“We no longer hold [price] quotes for more than 10 days.” That’s what a Cincinnati-based excavating contractor stated in an email he sent on June 3 to the Association of General Contractors of America. In this contractor’s market, asphalt prices had risen 22 percent since February, and fuel costs—at $4.57 per gallon for diesel—were up 78 percent from 2006.
Across the country, any company that makes, works with, or distributes building products is feeling the pinch from a confluence of negative market conditions that is inflating the cost of everything from roofing shingles to rebar.
Those conditions include oil prices that have brushed against $140 per barrel; a weak U.S. dollar that American firms must use to purchase commodities that, in many cases, are traded globally; a home building industry whose annualized start rate in April was 31 percent below the same month in 2007; and, conversely, severe weather around the country that has left an estimated 800,000 homes in the United States with storm damage, which in turn is diverting more building materials to the repair and remodeling sectors.
The Bureau of Labor Statistics reported that the Producer Price Index, which measures inflation, had jumped 4.1 percent year-to-year in April for asphalt roofing; 4.2 percent for builders’ hardware; 9.9 percent for precast concrete; 12.4 percent for “hot rolled bars, plates and structural shapes”; and 13.2 percent for steel pipe and tubing.
Those numbers might be just the beginning of a wave of price increases that builders and contractors are already encountering. Dow Building Solutions informed its customers last week that it would be raising prices by 10 percent on all of its exterior building products to counter what Torsten Kraef, Dow’s president and general manager, said had been an 80 percent increase in oil prices and 40 percent increase in natural gas prices over the previous 12 months. Owens Corning has stated it will hike its prices for roofing and accessory products by between 10 percent and 12 percent on June 16, and then another 8 percent to 10 percent on roofing products shipped on or after July 15. During a quarterly conference call with analysts, OC’s chef executive Michael Thalman noted that the company’s roofing products group had incurred flat sales and a $17 million operating loss during the three months ended March 31, and that the price increases were aimed at returning that group to profitability in the second quarter.
Inflation, though, hasn’t nibbled at every commodity. Prices for gypsum and cement products are holding fairly steadily. And softwood lumber prices have been, well, soft. For the week of June 6, Random Lengths’ framing lumber composite price was $275 per 1,000 board feet, or 8 percent below a year ago, and light years from when the composite price inched towards $400 per 1,000 earlier this decade. BLS’s index for softwood lumber was down 13.2 percent in April, year-over-year. In fact, the widening disparity between the market price for steel and wood products is leading some commercial contractors to lumber framing. Ross Ridout, the vice president with the pro dealer Ridout Lumber in Arkansas, which supplies materials for both residential and commercial contractors, tells BUILDER that a 150,000-square-foot school being built in his market is being framed with wood, which he says would have been unheard of until recently.
“It all depends what product you’re talking about,” says Bill Justus, vice president of supply-chain management for Houston-based David Weekley Homes, about commodities price inflation. To some extent, Weekley’s national purchasing agreements with certain suppliers have insulated the builder from the ravages of recent price hikes. But he also notes “multiple companies have announced multiple cost increases for this summer and are canceling contracts with builders.”
Justus concedes that home builders are not in the greatest of bargaining positions right now, and that passing along commodities price hikes to buyers isn’t tenable while home prices are falling. He worries, too, that with prices skyrocketing, oil is going to be diverted to the production of whatever product yields the highest margins, and building materials generally don’t fall into that category.
All builders can do at the moment, Justus says, is to call upon their longstanding relationships with suppliers to devise ways to cushion price increases, like sharing costs. He also says that builders should be looking to “hedge” their own expenses, such as how they negotiate the purchase of electricity for their communities.
John Caulfield is a senior editor at BUILDER magazine.