The Building Tradesman Newspaper

Friday, November 25, 2005

The building materials price market: not for the faint of heart

By The Building Tradesman

Early in this decade, the prices of construction "inputs" like sheet rock, cement, lumber, steel, diesel fuel and gasoline were fairly stable. Now, many of those costs are have all spiked higher, and then sometimes lower, inducing headaches all-around for contracting estimators, their bosses, and owners.

"Inflation at the consumer level remained moderate last month, but many construction inputs are going through the proverbial roof," said Ken Simonson, chief economist of The Associated General Contractors of America (AGC). "Producer prices showed that nonresidential construction is being hit with a variety of steep price increases. In addition, some materials are in short supply. I'm concerned that price spikes and supply shortages will continue in 2006."

He said the cost of building materials and other "inputs" for highway and street construction leaped 16 percent in the past 12 months. In addition, there were increases of nearly 10 percent for other heavy construction materials and eight percent for building construction goods.

Many materials contributed to this spike, including the price index for copper and brass (up 21 percent); asphalt (up 18 percent); gypsum products, such as wallboard (up 15 percent); plastic construction products (up13 percent) and concrete products (up 10 percent).

"The worst news has been about diesel fuel, Simonson added. The producer price index for diesel jumped 59 percent from October 2004 to October 2005, which increases the cost of operating off-road equipment like tower cranes and bulldozers. Contractors also buy diesel fuel to run dump trucks, concrete mixers, and other vehicles. And the truckers who deliver construction materials are passing through higher diesel costs in the form of fuel surcharges on most deliveries.

There are also tight supplies of cement, PVC pipe, and tires for off-road equipment.

Some rays of good news: lumber and plywood prices have fallen, and steel prices are mixed. However, the break on wood products benefit mainly single-family construction, not multi-family or nonresidential projects.