Moderate price swings for several construction materials last year gave contractors some breathing room, but future price spikes could push many firms into the red, says Ken Simonson, chief economist for the Associated General Contractors of America, a trade association based in Arlington, Va. “Contractors still have not recovered from the cost increases they had to absorb in 2010 and 2011.”
Association officials note that 90 percent of contractors surveyed for the group’s “2013 Construction Hiring and Business Outlook” predict that materials prices will increase in 2013. They add that an increasing number of contractors will try to pass on some of those price increases to customers this year, noting that 29 percent report they will try to raise bid prices this year, compared to only 15 percent that raised prices in 2012.
“The days of low bids and relatively inexpensive construction costs are clearly numbered,” says Stephen Sandherr, CEO of the association. “While the construction industry is still facing some difficult headwinds, there is a clear sense that the industry is slowly turning a corner.”
Prices for construction materials inched down in December, closing out a year of relatively subdued changes in both materials costs and bid prices, according to an analysis of new federal figures released by the construction trade association. But the association is quick to add that the price decline was likely to be temporary, noting that the vast majority of contractors predict materials prices will rise in 2013.
For the 12 months ending in December, the producer price index for all construction inputs rose 1.3 percent, similar to what contractors are estimated to charge for new nonresidential buildings, Simonson notes.
The index for new school buildings rose 1.1 percent; new industrial and office construction, 1.4 percent; and new warehouses, 2.6 percent. Materials costs rose more than 5 percent in both 2010 and 2011, while bid prices were virtually unchanged in 2010 and rose between 2.9 and 4.8 percent in 2011, depending on building type, Simonson added.
Simonson, the construction economist, attributes the mild annual materials price increase to moderation in fuel, metals and paving prices, which offset steeper jumps in several materials used in residential building. The index for steel mill products fell 7.9 percent in 2012 after leaping more than 12 percent in both 2010 and 2011.
The index for aluminum mill shapes decreased 1.6 percent, while copper and brass mill shapes increased 1 percent. Diesel prices climbed 1.8 percent, the smallest amount since 2008. The indices for concrete products rose 2.4 percent and asphalt paving mixtures and blocks, 4.4 percent.
In contrast, the index for gypsum products soared 14 percent, which Simonson says reflects the demand from new apartment and home construction, along with renovations of office and retail space.
Other building products with substantial price increases included lumber and plywood (+10.8 percent), architectural coatings such as paint (+10.1 percent), insulation materials (+5.1 percent), and plastic construction products (+4.7 percent).
— Matt Valley