Skip to Content

Sites

Free Digital Bid Board

Free Digital Bid Board

Now available! Click to get started.
Economic, US News

Soaring Lumber & Steel Prices Confirmed by Latest PPI Results

Alex Carrick
Soaring Lumber & Steel Prices Confirmed by Latest PPI Results

Soaring lumber and steel prices are all the talk in construction circles these days. Short of going directly to suppliers or specialty newsletters for information, the best source of data on construction material cost movements is to be found in the Producer Price Index (PPI) figures published by the Bureau of Labor Statistics (BLS).

U.S. Producer Price Index (PPI) for Construction Soft in June, +2.2% Y/Y Graphic

The January 2021 PPI numbers confirm that lumber- and steel-related markets, as well as some others, are, indeed, ‘hot’.

Graph 1 sets out PPI percentage changes for 15 crucial construction material inputs over two distinct time frames, the past year and the latest three months.

On a year-over-year basis, the biggest price movements have been recorded by softwood lumber, +73.0%; particle board and oriented strand board (OSB), +70.3%; iron and steel scrap, +50.8%; plywood, +35.6%; copper wire and cable, +12.5%; and prefabricated metal buildings, +12.4%.

Over the past three months, the advances have been led by iron and steel scrap, +53.0%; diesel fuel, +24.6%; regular gasoline, +20.9%; asphalt, +15.4% (although it’s still -15.6% y/y); copper wire and cable, +9.2%; steel bars, plates and structural shapes, +8.1%; prefabricated metal buildings, +7.9%; aluminum mill shapes, +7.7%; and gypsum, +7.0%.

Demand (with accompanying cost increases) for materials derived from the forestry sector are being driven by an upsurge in single-family home building and a heightened enthusiasm for renovation projects on the part of stay-at-home workers. The three lumber-related curves in Graph 2 have broken above previous peaks recorded over the last 20 years.

Steel prices have been more elevated in the U.S. than elsewhere around the world. With people less willing to take public transit during the pandemic, the popularity of used cars and trucks (not to mention bicycles) has spiked, diminishing the availability of the steel scrap that goes into electric-arc furnaces (see iron and steel scrap in Graph 3).

China was struggling with extreme excess capacity in steelmaking, but that’s likely to become less of a problem as Beijing embarks on a new round of massive infrastructure spending.

U.S. steel prices are generally expected to soften as 2021 unfolds, with lines being re-opened and additional production from new mills in Kentucky and Texas coming onstream.  

Graph 1: U.S. Construction Material Cost Changes
From Producer Price Index (PPI) Series – January 2021
U.S. Construction Material Cost Changes
Data source: Bureau of Labor Statistics (BLS).
Charts: ConstructConnect.
Graph 2: U.S. Construction Material Costs (1) – From Producer Price Index (PPI) Series
U.S. Construction Material Costs (1) - From Producer Price Index (PPI) Series
The last data point are for January, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph 3: U.S. Construction Material Costs (2) – From Producer Price Index (PPI) Series
U.S. Construction Material Costs (2) - From Producer Price Index (PPI) Series
The last data point are for January, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph 4: U.S. Construction Material Costs (3) – From Producer Price Index (PPI) Series
U.S. Construction Material Costs (3) - From Producer Price Index (PPI) Series
The last data point are for January, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph 5: U.S. Construction Material Costs (4) – From Producer Price Index (PPI) Series
U.S. Construction Material Costs (4) - From Producer Price Index (PPI) Series
The last data point are for January, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph 6: U.S. Construction Material Costs (5) – From Producer Price Index (PPI) Series
U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
The last data point are for January, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.

Table 1 sets out the PPI results for a broad spectrum of construction materials and type-of-structure categories.

In the ochre-shaded section at the bottom of the table, the cost increase of material inputs for ‘new construction’ is said to be +6.9% year over year. The materials component cost of residential work is moving higher faster than for nonresidential work, +7.6% y/y to +5.9% y/y.

Delving deeper into types-of-structure, the cost of materials going into educational projects is particularly ‘on the boil’, +7.3% y/y. By comparison, the ‘highways and streets’ category is restrained, +3.5% y/y.

In the blue-shaded section at the top of Table 1, the PPI index changes are all much quieter. They are the price movements for ‘final demand construction’. They’re not just what contractors see with respect to material inputs. They’re what owners encounter when they put their projects out for bidding. They include labor, profit margins and various carrying (e.g., borrowing) and administrative costs.

The ‘final demand construction’ PPI index was only +0.8% y/y in January. Clearly contractors are ‘eating’ all manner of input cost hikes in their efforts to find work in a pandemic-reduced marketplace.

