MCP Group Start Your Next Project Today
Based on market research by MCP Group
Please see our summary analysis at the end of this information for our recommendations on moving forward with your project successfully.
Construction Material Outlook – Q2 2023
Lumber Market: COSTS TRENDING
As of March, lumber prices are lower than they were in January or February. However, the lumber market remains unpredictable. Labor shortages and supply chain issues are still present, but lumber prices are anticipated to stabilize. MCP is well-prepared and will remain vigilant in the changing lumber market.
Plumbing/HVAC Market: COSTS TRENDING
We anticipate cost and supply issues with plumbing and HVAC trades well into 2023. Labor shortages will continue for the trades as well. Rising demand for aluminum, copper, and nickel could also drive prices up on electrical projects. As we mentioned in our previous CMO, HVAC manufacturers have started raising the cost of equipment and parts; again, due to material costs, increased labor rates, changes to processes, etc. The use of smart technology and a focus on sustainability is becoming very popular in the plumbing industry. MCP is keeping up with these trends and advanced technology to ensure the most up-to-date solutions are being used for our clients.
Electrical: COSTS TRENDING
While the last half of 2022 saw stabilization of volatile pricing on switchgear, wire, and other key electrical components, supply chain challenges, continued labor constraints, and wage inflation elevated costs – including electrical steel, industrial semiconductors, and copper. 2023 could see upward pricing pressure on the electrical supplies market. While lead times are beginning to show signs of relief, most electrical equipment and supplies continue to have lead times that are 80% higher than pre-pandemic rates. Utilities are experiencing nearly double the average lead time with large switchgear lead times continuing to hold over 12 months with all manufacturers.
Economic recovery for China is placing upward pricing pressure on raw materials, especially copper and aluminum. Copper constitutes 2-10% of traditional aluminum cable, so impacts in the copper market will naturally carry over to aluminum. Magnesium is also a key raw material used in the manufacturing of aluminum and is expected to increase in price at or above the pace of copper. Finally, as energy costs are a key cost component to manufacturing aluminum and nearly 50% of aluminum production is in China, any upward movement in oil or natural gas pricing could adversely affect aluminum pricing. We believe that aluminum pricing may find some stability in Q2 2023 before increasing 5-10% over the balance of 2023.
Steel: COSTS TRENDING
Steel supports our buildings, factories, and bridges; It’s a critical material in our schools, cars, and kitchens. Structural steel is everywhere. A dramatic spike in its cost has real implications for business owners, contractors, and consumers. The price of U.S. steel has continued to drop since May 2022, bottoming out in November 2022. Even with a late-year increase, prices for steel decreased around 12% in 2022.
Looking forward, the steel industry is expected to gain momentum owing to the rising demand for automobiles and infrastructural growth. The growing demand for alternative and sustainable energy sources is expected to provide a further impetus to the growth of the market as the infrastructure of renewable energy sources like solar wind and hydropower make ample use of stainless steel. Steel mills have announced multiple raw material cost increases.
Some contributing factors for price fluctuations in steel:
- Steel Fabrication Costs: Largely influenced by wage rates and the energy to shape, cut, drill and weld.
- Installation Labor: Installation costs, like fabrication costs, are directly linked to wages, and domestic wage rates are projected to continue their hike upward. The current employment levels in the U.S. have also created a shortage of available labor. Areas more affected by the labor shortage will likely see a correlating bump in installation costs.
- Transportation Costs and Tariffs: Over its life, steel is moved from the steel mill to the fabricator, then on to the job site. Each mile the material moves will add more to its cost. Import taxes and duties, which include tariffs, also factor into transportation costs. As you are undoubtedly aware, the U.S. is currently carrying tariffs on steel imports against many nations.
- Supply and Demand: The impacts of the pandemic hit industrial manufacturers and factories hard, especially those that depend on workers whose jobs cannot be carried out remotely.
The varying forecasts and outlooks all point to the volatility of the steel industry and global economy as a whole. While steel prices are expected to go down further at the start of 2023, they could experience a rebound later in the year. It is projected that global steel demand will grow by only 1% in 2023 as a result of the effects of strict policies in various countries, the European energy crisis, the increased uncertainty of China’s economic growth, and the global steel demand.
Roofing: COSTS TRENDING
More than ever, supply chain and material shortages are impacting commercial roofing. These kinks are still in the process of working themselves out; but they are not expected to worsen material costs, barring major weather-related events.
Roofing material prices had normalized last quarter, but there’s been a nearly 6% increase since then. This was an expected increase, though, and hopes are that costs will remain the same for a bit, providing some relief through Q2 2023. That may be short-lived, as the cost of raw materials continues to rise.
Drywall: COSTS TRENDING
The cost of gypsum products has risen significantly in the past two years. There was a 23% increase in 2021, and it was only slightly lower in 2022 at over 18%. That increase did slow over this last quarter, providing a much-needed respite. Increases are still expected in the coming quarters, but the stability is enjoyable for now.
Summary Analysis: Overall Cost Trends
The rising cost of all goods has greatly influenced overall construction cost. Just one example is the cost of construction vehicles & equipment; the cost of essential machinery has risen steadily since the pandemic (more than 12% in the past year alone), and the same is more than true when it comes to needed company/fleet vehicles, particularly trucks.
Another concern the industry faces is the dwindling aging workforce; that may be further impacted by recession fears. The loss of highly-experienced workers can be hard enough, but it’s also more difficult to find & retain new workers now than the previous year (leading to the necessity of having to offer higher wages and increased benefits), so this has an impact across the board.
While prices on many materials are moving toward a healthy correction, others continue to rise, so it’s essential to be flexible in the Value Engineering process. MCP continually has conversations with providers so we can better advise on when to best order equipment to stay ahead of long lead times and when to make substitutions.
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.