Linesight: Construction Materials Prices Stabilizing After Two Years of Increases, but Energy Uncertainty and Rising Interest Rates are Keeping Project Costs High
Global construction consultancy firm, Linesight today released new data showing that stability may be returning to the cost of construction materials as pandemic-driven volatility subsides, but because of factors such as high global energy prices, increasing interest rates, labor shortages, and fuel and freight costs, the reduction in commodity prices won't be felt until the beginning of 2023. The company's Q2 Commodity Report for the United States also shows that tariffs on imported lumber and other materials are keeping costs higher for American builders.
"For the last two years, the global construction industry has been at the mercy of disrupted and broken supply chains that have made critical material scarce and have caused some significant increases in the cost of building," said Patrick Ryan, Executive Vice President for the Americas at Linesight. "The good news is that many of these materials are now more readily available, which is causing material prices to stabilize, but we are not out of the woods yet because of high energy costs, labor shortages, and tariffs that are tempering the availability of materials and keeping the cost of construction from coming down."
Among the key findings in the report are:
- Lumber prices fell sharply in early summer and are expected to fall 12% by the third quarter as demand from the residential sector fell. However, tariffs on Canadian lumber and low inventory are expected to keep some upward pressure on prices for the remainder of 2022.
- Higher energy prices, including oil prices, have driven up the cost of production for asphalt over the last year, but decreasing domestic demand will have a dampening effect on prices by the first quarter of 2023.
- The cost of copper has fallen 12.8% as an indirect result of increasing interest rates.
- Diesel fuel prices are still high but have fallen 8.5% over the last quarter after a major spike in 2021 as crude oil prices skyrocketed past $100 a barrel upon the outbreak of the Russia-Ukraine conflict.
One of the key reasons why prices are falling is an increase in US interest rates, which is having a cascading effect on the entire industry as fewer projects are greenlighted. The prices of copper and steel ? which soared in recent years ? appear to be easing as demand drops. At the same time, the cost of asphalt and bricks have risen in Q2, as did most materials in Q2 because of a number of geopolitical factors, although Linesight expects prices to drop later this year as demand shrinks.
Ryan says that this discrepancy is the result of lag time between changes in the market and price fluctuations. "Certain commodities, such as lumber, reflect changes almost immediately, whereas others take one or two quarters to realize. It is reasonable to assume that by the fourth quarter of this year, we will see a downward trend in many commodity costs."
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About Linesight
Linesight is a multinational construction consultancy firm with over 48 years' experience, providing cost, schedule, program, and project management services to a multitude of sectors including Life Sciences, Commercial, Data Centers, High-Tech Industrial, Residential, Hospitality, Healthcare, and Retail. Linesight's specialist project teams, each with specific skills and experience, provide better predictability of project outcomes, faster project delivery, greater cost efficiency, and maximum monetary value for its clients. For further information, please visit http://www.linesight.com.
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