Construction materials prices rise at bad time

December 28, 2009
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As if job losses and tight credit aren’t bad enough for construction firms, now comes the news that prices of some key building materials are starting to rise.

New data released recently by the Bureau of Labor Statistics showed sharp increases for copper and brass mill shapes, steel mill products, aluminum mill shapes and insulation materials. The bureau’s Producer Price Index for November, which reported on October prices, also revealed that diesel fuel prices rose.

The Associated General Contractors of America said the increases were a “warning shot” that low materials prices may be coming to an end.

“Public agencies and private owners contemplating construction projects should treat today’s figures as a warning shot. Prices for many materials have stopped falling and are poised for increases,” advised Ken Simonson, AGC chief economist, in a release.

The weighted average of all materials had fallen by 2.3 percent over the past dozen months, but has been flat for the last quarter. Then the index went up by 0.6 percent from October to November.

“All of these items had dropped in price compared to a year ago, but the declines have bottomed out or reversed. More increases are likely soon, as the dollar loses value and construction picks up in key foreign markets,” said Simonson.

Anirban Basu, chief economist for the Associated Builders and Contractors, reported recently that material prices had fallen by 5.8 percent since October 2008. He said prices would remain down as long as the recovery is slowed.

But Basu also noted that demand for construction-related materials had grown in China and India, and that could “stabilize the decline” in material prices or cause prices to rise if that demand continues.

Simonson said major steel mills have already announced increases for January, and he cautioned those who were waiting for lower prices to go ahead with their projects.

“There could be major price spikes and fewer contractors bidding on projects over the next few months,” he said.

As for the industry’s employment picture, 27,000 workers lost their jobs in November, bringing the unemployment figure to 19.4 percent — nearly double the nation’s overall number. About 86 percent of those workers were in the commercial sector.

Since January 2007, AGC said residential and nonresidential construction employment has declined by more than 1.7 million jobs. Michigan has lost about 26,000 construction jobs over the past year. To make matters worse, AGC said federal spending on highway and transit work is expected to fall by $15 billion next year from 2009.

“With construction employment nearing 20 percent, our economy can’t afford the significant cuts in infrastructure spending scheduled for next year,” said Stephen Sandherr, AGC CEO. “You can’t just hope for a better future — you have to build it.”

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