Soaring Lumber & Steel Prices Confirmed by Latest PPI Results

Article source: ConstructConnect

Short of going directly to suppliers or specialty newsletters for information, the best source of data on construction material cost movements is to be found in the Producer Price Index (PPI) figures published by the Bureau of Labor Statistics (BLS).

The January 2021 PPI numbers confirm that lumber- and steel-related markets, as well as some others, are, indeed, ‘hot’.

Table 1 sets out PPI percentage changes for 15 crucial construction material inputs over two distinct time frames, the past year and the latest three months.

On a year-over-year basis, the biggest price movements have been recorded by softwood lumber, +73.0%; particle board and oriented strand board (OSB), +70.3%; iron and steel scrap, +50.8%; plywood, +35.6%; copper wire and cable, +12.5%; and prefabricated metal buildings, +12.4%.

Over the past three months, the advances have been led by iron and steel scrap, +53.0%; diesel fuel, +24.6%; regular gasoline, +20.9%; asphalt, +15.4% (although it’s still -15.6% y/y); copper wire and cable, +9.2%; steel bars, plates and structural shapes, +8.1%; prefabricated metal buildings, +7.9%; aluminum mill shapes, +7.7%; and gypsum, +7.0%.

Demand (with accompanying cost increases) for materials derived from the forestry sector are being driven by an upsurge in single-family home building and a heightened enthusiasm for renovation projects on the part of stay-at-home workers. The three lumber-related curves in Chart 1 have broken above previous peaks recorded over the last 20 years.

Steel prices have been more elevated in the U.S. than elsewhere around the world. With people less willing to take public transit during the pandemic, the popularity of used cars and trucks (not to mention bicycles) has spiked, diminishing the availability of the steel scrap that goes into electric-arc furnaces (see iron and steel scrap in Chart 2).

China was struggling with extreme excess capacity in steelmaking, but that’s likely to become less of a problem as Beijing embarks on a new round of massive infrastructure spending.

U.S. steel prices are generally expected to soften as 2021 unfolds, with lines being re-opened and additional production from new mills in Kentucky and Texas coming onstream.

Chart 1

Chart 2

Chart 3

Table 1 sets out the PPI results for a broad spectrum of construction materials and type-of-structure categories.

In the ochre-shaded section at the bottom of the table, the cost increase of material inputs for ‘new construction’ is said to be +6.9% year over year. The materials component cost of residential work is moving higher faster than for nonresidential work, +7.6% y/y to +5.9% y/y.

Delving deeper into types-of-structure, the cost of materials going into educational projects is particularly ‘on the boil’, +7.3% y/y. By comparison, the ‘highways and streets’ category is restrained, +3.5% y/y.

In the blue-shaded section at the top of Table 1, the PPI index changes are all much quieter. They are the price movements for ‘final demand construction’. They’re not just what contractors see with respect to material inputs. They’re what owners encounter when they put their projects out for bidding. They include labor, profit margins and various carrying (e.g., borrowing) and administrative costs.

The ‘final demand construction’ PPI index was only +0.8% y/y in January. Clearly contractors are ‘eating’ all manner of input cost hikes in their efforts to find work in a pandemic-reduced marketplace.

Table 1

Category: ConstructConnect

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