Building Products Companies Experienced Energy Cost Fluctuations in Q1
Charlotte, NC, March 29, 2023-Energy prices, particularly natural gas, have declined for building products companies in Q1 2023, reports Truish.
“However, most raw material inputs are mixed, with limited sequential declines and many costs still up year-over-year. We believe this is due to continued strong economic demand in many sectors, which has prevented widespread deflation. Regardless, high inputs will limit selling price declines, in our view, as contractions continue in residential markets.
“Fuel and Freight Costs Move Further Off Peak, Still Above Pre-Pandemic Levels. The Q1 2023 quarter saw diesel fuel costs move further off the peak seen last year but remain above pre-pandemic levels. Further, freight/trucking costs have begun to move lower but remained high, only modestly off peak levels, down only 5% compared to Q4 2022. These costs impact almost every company in our coverage.
“Natural Gas Decline Approaches Pre-Covid Levels, European Crisis Eases. After a very volatile 2022, U.S. natural gas prices ended 2022 with a steep decline, which continued into Q1 2023. As a result, Q1 2023 average price is down 40% compared to Q1 2022. The environment also significantly improved in Europe, with prices moving off the August peak and later a surge in Q4 2022 around concerns of shortage through the winter, which was warmer than anticipated. As a result, average price for European natural gas in 1Q23 was down 43% compared to Q1 2022.
“Many Petrochemical Inputs Are Mixed. We have seen various inputs decline, including some flooring inputs (nylon) and mattress inputs. However, others saw a flattening in Q1 2023, and could be finding a bottom, including polyester, LLPE and surprisingly PVC, which came off a historic run, but remains well above pre-Covid levels.
“Lumber Stabilizes Well Below Historic Peak. Lumber prices have moved significantly off the prior peak, with Q1 2023 average price down 64% compared to the 1Q22 average price. Further, prices have been more stable, with Q1 2023 prices relatively flat versus Q4 2022.”