Material price hikes complicate construction outlook

Construction material costs expected to fluctuate

LAS VEGAS. Ken Simonson, chief economist for the Associated General Contractors of America (AGC), expects a “bumpy roller coaster ride for materials costs” in 2005.

“Last year, the ride was more like a rocket, as steel, petroleum, gypsum, and other materials costs shot straight up,” Simonson said at an economic forum here at AGC’s 86th annual convention. “This year, there should be some price drops. But like a true thrill ride, you may not see them coming.”

Simonson noted that crude-oil prices in particular have been unpredictable. Oil futures climbed to a record $55 per barrel in October 2004, plunged 25% in November and December, then rebounded back to last autumn’s record levels, he said.

Contractors use petroleum products directly in the form of diesel fuel for off-road equipment and trucks, asphalt, and roofing materials. “They also are paying fuel surcharges on the deliveries of every item used on-site. And the cost of oil is a major ingredient in the price of PVC pipe, insulation, and energy-intensive products such as steel, aluminum, and cement,” Simonson said.

He expects volatility this year in the cost of steel, copper, aluminum, and gypsum wallboard. “All of these items jumped more than 20% in cost in 2004,” he said. “This year, there’ll be some downturns, but analysts disagree widely as to when relief will come, how deep it will be, and how long it will last.”

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