Due to the Russian invasion of Ukraine, U.S. contractors could face a triple threat of war, inflation and supply chain problems as they struggle to source building materials. This will translate to increased costs and possible project delays.
Construction Dive reports that the conflict will likely drive prices higher on the following:
- Fuel
- Copper
- Aluminum
Cargo ships in the area have been halted or delayed according to Ken Simonson, chief economist for the Associated General Contractors of America in his Data Digest newsletter.
"The war in Ukraine and the West's response are likely to have multiple effects on construction material costs and availability. The average price of on-highway diesel fuel was $4.05 a gallon last week, the highest level in almost nine years with futures for heating oil, a close proxy for diesel, jumping another 12 cents. The outlook for other materials is mixed."
Chief economist for Associated General Contractors of America | Ken Simonson
Russia is a major producer of aluminum and copper, which had already surged 33% and 25% year over year in January. That means that material prices forged from those materials could balloon even higher.
All this is coming at a time when U.S. construction and shipping costs were already rising. Supply shortages, worsened by surging demand, have led to the largest annual spike of input prices to construction since 1987, when data started being collected.
On average, input prices for nonresidential construction has surged more than 24% over the past year, according to an analysis of the U.S. Bureau of Labor Statistics' Producer Price Index by the Associated Builders and Contractors.
Inflation and supply chain issues may also be impacting other areas of construction and can be viewed through the lens of the Architectural Billings Index.
Construction costs went up in the following areas according to a recent article in the Wall Street Journal:
- 13.2% for government buildings
- 20% for cost of construction of highways and streets
- 113% for steel mill products
- 35% for plastic construction products
"As the cost of materials for these projects goes up, there are going to be fewer projects that you are able to do. All of those factors are going to have an impact on just how far this influx of new federal funding is going to go in addressing our infrastructure problems."
Executive Dir. of American Assoc. of State Hwy & Transportation | Jim Tymon
State departments of transportation may also have to consider less ambitious projects that they can complete more quickly.
An article in Linkedin by John G. McConville CCP, Operations Director at Compass International Inc., states that since the Ukraine War started, natural gas prices have increased by 6.8% in the last 7 days. Oil has jumped to over $115 a barrel which is the highest level in more than 15 years.
Concerns related to shortages of key construction materials and components are also increasing some construction material prices.
Russia and Ukraine are also large exporters of some specialty metals such as:
- Palladium
- Titanium
- Manganese
- Nickel
Gasoline and diesel fuel in this country is set to jump to more than $4 a gallon, prices that have not been seen in more than 12 years.
Some Owners, Contractors/Sub-Contractors are paying significant premiums for early delivery of construction materials and process equipment which is again increasing construction material costs.
U.S. construction costs are up by 7% to 9% in the last 12 months and this crisis could intensify this increase.
The longer this war continues, we can expect more disruptions and potential shortages, threatening to lead to increased prices for many products and services.
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Editor's note: This is, indeed, a confusing time for the construction industry. DataBid is working tirelessly to report and distill the news that can help you and your company make the right decisions and keep you up to date on the constant changes as they are made. We hope our coverage brings some clarity amid all the confusion.
