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Budgets Hit Hard with Rising Material Costs

Aug 1, 2008 12:00 PM

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), Washington, D.C., recently when commenting on the producer price index (PPI) for June reported 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 % over the past 12 months while the index for highway and street construction jumped 18.9 %.

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

According to the Energy Information Administration, the average price of highway diesel fuel recently hit a new record of $4.76 per gallon, up 12 cents just in the past two weeks. “These figures won't show up in the PPI until next month, but contractors are paying them now,” added Simonson.

Suppliers have been announcing price increases for many other products as well, said Simonson, noting that two gypsum makers recently 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.

“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.”

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