Diesel and Steel Price Spikes Could End Discounted Construction Costs

Recent spikes in energy and steel prices combined with accelerating economic growth may squeeze contractors by boosting construction materials costs

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The cost of key construction materials dropped for the third consecutive month in July, pushing down year-over-year prices for the first time since 2009, according to an analysis of producer price index figures released today by the Associated General Contractors of America. However, association officials warned that recent spikes in diesel fuel and steel prices may drive up the cost of construction again, and they urged lawmakers to invest in needed infrastructure projects promptly while prices remain low.

“This price decline may be the last, given the large jumps in diesel fuel and steel prices that have occurred or been announced since the Labor Department collected this producer price data in mid-July,” said Ken Simonson, the association’s chief economist. “If economic growth accelerates, we are likely to see an end to discounted prices for construction activity.”

The producer price index for inputs to construction - covering materials that go into every type of project, plus items consumed by contractors such as diesel fuel - decreased 0.7 percent in July and 0.6 percent from a year earlier, Simonson noted. The year-over-year decline was the first since November 2009, he added.

Simonson observed that falling prices for several key construction materials produced the latest monthly and year-to-year decreases.

  • The price index for steel mill products tumbled 2.8 percent in July and 5.9 percent from a year ago
  • The index for diesel fuel fell 0.2 percent in July and 9.3 percent over 12 months
  • The index for copper and brass mill shapes rose 0.5 percent for the month but plunged 16 percent since July 2011
  • Aluminum mill products dropped in price by 1.3 percent over the month and 9.4 percent over 12 months
  • The index for gypsum products increased by 1.4 percent in July and 16 percent compared with June 2012
  • The index for insulation materials climbed by 3.5 percent and 8.0 percent, respectively

The price indexes for finished nonresidential buildings, which measure what contractors estimate they would charge to put up new structures, rose modestly both for the month and year-over-year, Simonson noted.

  • New industrial buildings posted a rise of 0.1 percent in July and 1.9 percent over 12 months
  • New office construction also rose 0.1 percent for the month and climbed 2.5 percent for the year
  • New school construction was up 0.2 percent in July and 3.5 percent from a year ago
  • New warehouse construction rose 0.5 percent for the month and 3.5 percent from June 2012

Association officials called on Congressional leaders to complete action on long-delayed measures to invest in aging infrastructure like clean water systems. “Delaying infrastructure repairs will punish taxpayers and undermine economic growth,” said Stephen E. Sandherr, the association’s chief executive officer. “Putting off needed rehabilitation and replacement of worn-out structures will only force taxpayers to pay more for the same amount of work.”

View July PPI tables.