The prices contractors must pay for many essential construction materials continued to increase in January, even as the amount they charge for completed projects remains flat, according to an analysis of January producer price index figures recently released by the Associated General Contractors of America. Association officials noted that the price trends are cutting into already tight bottom lines for contractors, undermining chances for an industry-wide recovery in 2011.
“The last thing contractors need after two years of depression-like conditions is to pay more to make less,” said Ken Simonson, the association’s chief economist. “With margins continuing to shrink, few contractors are likely to benefit even if construction demand picks up this year.”
Prices for materials used in construction jumped 0.9% in January and 4.9& during the past 12 months, while price indexes for finished buildings barely changed during the same timeframe, the economist noted. He added that construction costs also outstripped the producer price index for finished goods, which rose 0.8% during the past month and 3.6% since January 2010.
Simonson noted that prices soared at double-digit rates over the year for five key construction materials. Diesel fuel prices climbed 3.2% in January and 17.7% for the year; steel mill product prices rose 2.0% and 11.5% respectively; hot rolled boars, plates and structural shapes were up 2.2% and 14.3%; prices for steel pipe and tube rose 17.8% over the year and 2.8% in January; and prices for prefabricated metal buildings rose 5.2% in January and 12.0% for the year.
Weak demand for both public and privately-financed construction, which is driving up the number of contractors bidding on projects, is forcing contractors to hold the line on bid prices, Simonson noted. The producer price index for new industrial and warehouse construction was virtually unchanged, inching up only 0.2% in the month and 0.6% (industrial buildings) and 0.7% (warehouses) for the year. Meanwhile, the producer price for new office construction was up only 0.2% for the year, despite a 1.0% increase in January.
Other items that contributed to the January climb included copper and brass mill shapes, up 3.3% and 9.9% for the month and year respectively; lumber and plywood, up 2.0% and 7.4%; aluminum mill shapes, 1.0% and 9.2%; and fabricated structural metal, 1.6% and 3.1%. Prices in January and the year were little changed, or down, for brick and structural clay tile, -2.4% and -2.4%; concrete products, 0.1% and 0%; and gypsum products, -3.3% and 0.5%.