Construction Material Outlook – Q3 2024
Lumber: Trending Up
Lumber: Prices for framing lumber and other wood products have risen for the second consecutive quarter. Although these prices are higher than those in 2023, they still fall short of the peaks reached in 2022. Environmental events significantly influence material costs and the health of the supply chain. For example, the wildfires in Canada in 2023 are now affecting lumber prices, which have seen a notable increase since then. In Q3, the national average price for lumber has risen by 7.61% from the previous quarter and 12.12% year-over-year.
In terms of sustainability, the industry is increasingly shifting toward eco-friendly construction materials. The growing use of mass timber in large-scale projects supports sustainability and lowers carbon footprints. However, the advantages of using mass timber (structures built with mass timber can reduce emissions from 13-26%) are somewhat diminished by the environmental impact of long shipping distances.
Plumbing/Electrical/HVAC: Trending up
Prices for copper electrical wire were beginning to climb last quarter, driven by rising demand from green energy initiatives. Additionally, lead times for electrical products such as switchgear, generators and switches continue to be long. The increased production of electric vehicles and the recent surge in data center construction to support AI expansion in the U.S. are both contributing to strains on international supply chains.
Supply Chain Mitigation Strategies:
- Strategic Sourcing
- Innovating for Quality and Efficiency
- Leveraging Supplier Relationships
- Collaborative Procurement
- Mechanical/Electrical Procurement
In the second quarter of 2024, U.S. copper prices reached a 20-year high, reflecting the ongoing predictions of increased demand driven by its use in green energy technologies. (Expanded information regarding copper prices in a section to follow.)
Conversely, there is an unexpected surplus of aluminum, which is used to manufacture conduit. This surplus has kept conduit prices stable over the past year, and this trend is expected to continue. However, PVC pipes and tubes are experiencing a 5% price increase due to heightened demand and concerns about potential shortages related to the hurricane season.
Roofing: Stable
RoofingAfter years of constant increases, roofing prices have nearly stabilized, rising just 1% from last quarter and 2% from this time last year. It’s good to see the sharp rises in the roofing industry pause for the moment. The outlook seems positive, as green initiatives and energy efficiency are helping to offset the initial high cost of roofing with prolonged energy savings. Manufacturers typically have cost increases a couple of times a year, but as long as they stay on the low side, stability is expected into next quarter.
Fiberglass Insulation:Trending Up
Since Q2 of 2021, blanket fiberglass insulation cost has risen almost 90% and was driven by supply shortages which started around that time. In 2024 as a whole, prices had finally dipped and then leveled out. The current price stands at $0.77 per unit, reflecting a significant 16.67% increase from the previous quarter and a 13.24% increase year-over-year. This is largely attributed to heightened demand from the residential building and manufacturers operating at full allocation.
Steel: Trending up
In the third quarter of 2024, U.S. steel prices are on the rise, driven primarily by increased demand and strategic inventory reductions. Major producers like Nucor and Cleveland Cliffs have announced price hikes, responding to robust demand from infrastructure projects, booming construction activity, and a resurgence in automotive manufacturing. Steel producers are also reducing inventories to create a supply-demand imbalance, capitalizing on speculation about future demand increases.
Furthermore, the ongoing trade petition filed by Steel Dynamics, Nucor, and others against corrosion-resistant flat rolled steel (CORE) imports could significantly reshape the landscape of the U.S. steel industry. The trade petition highlights concern over unfair trade practices that could further impact domestic steel prices and market dynamics. If the U.S. Department of Commerce (DOC) and the International Trade Commission (ITC) find that these imports are being dumped or unfairly subsidized, they may impose antidumping and countervailing duties. This outcome would elevate costs for manufacturers who rely on CORE, resulting in increased prices for domestic goods, including automobiles and appliances. Moreover, the imposition of duties could have a protective effect on domestic jobs within the steel industry and its supply chain. By reducing foreign competition, these measures could stabilize or even increase employment in sectors reliant on steel production. However, this potential benefit comes with the risk of retaliation from other countries, which might respond with their own tariffs on U.S. exports. Such a scenario could escalate into a trade war, adversely impacting American businesses and consumers alike.
Additionally, the uncertainty surrounding whether the duties will be applied retroactively poses a trade risk. If retroactive duties are enforced, manufacturers and importers may face unexpected financial burdens, complicating supply chain planning and pricing strategies. Overall, the outcome of this trade petition has the potential to not only protect domestic steel producers but also to reshape the dynamics of the broader economy, influencing everything from manufacturing costs to international trade relations.
Copper (NEW): Trending up
The rise in copper pricing was big news in the construction industry last quarter, so it was both surprising and welcome to learn that it experienced a 20% drop since hitting record highs in May. Copper prices hit a 20-year-high in Q2 2024, having become the latest victim of low supply and high demand, but several factors contributed to the recent price dip.
China’s now-dwindling demand seems to be the main reason. They experienced a slump in their property market; new home prices slowed in August to a six-month low, and China’s property sector accounts for 20% of world copper consumption (as of 2023.) Industrial activity also stalled, further deteriorating demand. With these factors in play, warehouse inventories have climbed to a three-year high. This triggered a sell-off of the metal used in power and construction.
In our research, expert opinions seem to be split regarding whether copper prices will rise or fall in the future. It seems more logical that they’ll rise again soon. After all, copper is instrumental for the clean energy transition, which requires larger, stronger grids than the existing infrastructure—power demand has increased in recent years, partially caused by a higher demand for cooling due to extreme weather. More copper than ever is needed in electric automobile production as well. So it may easily become a challenge to meet supply pressure, because currently mines are still struggling to recover from rising costs and obstacles, such as the prolonged halt of operations at Panama’s Cobre mine.
Overall Summary: Trending up
The Federal Reserve’s rate cut of half a percentage point on September 18 was welcome news to the construction industry. Demand for new projects is expected to gradually increase throughout 2025, with lower construction loan rates opening up a greater availability of equity investment. Future cuts are expected as well, which should further new construction starts.
Overall, material prices remain mostly unchanged, except for sector-specific items. These costs and the health of the supply chain are heavily influenced by environmental and geopolitical factors. Companies have been building teams of supply chain professionals who add new capabilities and technologies to help reduce costs over time and improve supply chain resilience. Interestingly, AI has also been playing a crucial role in predicting supply chain disruptions, and helping to optimize strategies for procurement.
There are a few unknowns we will be watching in the coming weeks. It’s been theorized that Israel may target Iran’s oil infrastructure in response to the recent missile attack. Crude oil dropped significantly last quarter, but in the past few days alone has been on the rise again already. Since it has such an effect on the cost of many materials, we’re prepared to see increases if this scenario does come to pass. And Hurricane Helene and Milton, currently, has caused a good deal of destruction that may cause new demand in the months to come. These are two ongoing events that may have future effects.
The outlook for new projects next year is still good, though. With the Federal Reserve rate cut, and companies proactively strategizing to keep their costs down and inventory up with dedicated supply chain management, a new level of confidence is coming about, especially fueled by the prospect of further rate cuts. MCP is committed to staying informed and adaptable in response to the evolving construction material market. We will continue to position ourselves for success, ensuring schedule certainty for our clients in this dynamic environment.
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.