Table 1: U.S. Producer Price Index (PPI) Results
% Change in the January 2021 Index from:
  3 Years   1 Year    6 months   3 months   1 month 
  Ago   Ago   Ago   Ago   Ago
                   
Final Demand/Service/Commodity/Energy/Input:                  
Final Demand Construction 9.7%   0.8%   -0.2%   0.3%   0.2%
   New warehouse building construction 8.1%   -0.2%   0.1%   0.6%   0.2%
   New school building construction 10.7%   0.6%   -0.5%   0.2%   0.0%
   New office building construction 10.3%   1.3%   0.4%   0.8%   0.5%
   New industrial building construction 12.0%   1.7%   0.0%   0.3%   0.1%
   New health care building construction 8.5%   0.3%   -1.3%   -0.4%   -0.4%
Architectural & engineering services 4.8%   0.8%   1.9%   1.6%   0.9%
Construction machinery & equipment 9.8%   1.2%   1.1%   1.1%   1.0%
Asphalt 1.6%   -15.6%   3.4%   15.4%   10.1%
Plastic construction products 10.4%   6.7%   6.1%   2.5%   0.8%
Softwood lumber 64.1%   73.0%   41.2%   4.6%   14.0%
Hardwood lumber 2.7%   14.5%   14.1%   10.6%   3.2%
Millwork 16.3%   10.9%   8.5%   3.2%   3.2%
Plywood 20.2%   35.6%   15.5%   -6.8%   4.4%
Particle board & oriented strandboard (OSB) 58.6%   70.3%   40.1%   1.4%   0.3%
Gypsum 3.0%   3.6%   6.4%   7.0%   2.8%
Insulation materials 5.3%   4.0%   3.6%   3.8%   2.1%
Construction sand, gravel & crushed stone 13.9%   4.4%   2.5%   2.7%   2.2%
Cement 5.6%   2.6%   0.4%   0.4%   0.3%
Ready-mix concrete 7.0%   1.5%   -0.2%   0.0%   0.6%
Precast concrete products 13.1%   3.0%   2.7%   1.1%   -0.6%
Prestressed concrete products 6.9%   -0.4%   -0.4%   1.1%   1.1%
Brick (clay) 6.3%   3.3%   1.3%   0.4%   0.4%
Coal -3.9%   -0.4%   0.8%   -0.7%   0.2%
Iron ore 26.7%   5.7%   3.6%   2.8%   -1.3%
Iron & steel scrap 30.0%   50.8%   80.6%   53.0%   20.6%
Steel bars, plates & structural shapes 10.9%   4.6%   6.2%   8.1%   4.7%
Steel pipe & tube 10.9%   3.5%   6.7%   6.4%   2.1%
Fabricated structural metal products 9.9%   3.2%   3.1%   2.6%   0.7%
Prefabricated Metal Buildings 19.2%   12.4%   10.9%   7.9%   1.3%
Aluminum mill shapes 3.2%   1.5%   13.4%   7.7%   3.8%
Flat glass 5.0%   2.9%   2.1%   2.1%   -0.6%
Paints, architectural coatings 13.9%   2.6%   0.1%   0.1%   -0.1%
Lighting fixtures 9.4%   1.2%   0.9%   -0.5%   0.1%
Plumbing fixtures & fittings 8.8%   1.8%   1.1%   -0.1%   0.0%
Elevators & escalators 6.9%   0.6%   0.1%   -0.1%   0.0%
Heating equipment 9.5%   0.4%   0.4%   0.2%   -0.2%
Air conditioning equipment 10.6%   3.7%   2.4%   1.8%   1.1%
Copper wire & cable 15.1%   12.5%   14.5%   9.2%   3.2%
Regular gasoline unleaded -14.2%   -11.1%   18.4%   20.9%   15.2%
Diesel Fuel 2.1%   9.2%   30.7%   24.6%   4.2%
Inputs to new construction 12.2%   6.9%   7.1%   2.0%   2.2%
Inputs to new residential construction 12.6%   7.6%   7.1%   0.2%   2.0%
Inputs to new non-res construction 11.7%   5.9%   7.0%   4.2%   2.5%
   Inputs to commercial construction 11.6%   5.7%   6.6%   4.4%   2.2%
   Inputs to healthcare structures 12.3%   6.5%   6.9%   3.8%   2.3%
   Inputs to industrial structures 12.2%   5.0%   6.5%   4.9%   2.4%
   Inputs to highways & streets 9.2%   3.5%   5.9%   4.5%   2.4%
   Inputs to power & communication structures 10.0%   5.1%   6.7%   4.3%   2.4%
   Inputs to educational & vocational structures 13.3%   7.3%   7.3%   3.6%   2.3%
Construction materials (PPI ‘Special Index’) 12.8%   9.2%   7.5%   3.4%   2.7%
The ‘final demand’ indices (at top) reflect the prices paid by owners for the construction of projects. They include material, labor & markups.
The ‘service’, ‘commodity’ and ‘energy’ indices (in the middle section of the table) are based on ‘factory-gate’ sales prices.
The ‘input’ indices (at bottom) reflect costs faced by contractors. They exclude capital investment (i.e., machinery & equipment), labor & imports.
The ‘input’ indices are built up from the ‘service’ (design, legal, transport & warehousing, etc.) ‘commodity’ and ‘energy’ indices.
Data source: Producer Price Index (PPI) series from Bureau of Labor Statistics (BLS).
Table: ConstructConnect.

Please click on the following link to download the PDF version of this article:
Economy at a Glance Vol. 17, Issue 32 and 33 – Soaring Lumber & Steel Prices Confirmed by Latest PPI Results – PDF


Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985. Links to his numerous articles are featured on Twitter @ConstructConnx, which has 50,000 followers.

Recent Comments

comments for this post are closed

You might also like

TCR Express: May 12, 2021
May 12, 2021

TCR Express: May 12, 2021

On this week’s episode of TCR Express, Journal of Commerce staff writer Russell...