Assessing the construction materials industry right now

The first quarter of 2023 can be summarized in two words for the construction materials industry: weather and pricing.

The U.S., particularly the West, experienced extreme precipitation, project delays and sales volume decreases.

To offset the decline in volumes, many of the larger construction materials firms raised prices for their products. Many of the price increases were expected, as firms indicated they were going to raise prices as of Jan. 1 to combat inflationary costs. Nevertheless, pricing power was seemingly able to handle both weather and inflationary pressures, keeping the construction materials industry resilient.

In addition to construction materials-specific hurdles, the first quarter of 2023 unexpectedly delivered a series of global economic events. As we look to the rest of the year, it will be interesting to see how global financial movements such as banking collapses, potential easing of inflation and the Federal Reserve’s monetary policy affect the economy.

As it stands, the construction materials industry seems to be insulated. Producers, especially those upstream (i.e., aggregates, cement), successfully implemented price increases. The combination of normalized weather patterns and Infrastructure Investment & Job Act (IIJA) projects coming online should bode well for the sector.

Weather, volumes and pricing

Precipitation was the greatest obstacle for construction materials activity in the last two quarters, particularly in the West and Southwest.

The first-quarter drop was a continuation of the fourth quarter of 2022’s modest declines, as aggregate production dropped about 7 percent year over year from above-average rainfall in December.

The question now is whether lower volumes are the beginning of softening demand or if they truly stem from abnormal weather. For the moment, at least, industry leaders are seeing improvements in weather and projects are coming online.

Take a first-quarter description from Arcosa CFO Gail Peck as an example: “I think as we look at the quarter, we were very pleased to see what March [brought] when we had a very normal weather month for the quarter. … When the skies are clear, things seem to be according to plan from a volume perspective.”

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