Materials Costs Set to Resume Rising (Construction Materials Prices Update)
Jim Haughey — March 5, 2007
Construction commodity prices are now rising again after slumping last fall, but the higher costs for raw materials did not reach prices for finished products delivered to the job-site by the January survey week (i.e., the second week of the month). Lumber, aggregates and metals prices increased early in the year. Energy prices began to increase in mid-January, when cold winter weather finally arrived in the Northeast and Midwest.
The turnabout in the price trend is due to the “bunching up” of several short-term factors. Therefore, the accumulated price increase through this summer will be modest compared to the 18% (annual rate) price surge that occurred in early 2004 and late 2005. The inventory surplus for construction materials, set off by the plunge in housing starts, is now largely absorbed. Materials production increased slightly in the last two months, after dropping for four months. Lumber prices picked up briskly in anticipation of labor disputes disrupting lumber imports from Canada, while oil prices firmed due to colder weather and supply reductions in the Middle East.
Prices for finished construction materials were essentially unchanged in the three months through January and were 2.2% below the peak level last August. Ahead, materials costs are expected to resume rising, probably beginning in the price report for February. Reed Construction Data expects construction materials prices to increase 5% to 6% this year, about double the inflation rate in the rest of the economy.
For all of 2007, the key price drivers will again be tight supplies of oil and metals in the world market and cement and aggregates in the U.S. market.
Look at the data chart from the US Bureau of Labor Statistics and Federal Bond Chart. Except for wood other materials could go up twice the rate of inflation.
