The Highs and Lows: Volatile Construction Material Prices
The COVID-19 pandemic has hit the construction industry with many curveballs, from shortages in skilled labor to new PPE requirements. A more covert obstacle contractors face is the rising cost of construction material. Since the pandemic, the industry has seen a continuous rise in prices that affect all trades, from framing to painting.
The lumber industry, specifically its construction-grade lumber market has experienced historical price spikes. According to the Framing Lumber Composite Price, a real-time index of prices, they first spiked March 2020 to $303.40 per thousand feet and reached an all time high of $1607.50 per thousand feet May 2021. These spikes were attributed to an increase in demand, and a domestic lumber shortage because of closed sawmills and sick workers. Lumber prices have since deflated as production increased, but they have not normalized to pre-pandemic numbers. Prices are on a rise again as a series of climate catastrophes have affected the epicenters of production and shipment ports creating new difficulties to meet consumer demand. The United States Commerce Department has decreased duties on Canadian lumber imports, in an effort to mitigate the rising prices.
Severe weather events have also impacted the paint industry. The freeze in February 2021 that affected many southern states, propelled the industry into a shortage of raw materials necessary for paint production. Texas, a leader in petroleum production and its refinement, was greatly slowed by this freeze. Limited petroleum, a precursor to resin - a key component in paint, and increased demand have caused prices to skyrocket. Two of the biggest paint producers in the United States - Sherwin Williams and PPG, have announced continuous price increases to manage these unexpected circumstances. According to the US Bureau of Labor Statistics - Producer Price Index, in 2021 prices rose 10.6% from the previous year. In addition, the supply of other key materials and colors depend on a global supply network, which is sensitive to supply chain and climate related delays.
Similar to the lumber and paint industry, the wallboard and steel production facilities have struggled to keep up with demand driving up prices. The wallboard industry has spared no effort to produce a variety of its products, but these efforts continue to be unsuccessful in lowering prices. Prices remain high and continue to rise due to a combination of labor and raw material shortages. For example, according to the US Bureau of Labor Statistics - Producer Price Index, type X drywall is at a high $350.00 per thousand square feet from $200.00 last seen mid-2020. At the start of the pandemic, many steel mills shut down production and have yet to fill a backlog of demand. More importantly, Russia’s invasion of Ukraine may have a ripple effect on the steel industry, beginning with a strain on supply. The United States receives various imports from Russia, which include natural gas, oil and steel. The uncertainty revolving around the Ukraine-Russian war may affect these commodities by tightening global supply and raising prices. Although Russia has announced that it will continue to deliver an uninterrupted supply of natural gas to its world markets and the United States has not imposed any sanctions on these commodities, the effects of war are surfacing. According to the US Department of Energy, nationwide gas prices have increased about 90 cents in the last two months.
The pandemic has driven change and brought attention to the importance of adaptability in the construction industry. That means that while demand outweighs supply for construction materials, and many other factors curtail their availability and production, contractors have to get creative. One way contractors can deal with higher prices and longer than normal lead times, is to change. The US Hispanic Contractors Association is here to help our contractors navigate these unusual circumstances. We offer great resources and workshops to improve organization and other skills to help ameliorate the strains from volatile construction material prices.