Commodity Pricing and Supply Chain Challenges
The cost of building materials year-to-date has increased 13.0% compared to the same period in 2020 in which prices increased 1.1%. Looking ahead at domestic material price trends, one of the key factors in commodity price increases will be directly related to logistics. This year, we are seeing global supply chain constraints arise for a variety of unexpected events and conditions across the world. Aside from the obvious global pandemic, extreme drought in Taiwan, freezing weather in Texas this February, power outages in China, backlogs at ports in the U.S, a shortage of truck drivers, and even a coup in Guinea have had dramatic impacts on our global supply chain. With higher consumer demand for goods that are in short supply, we are witnessing freight rates soar for U.S. and European imports from China. Delivery schedules remain longer than normal and we expect this to carry into next year.
As of August 2021, most building supplies are increasing in price, contracting in inventory, and delayed in delivery. One of the few exceptions, lumber, which experienced an extreme rise earlier this year, finally decreased in price, although that may not last long as lumber futures have increased nearly 40% since mid-August. We are seeing pricing for materials such as PPE, oriented strand board (OSB), and glass stabilizing.
According to figures from the 2021 Construction Inflation Alert from the Associated General Contractors of America, between April 2020 to August 2021, we’ve seen unprecedented upticks in producer price indexes for construction materials. Namely, the index for steel mill products rose 111%, copper and brass are up 67%, aluminum 34%, and plastic construction products 30%. The Producer Price Index (PPI) for lumber finally had a dramatic decrease from June to August this year, but still averaged a 52% increase since April 2020 after hitting a peak near 120% in June 2021.
We’ve also seen paint and coating manufacturing prices up 10.6% year-over-year from August 2020. This result is the biggest annual increase since January 2009.
While this extreme supply shortage and price surging cannot last forever, cooperation and communication will be essential from both owners and contractors as we navigate these supply chain constraints through the end of this year and into 2022.