Sept. 15, 2005--Prices of construction materials and components remained stable in August, but economists and builders fear that Hurricane Katrina will exacerbate long-term shortages and drive prices up.
On Tuesday, the Labor Department released the producer price index, a broad gauge of the costs for materials and equipment used in construction, manufacturing and food production. In August, the index for construction materials and components remained at July's level of 175, just 3.1% higher than the same time last year.
But a number of factors from trade policy to oil and gas prices are constraining supply and will likely inflate costs.
"We have to expect that construction material costs will be considerably higher for the next two to three years because of Katrina," said Pat O'Keefe, chief executive of the New Jersey Builders Association.
According to Ken Simonson, an economist with Associated General Contractors, a trade group for builders, oil shortages resulting from the hurricane will fall hardest on commercial and infrastructure developers because they rely on diesel-consuming cement mixers, cranes and other heavy machinery more than residential builders.
Rising natural gas prices are increasing the cost of producing roofing shingles, asphalt, paints, and tires for heavy machinery. In August, prices of nonferrous wire and cable, paving mixtures, gypsum products, and plastic construction materials all rose faster than they had in July. Asphalt products rose the most, topping July's prices by 8.5%.
In August, contractors and concrete suppliers in 23 states reported cut delivers to four days for week from five or six because of cement shortages. Imports have risen from 20% of total cement consumption in 2003 to 26% this year, while domestic production has increased only 2%, according to Associated General Contractors.
"In recent years, U.S. cement producers have had difficulty getting zoning permits in order to expand production," said Ken Simonson. "It's a 'not in my backyard' mentality causing the problem." Simonson also blames federal limits on concrete imports from Mexico for tightening supply.
Katrina has disrupted the 12% of cement imports coming into the Port of New Orleans. The Portland Cement Association revised it estimate of a 3% annual increase in cement prices to 5% as builders look to cut costs by using cement instead of steel.
Lumber prices, however, fell 5% this year. And imports from Brazil may offset price spikes if southern mills damaged by Katrina cannot resume production soon.
Still, Simonson expects builders to begin putting clauses into contracts allowing them to adjust bids if unexpected supplies shortages increase price volatility.
