How Is the Fluctuating Price of the US Dollar Affecting the Global Cost of Construction Materials?
he value of a nation\'s currency is something that is often discussed when considering how healthy an economy is, and in the US over the past couple of years, we have seen quite a lot of volatility.
The value of a nation's currency is something that is often discussed when considering how healthy an economy is, and in the US over the past couple of years, we have seen quite a lot of volatility. The exchange rates between currencies on the forex market can have a noticeable impact on construction, and may play a role in how many new projects get given the go ahead at a given time.
The strength of the US dollar plays a big part in determining how expensive a construction project is going to be, because when the dollar is weak against the currency of an exporting country, buying materials becomes more expensive in real terms. The leading economies in the world all feel the impact of any fluctuations in oil prices, whether it is during forex trading hours in the UK or overnight in the USA. But which currencies do we need to be concerned with, and how have the fluctuations in dollar price in recent months affected our imports?
Which Currencies Matter the Most In US Construction?
Every currency is constantly fluctuating in price against every other currency, but the prices that matter most in the construction industry are the prices of the dollar against the currencies of the exporters we trade with most for our raw materials. We import all kinds of materials, from metals and stone to paints and varnishes, and we also import from almost 200 countries. However, our most important exporters of construction related materials in recent times are Canada, the Middle East, Mexico, South America, and China.
When the dollar is cheap comparative to the currencies of our exporters, it becomes more expensive for us to buy the materials they supply us with, so, for example, if the dollar is weak against the Saudi riyal, our costs rise.
Of course, exports have a slightly different effect.
Which Materials Do We Export, And to Whom?
In the US, we have active markets for both imports and exports of construction materials. We mainly export iron and steel, followed by aluminium, wood and wood derivatives (such as charcoal), glass, and then stone, plaster, cement, mica, and other plastering and masonry materials. By far our largest partners in terms of importing these from the US are Canada and Mexico, followed by China, Japan and the UK. The prices of the Canadian dollar, Mexican peso, Chinese yuan renminbi, Japanese yen and British pound have important relationships with the dollar that affect the construction industry too due to them spending money in the US.
For export, it can actually be a good thing for the USD to be weak against the currency of the importer, as this makes exports less expensive and more appealing to those countries. Of course, in most cases we import more than we export, so this doesn't mitigate the problems of a weak dollar completely, but does mean that with these currencies, a weak dollar is less of a problem. The UK, for instance, is a country we sell to more than buy from, so when the dollar is weak against the pound, this is actually less of a problem for us than for them in terms of costs.
The dollar has been volatile in the past year, with the election and the early part of Trump's presidency sparking many events that have caused either an increase or decrease in economic faith in the USD. When it comes to the Mexican peso, the dollar is, on average, worth substantially more in the last year than it was in 2014 or 2015, though it has been dropping since its peak in early 2017 when it was worth around 21 pesos – it is currently worth around 18. This means that while Mexican materials are more expensive than at the start of the year, they are still less expensive than two or three years ago. The USD is also worth more Canadian currency than during lows in 2013 where a US dollar was worth the same as a Canadian dollar – it is now worth $1.32 CAD – though still less than the peak in early 2016 when it was worth CAD $1.50.
There are different stories with every currency, but what we can see from these examples is that while material costs today may be more than at other points in the last 12 months, the overall trend is quite healthy.