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Price increases signal costly construction season in 2018

Construction materials prices continued to climb in March, leading trade groups to warn that tariffs on steel and other goods could send construction costs even higher.

U.S. Bureau of Labor Statistics data show the prices of construction materials rose 0.8 percent in March, and are up 5.8 percent from the same time last year. Prices for nonresidential construction materials ticked up slightly higher in March, by 0.9 percent, and are up 5.6 percent from last year.

Rising materials costs could mean that contractors may have trouble increasing their profits despite the steady flow of work they expect to see in 2018, said Anirban Basu, ABC chief economist. Rising labor costs may also drive up the price of construction in the coming year. Meanwhile, suppliers of concrete and other materials have announced significant price hikes that will take effect in April.

“A combination of economic momentum and dueling tariffs has served to accelerate construction input price growth in categories that have been featured in recent trade disputes, such as steel and iron and softwood lumber,” Basu said. “Ongoing increases in employee compensation strongly suggest that the cost of delivering construction services is set to rise substantially in 2018.”

Here’s a rundown of year-over-year price increases on other common materials:

  • Diesel fuel rose 39.7 percent
  • Lumber and plywood increased 13.7 percent
  • Aluminum mill shapes rose 11.4 percent
  • Copper and brass mill shapes jumped 11.2 percent
  • Gypsum products increased 8.4 percent
  • Plastic construction products rose 5.8 percent
  • Steel mill products jumped 4.9 percent

Falling natural gas prices masked an increase in the price of many construction materials, however. Natural gas prices fell 32.1 percent in March. Despite rising 23.5 percent in February, gas prices are down nearly 13 percent on an annual basis. In contrast, crude petroleum prices increased by 5 percent in March and are up 34 percent from last year.

Although demand for construction projects remains steady, rising materials costs could cause developers and purchasers to postpone projects.

Tariffs may also continue to drive up costs.

Construction officials say mills are doubtful they can fill a surge of orders brought on by the tariffs, which could bust budgets and delay projects, according to the Associated General Contractors of America.

The U.S. is in a dispute with Canada over lumber imports and has also imposed tariffs on several types of steel. Although steel prices rose in March, the effects of further tariffs on steel, aluminum and Chinese construction products are not shown in the March price index.

“Tariffs will harm contractors that are currently working on projects for which they have not bought materials and will disrupt budgets for future construction,” said Stephen E. Sandherr, the association’s chief executive officer. “The best way to help the U.S. steel and aluminum sector is to continue pushing measures, like regulatory reform and new infrastructure funding, that will boost demand for their products as the economy expands.”

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