By Ken Ashley
ATLANTA (May 12, 2010) -
A number of sources and our own experience are indicating that pricing of raw materials may be headed up.
According to this report in the Journal of Steel and Related Materials:
“Despite relatively low activity levels and poor final demand, flat product steel prices (in the EU in this particular case) are ascending rapidly. This trend is likely to continue into the third quarter as period two is virtually sold out at most European mills. Producers are justifying the increases on the grounds of their escalating raw material costs. However, the hikes are not supported by any substantial improvement in end-user consumption… Customers are forced to pay more because of limited availability”
And this cheery report in the Money Morning Blog related to lumber: ”
“Raw lumber prices have zoomed more than 25% this year, even though the home construction business – its main use – has been scrambling along at record lows. This is a rather stunning development. But there’s a solid explanation: Production has dropped in the face of weak demand – and dropped so much that prices have moved much higher.. there has been so little demand for lumber to build houses, timber companies have cut back on their harvesting and cutting. So now that home production is picking up a little – as was suggested in some earnings and economic reports last week – marginal new demand is pushing up the price of this surprisingly scarce commodity.”
In recent weeks, contractors have been complaining about increases in concrete prices of up to 20% in some cases. We think that the built environment is competing with other manufactures (think cars and cans) for raw materials. Also, 20% upticks are scary increases, but construction cost in the aggregate are down precipitously in the past 24 months. We are not necessarily sounding alarm bells here, but simply pointing out that costs are headed up from their recent lows.
Labor is the bright spot as it has remained fairly steady. There are lots of trades looking for work and lots of construction industry employers who simply want to keep crews busy. They will do what it takes to keep their employees working and paid.
The moral to the story is lock in costs now. And if you are thinking about making upgrades, improvements or facilities expansions, then now is an excellent time to get moving.