same column quoted the current leading steel producer worldwide, Arcelor SA of Luxembourg, as saying, “After an exceptional year in 2004, 2005 should be challenging for the steel industry and a very good year for Arcelor.”
