Construction Material Outlook Q2 2024

Construction Material Outlook – Q2 2024

Gren Up and Down Lumber: Stable 

Lumber has been one of the most volatile materials in regard to pricing since the pandemic. In the last 12 months, lumber and plywood prices have dropped almost 3% (this may not seem significant by itself; however, prices already dropped over 25% in 2022 and 2023, after the shocking 55% jump seen over 2020 and 2021.) Pricing should stay stable into Q3, though, despite continued demand from the construction industry—production levels have stabilized and supply chain issues have been resolved.

Yellow Up Plumbing/Electrical/HVAC: Trending up  

Electrical switchgear lead times are expected to remain extended due to continued chip shortages, labor shortages, and supply chain issues. Regulatory changes are also a factor, as stricter environmental rules have necessitated the adoption of new energy-efficient technologies, which are commendable, but are more expensive to produce; this need for the industry’s product innovations to meet net-zero emissions goals adds complexity. A high demand for copper will have a continued impact on all MEP pricing. Furthermore, supply-side challenges, particularly in HVAC and electrical equipment, have been driven as of late by growth in technological advancements and data center projects. Watch for potential cost increases in Plumbing, HVAC and Electrical in Q3.

Gren Up and Down  Roofing: Stable

After shocking jumps in roofing prices post-pandemic (over 21% in 2022 alone!), stability seems to have returned. In the past 12 months, a less than 1% increase has come to pass; a welcome relief. MCP’s research into this area showed a lot of focus moving toward more sustainable, energy-efficient roofing practices. There’s more excitement around and adoption of green roofing systems and integrated solar roofing solutions, for example. These align with the economic incentives for businesses to improve energy performance while reducing operational costs. Barring unforeseen circumstances, we can reasonably expect roofing prices to stay stable through Q3.

Gren Up and DownDrywall: Stable

Like roofing, gypsum building materials pricing increased exponentially after COVID-19 lockdowns; over 40% across 2021 and 2022. After a slight drop of around 2% in 2023, drywall this year so far has stabilized, with the most nominal of increases since. Though manufacturers increase prices at regular intervals, and though around 14% of the United States’ gypsum imports come to port in Baltimore (whose port recently had to close due to a bridge collapse which blocked the primary route to it), these things haven’t appeared to have had much of an effect, so pricing is expected to stay steady into Q3.

Yellow Up Copper (NEW): Trending up 

It is no secret that copper has been in high demand recently; it’s pivotal in the transition to net zero emissions. Its high electrical conductivity, thermal efficiency and recyclability are indispensable for infrastructure development and renewable energy technology. 

Several items fuel this demand. The first is The Inflation Reduction Act, which has channeled federal funds into green energy and electrification projects; this amplified the need for copper in all the anticipated renewable programs championed by the Administration. And along with renewable energy such as wind turbines, solar panels and energy storage systems, electric vehicles have been a significant driver. EVs use up to four times as much copper as traditional internal combustion vehicles (the average car contains approximately 65 pounds of copper, so the amount in an EV is significant.) 

Meeting the demand has not been as easy as increasing copper mining worldwide, or recycling. As recently as November 2023, the expectation was that copper prices would actually fall due to new South American & African mines. However, a month later, Panama’s Supreme Court ruled First Quantum’s large mining contract unconstitutional; and Peruvian mines have faced frequent downtime recently, with workers often on strike for better benefits, many of whom created blockades which entirely stopped the flow of trucks on the mining corridor for long periods of time. Then in March, Chinese smelters decided to reduce output during a concentration shortage. And while copper recycling is increasing, it’s unlikely to suffice in any meaningful way.

As of May, copper was trading at over $4.65 per pound, a significant surge from previous years, with expectations of further price hikes. Copper (and brass) mill shapes prices surged over 11% from Q1 to Q2 this year, with 4.5% of that rise this April alone. Market fluctuations are always inevitable, but these factors continue to point to increasing copper prices for the remainder of 2024. 

Yellow Up General

Summary Analysis

There are two chronic problems still plaguing the construction industry: labor, and supply shortages. Regarding the issue of the shortage of labor, our research has shown that two increasing focuses of the industry have been on both an “upskill” of the existing construction workforce to be guided by, then replace, the more than 1 in 5 who are aged 55+; and investing in attracting and crafting the skills of the new generation of construction industry professionals as well. The investments will take time, but should prove invaluable to the future of construction; there has been a recent and unprecedented spike in construction activity in the U.S. thanks to the industrial and logistics sectors, and 77% of construction firms surveyed by the Associated General Contractors of America (AGCA) reported they’re having a hard time filling some or all positions, both hourly and salaried. Hand-in-hand with this, construction wages/salaries have increased accordingly over 4% in the past year (a match to the increases seen in the private sector.)

Supply shortages have been the new normal now for some time. These, along with inflation, have driven the cost of many materials higher. Existing supply chain issues have been recently exacerbated by bottlenecks in the Red Sea, and there has been aggression in the area, both of which have caused many cargo ships to avoid it and take a longer route around Africa. There have been water level issues in the Suez Canal, and the unexpected collapse of the Francis Scott Key Bridge in Baltimore closed its port (for both imports and exports.) Plywood, sawn lumber, gypsum, and to a smaller extent, electrical transformers, are its top imports to the building industry. Key items like electrical & HVAC equipment remain two to three times their pre-pandemic lead times; improvement is not expected this year. There has also been a rise in the cost of insuring the ships.

The key, as always, is to stay proactive to optimize procurement strategies for cost-effectiveness– regarding both finding labor and navigating the long lead times associated with the supply chain issues/shortages. It goes without saying that there are unprecedented challenges in our current economic landscape. In the face of this, MCP Group is committed to staying vigilant and informed.

Disclaimer: The information contained in this document is based on general market research and current and past experience in the construction industry and represents estimations and opinions only. Any reliance, action, or inaction based on any of this information is at your own risk and MCP has no responsibility, obligation, or any liability relating thereto.