Record Price Increases For Construction Materials

By Liz Moucka | September 28, 2010

I went to Lowe's the other day for a short piece of copper tubing to repair some home plumbing. The register came up with $10,000. I said, "Do you have this in 18-carat gold? It might be cheaper." Of course, it was a computer glitch, but copper is not the only commodity skyrocketing again this year.

"Surging prices for diesel fuel, asphalt, steel, and other materials are clobbering construction budgets," said Ken Simonson, chief economist for The Associated General Contractors of America (AGC).

It is happening all over the U.S. Simonson refers to the Producer Price Index (PPI) for June, compiled by the Bureau of Labor Statistics (BLS).

The PPI for inputs to construction industries — materials used in all types of construction plus items consumed by contractors, such as diesel fuel — surged 10.4 percent over the past 12 months. The index for highway and street construction leaped 18.9 percent.

"Bad as those figures sound, the increases in asphalt and steel costs have been even worse since these prices were collected in mid-June," Simonson asserted. "In the first two weeks of July, asphalt prices have jumped by 40 percent in several parts of the country. Prices for rebar — steel used to reinforce concrete in highways, bridges and buildings — soared $200 per ton."

"Suppliers have been announcing price increases for many other products as well," Simonson added. "Two gypsum makers told contractors that wallboard prices would rise at double-digit rates in each of the next three months."

In the futures markets, aluminum has been setting records, while natural gas has doubled in price from a year ago. That has triggered jumps in the cost of construction plastics — such as polyvinyl chloride pipe, insulation and flooring — that use natural gas as a feedstock.

All these increases are coming at a time when drivers have finally decreased their purchases of gasoline, creating shortfalls of gasoline tax revenues that states rely upon for highway construction and maintenance.

According to Simonson's predictions, the remainder of 2008 is not going to be pretty. "Unless Congress passes additional funding in the next few weeks to keep highway construction funds flowing, many states will stop awarding contracts," Simonson warned. "Other public agencies, as well as private owners, must adjust their budgets promptly to reflect the new price realities for construction."

With prices for construction materials rising so dramatically, this issue's cover feature is particularly applicable. It describes how a Louisiana asphalt paving contractor is sweeping up every possible iota of millings for recycling, and making enough money off them to pay for the sweeper.