Expert Makes Predictions Regarding Construction Materials Pricing

November 5th, 2012 by DWM Magazine

When Julian A. J. Anderson, president, Rider Levett Bucknall (RLB) addressed attendees of McGraw Hill Construction’s Annual Outlook Executive Conference recently he outlined the “good” and the “not so good,” regarding the construction industry in general and construction pricing specifically.

But before delving into those predictions he gave an overview of construction pricing on the five key construction materials: lumber, steel, drywall, cement/concrete and copper. Delving into lumber, Anderson pointed out that demand is heavily reliant on new housing and residential improvements. “Less than 10 percent of demand comes from non-residential construction,” he said. “Substitutes, perhaps would include steel.”

Regarding total construction cost inputs these include labor, materials (including waste), equipment (including operations and maintenance costs), subcontractors, bonds, insurance and taxes, and overhead and profit.

Other factors affecting the price of construction materials include the fluctuating U.S. dollar (compared to the Euro), the “inscrutable” price of oil and the Baltic dry index which is an assessment of the price of moving the major raw materials by sea.

Moving to that good news, Anderson said this includes an RLB survey indicating that construction industry is on the road to recovery in major cities, good industry growth is expected through 2020, interest rates will remain low and the housing industry continues to recover–with pace even expected to pick up. Other good news includes, “sanity returns to bid pricing,” says Anderson.

The not so good includes a presidential election year which “drags on the recovery.” Results of the elections will have a significant impact on the future speed of recovery and the fiscal cliff also drags on recovery. “Failure to address it [the cliff] will be bad for property and construction in the long term,” he said.
He also advised attendees to expect bid prices to spike at an activity tipping point and labor and materials prices to continue rising in 2013.He adds that capacity in some trades is likely to become a problem and will lead to future upward price pressure. “Despite a temporary setback, commodities will face ongoing price increases driven by recovery in global demand and scarcity.”

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