The New World Market

China's demand has driven up the price of everything from wood panels to vinyl windows to gypsum. Already, the country is making deals with Canada and South America for wood fiber, fuel, and other resources.

At an NAHB conference last October, John Mothersole, senior member of consulting firm Global Insight's Industry Practices group, based in Boston, noted that China's rapid growth has caused global demand to exceed capacity, resulting in the current price run-up.

Mothersole noted that part of that price increase relates to global shipping, which can't keep up with the flow of materials. “A year ago, a tanker cost $35,000 a day,” he said. “Today, that cost is $135,000.”

Ken Simonson, chief economist for the Associated General Contractors of America, based in Alexandria, Va., notes that material costs in 2005 “appear to be headed higher.” He cites data from the Institute for Supply Management showing that fuel, PVC resin, and steel have seen especially sharp increases. He adds that the tsunami in Asia last December “could put upward pressure on some construction material costs.”

As for plywood and OSB, Elias says he would rather not comment on whether builders could expect to see prices drop anytime soon. That may indicate that higher prices for many building products are here to stay, although a few optimists think panel prices may fall by 15 percent in a couple of years if the NAFTA-imposed duties on Canadian lumber are rescinded.

Of course, the fact that imported products haven't taken over the U.S. building field doesn't mean they're not part of the production mix. Many appliance firms, HVAC manufacturers, and others already rely on imported parts and accessories to create their products. But as foreign products penetrate the domestic construction industry, do builders need to be wary of quality issues?

According to Viking's Woods, foreign manufacturers still have to meet U.S. standards to import goods here legally, so shoddy workmanship is unlikely. In addition, the Chinese have become much more proactive about product quality. Three years ago, many Chinese companies began to recall substandard products. The government also recognized the importance of quality control and has begun putting in place more regulations governing recalls. While steps like these don't guarantee that imported parts and products will perform flawlessly, they do point toward a general increase in quality among importers.

For builders, fears of “cheap” foreign imports flooding the U.S. market are probably unfounded. The most tangible effects of the new world trade paradigm in coming years will be higher costs for almost everything and occasional shortages as a function of higher demand.

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SOURCE: INTERCONNECTION CONSULTING