AGC Predicts Double-digit Rise in 2006 Construction Materials Prices
Words: Ken Simonson, Mark Zandi, Gina MartinKen Simonson, chief economist for the Associated General Contractors of America (AGC), discussed the impact of Hurricane Katrina on construction activity, materials and labor and believes construction material prices will rise at least 10% next year, instead of the 6 to 8% rise he had expected before the storm. Simonson spoke at AGC's Midyear Legislative Conference in Washington, D.C. and was joined by Mark Zandi, chief economist for the economic consulting firm Economy.com, and Gina Martin, economic analyst for Wachovia.
Drawing on first-hand accounts from AGC's member companies, Simonson says, "Contractors can expect increased diesel fuel costs to operate off-road equipment, such as bulldozers, tower cranes and trucks. Fuel cost increases will also show up as freight surcharges on the thousands of deliveries to a typical construction job site.
"Most of the increased costs in construction materials throughout the country will result from a reduction in oil and natural gas production, and not from higher demand for those materials for the reconstruction projects in the devastated areas."
Simonson predicts, "Lost production and imports due to the storm will result in higher prices and/or supply disruptions for PVC pipe, other construction plastics, tires for large off-road equipment, galvanized steel, gypsum products and cement.
"The New Orleans customs district led the nation with 12% of total imports, which accounted for more than 3% of the nation's cement shipments during the first six months of 2005," he notes. "Therefore, cement shortages are expected to worsen in some of the 32 states that were already experiencing shortages and spread to new states. Cement prices are likely to rise even more steeply than the 12.7% increase that occurred between August 2004 and August 2005."
The AGC sent a letter to the U.S. Department of Commerce urging that the Bush administration provide an immediate suspension of the anti-dumping duty on Mexican cement and allow imports of cement from all countries without duties or quotas in light of the emergency created by Hurricane Katrina.
"In light of the lost supply, it is imperative that other supply sources be made available as soon as possible," Simonson states. "Without it, construction projects and manufacture of concrete products in many states will have to halt, potentially laying off thousands of workers. Moreover, vital infrastructure repairs and reconstruction in the hurricane zone could be imperiled.
"One alternative is to import cement from Mexico by barge to all of the Gulf states and by rail into the Southwest. Such cement could arrive more promptly than cement from most of the current leading sources of imports, such as South Korea, China or Greece. But the current 55% anti-dumping duty makes Mexican cement prohibitively expensive."
The Associated General Contractors of America (AGC) is the largest and oldest national construction trade association in the United States. Visit the AGC website at www.agc.org.