The Building Tradesman Newspaper

Friday, June 29, 2018

Prices rise for construction materials

By The Building Tradesman

Construction employment is up. So are prices of materials.

The Associated General Contractors of America reported on June 13 that construction costs accelerated again in May, with steep increases for a wide range of building and road materials.

Included are many materials that are subject to tariffs that the AGC said could drive prices still higher. Association officials say that the construction industry will bear a heavy share of the tariffs' costs.

"Prices jumped at double-digit annual rates for metals, lumber and plywood, and diesel fuel, while ready-mixed concrete, asphalt paving and roofing materials also had unusually large increases," said the association's chief economist, Ken Simonson. "The cost of all goods used in construction rose 8.8 percent from May 2017 to May 2018, the steepest annual increase in nearly seven years."

From May 2017 to May 2018, the producer price index jumped by 17.3 percent for aluminum mill shapes, 13.9 percent for lumber and plywood, 13.8 percent for copper and brass mill shapes and 10.5 percent for steel mill products. Other construction inputs that rose sharply in price from May 2017 to May 2018 include diesel fuel, 44.5 percent; asphalt felts and coatings, 8.9 percent; ready-mixed concrete, 6.5 percent; and paving mixtures and blocks, 5.2 percent.

The U.S. imposed steel and aluminum tariffs on imports from Canada, Mexico and the European Union on May 31. The impact from these tariffs is not reflected yet in the most recent data.

The spike in material prices will put the hurt on contractors who are currently building projects or have won contracts based on old material prices. "These increases far outstripped the 4.2 percent rise in the price index for new construction, implying that contractors are facing a severe squeeze on costs for both ongoing and new projects," Simonson added. "Moreover, tariffs imposed on steel and aluminum since this data was collected in mid-May are likely to drive contractors' costs still higher."

The producer price index for inputs to construction industries, goods—a measure of all materials used in construction projects including items consumed by contractors, such as concrete products—rose 2.2 percent in May alone and 8.8 percent over 12 months. The year-over-year increase was the steepest since July 2011, the economist noted.

Even before they have taken effect, construction officials said the tariffs have triggered a surge of orders that mills say exceeds their current capacity, a situation that threatens to produce construction delays, budget problems and possibly cancellations for future construction projects.

"Considering the impact the mere threat of tariffs have had on materials prices and demand, prices are likely to increase further as the new trade restrictions come online," said Stephen E. Sandherr, the association's chief executive officer. "Forcing contractors to pay more for materials and wait longer to receive them will make construction more costly and slower."

The AGC said that rising costs for many construction materials are likely to undermine future employment growth in the sector. They noted that contractors will have a hard time passing the additional costs along to their clients, leaving less money available to invest in new personnel or equipment. And they urged administration officials to reconsider imposing new tariffs that are likely to undermine economic growth.