"Construction materials costs are rising faster than today’s producer price report suggests," claims Ken Simonson, chief economist for The Associated General Contractors of America (AGC). "Steel is getting especially hot and diesel is adding fuel to the inflation fire." Simonson was commenting on the March 15 producer price index (PPI) report from the Bureau of Labor Statistics.
"The PPI for construction materials and components edged up only 0.1 percent in February," Simonson says. "But data for this index was collected on Feb. 13, and there have been some notable price increases occurring or announced since then. For instance, steel mills have announced two big increases for reinforcing and structural steeltypes used widely in highways, buildings, parking structures, and other construction. On March 1, many mills increased prices by $15 per ton. [Then], they announced a whopping $55 increase to take effect on April 1. That would make the total increase since Jan. 1 about $100, or nearly 40 percent."
Simonson says the steel price increases are roughly as extreme as in early 2004, and price hikes for other materials, such as diesel fuel and asphalt, are going to hit construction especially hard.
In addition, Simonson predicts that asphalt prices, which jumped 14 percent at the refinery level last month, will soon rise for paving and roofing contractors. And, the PPI for aggregate jumped 1.9 percent in February and 3.9 percent during the past three months.
"Road construction will bear the brunt of these increases because highway and bridge contractors use so much diesel, asphalt, steel for bridges and guardrails, and concrete, which also is rising in price," Simonson concludes. "Other heavy and building construction will also feel the pain. In contrast, falling gypsum prices and a multi-year drop in lumber prices are holding down single-family homebuilding costs. The catch there is that nobody is putting up houses."
Source: The Associated General Contractors of America