Supply House Times

April 21, 2008 ― Steel, Fuel Prices Send Construction Costs Soaring

April 21, 2008

“Red-hot steel prices, combined with record diesel fuel costs, are making construction unaffordable,” stated Ken Simonson, chief economist for the Associated General Contractors of America. Simonson was commenting on the producer price indexes (PPIs) for March reported by the Bureau of Labor Statistics.

“The PPI for inputs to construction industries - materials used in all types of construction plus items consumed by contractors, such as diesel fuel - soared 2.1 percent in March alone,” Simonson observed. “That jump was propelled by a staggering 24 percent increase in diesel fuel costs and a 5.5 percent rise in prices for steel mill products.

“Unfortunately, there is worse to come,” Simonson asserted. “Steel suppliers have been burning up the fax wires announcing huge price increases and canceling previous quotes.” And, he said, the Energy Information Administration reported that “the average price of highway diesel crossed the $4 per gallon mark in all regions for the first time ... These figures won’t show up in the producer price index until next month, but contractors are paying them now.

“Public agencies as well as private owners need to adjust to these realities,” Simonson noted. “Too many of them are still assuming construction costs are rising no faster than the consumer price index (CPI), when in fact the PPI for construction inputs has gone up 6.5 percent in the past 12 months and 34 percent since steel prices first surged in December 2003. That is more than double the run-up in the CPI.”