While most of the news coverage on the ever-increasing price of construction materials such as lumber and steel has largely been framed in the contexts of added costs onto residential home building and projects, the entire industry has weathered a stormy climate full of shortages and subsequent project delays in more industrial-sized ventures.
Lumber prices have skyrocketed to upwards of 300% between April 2020 and May 2021 ($1,600 per thousand board feet from $400 early last year), causing the average price of a new single-family home to increase by nearly $36,000, according to the National Association of Home Builders.
As the lumber shortage and its impact on the economy have become one of the unlikeliest sources of humorous internet culture “memes” born out of the pandemic-era, other materials more commonly associated with larger-scale industrial projects, such as steel and cement, also saw signs of price rallies and potential shortages, possibly even more severe than lumber’s situation ever was.
While the state of the steel production industry was characterized as “booming” in a June report from Bloomberg, experts and execs warned of an impending clash between the essential business concepts of the material’s supply and demand.
Soon, the price of hot-rolled steel climbed to a record high of $1,825 in early July — up 215% from prior to the pandemic’s start, where it traded in the median $500–$800 range.
For projects such as Marshfield Massachusetts’ anticipated $11 million public works building, essential material shortages and steeply risen prices have caused city officials and the project’s contractors to anticipate a plan to pivot.
Town Administrator Mike Maresco has gone as far as to submit three scaled-down, alternative versions of the DPW in case bids come in at a higher than anticipated cost.
“We’re nervous about, ‘what are those costs going to be, when we go out onto the market?’ Because that will be affected by the cost of lumber, the cost of steel,” he told WBZ NewsRadio.
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More projects across the country foresee delays and stagnant prices being the norm
The COVID-19 pandemic has usurped every construction worker across the country.
David Bernstein, an officer at State Steel Supply Company and Sioux Compressed Steel in Sioux City, Iowa, remarked that steel’s prominence in so many component parts of a typical industrial project as well as its many uses just outside of the trade — such as refrigerators, air conditioning units, automobiles, and grills amongst several others.
“I think most projects being built this spring are coming in a lot higher than folks are expecting,” Bernstein stated to Siouxland News. “We just saw a project at the airport where a fuel tank came in significantly higher than we were anticipating.”
While Maresco and Bernstein have pessimistically characterized further delays on resuming their respective projects to the fall at earliest are the most common worst-case scenario for most of the nation’s contractors, Ken Simonson, chief economist of the Associated General Contractors of America points out that the intense demand for dwindling supplies combined with several key variables has put a drastic pause to the material ordering process.
“Contractors are being told they must wait nearly a year to receive shipments of steel and four to six months for roofing materials,” Simonson stated.
“These delays make it impossible to start some projects and to complete others, leaving contractors unable to keep workers employed. In addition, soaring prices for steel, lumber, and other materials are deterring owners from committing to going ahead with projects.”
Lumber price bubble might pop — but don’t expect the same for steel
There are a variety of factors for the breakneck ebb and flow of both lumber and steel pricing, and those primarily come down to tariffs on imports, the still reeling contracting workforce, and initial mill closures during the first confusion-filled months of stay-at-home orders.
One of the first warning signs of lumber’s initial shortage and price surge involved the spate of wildfires that impacted the Western U.S. on top of the shock of workers being sent home for some time. As the slowing of lumber production sent contractors scrambling to stay on schedule, they encountered increased tariffs on Canadian lumber — which makes up approximately 28% of the US lumber market.
While contractor advocates have demanded that immediate relief can come from the Biden administration’s relaxation of these tariffs, The US Commerce Department recommended a more than doubling of the tariffs on Canadian lumber earlier in May despite the material’s domestic scarcity and record pricing.
Some experts believe this is actually for the better, as reluctance to secure even more costly Canadian lumber pushes for more contractors to seek US-based supplies and help kickstart an even playing field.
Jason Brochu, the U.S. Lumber Coalition co-chair, said the Commerce Department’s decision represents a move to create “a level playing field… that is a critical element for continued investment and growth for U.S. lumber manufacturing to meet strong building demand to build more American homes,” Brochu said in a statement. “More lumber being manufactured in America to meet domestic demand is a direct result of the trade enforcement, and we strongly urge the Administration to continue this,” he added.
There are even signs that as the country continues to reopen, that this approach has actually caused the price of lumber to decrease, with current July 2021 pricing down 49% to $770 per thousand board feet as of July 8. However, steel seems to be stuck in the climb that lumber itself saw last year.
In fact, steel’s rise in price isn’t only a concern of the construction industry. Heavily steel-dependent industries, such as oil and gas, are witnessing demand soar as the economy continues to reopen, leaving producers and refineries requiring more steel in the coming months as Americans return to automotive and air travel en masse.
Overall, while the decrease in lumber’s price is a welcome sign for many developers (it still isn’t anywhere close to stabilizing near its pre-pandemic average of $500), steel appears to be staying higher for longer.
Metals expert at Fastmarkets Thorsten Schier, is bracing for the worst. “I don’t think we’ve hit the peak for steel prices. Most people in the market see strength through the third quarter, and some don’t see it getting better on the buying side until 2022 sometime,” he said. “There doesn’t appear to be any sign that it is abating anytime soon.”