Insulated metal panels (IMPs) costs continue to stabilize, especially compared to the volatility of lumber prices, but inflation hurdles remain with overall construction prices up more than 20 percent year-over-year.
“It’s no secret that contractors and their customers have been walloped by massive increases in construction materials prices,” Associated Builders and Contractors (ABC) chief economist Anirban Basu told Metal Construction News. “That inflation continued through June, as reflected in the decline in profit margin expectations seen in the most recent reading of ABC’s Construction Confidence Index. But more recently, key commodity prices have declined, so it may be possible we have achieved peak inflation.”
Construction Materials Prices Increased in June 2022
Construction input prices, according to Metal Construction News, increased 1.9 percent in June from May and nonresidential construction input prices increased 1.8 percent for the month.
Overall, construction input prices and nonresidential construction input prices are up 20.1 percent, and 20.3 percent, respectively, from a year ago.
According to the U.S. Bureau of Labor Statistics Producer Price Index for June 2022, steel prices continued to stabilize with fabricated structural metal products up 0.6 percent for the month and iron and steel, and steel mill products, both falling, 2.9 percent and 1.8 percent, respectively.
The 12-month percentage change in pricing:
- Fabricated structural metal products: +26.2 percent
- Iron and steel: +16.3 percent
- Steel mill products: +22.4 percent
The percentage change in pricing since February 2020 (before the COVID-19 pandemic started):
- Fabricated structural metal products: +55.8 percent
- Iron and steel: +97.4 percent
- Steel mill products: +124.3 percent
Rising energy costs continue to drive inflation across all sectors, including construction, with crude petroleum up 19.4 percent in one month and 77.1 percent year-over-year; natural gas up 24.3 percent in one month and 224.5 percent year-over-year; and unprocessed energy materials up 20.4 percent in one month and 126.8 percent year-over-year.
“Several months ago, there was conjecture that contractors were generally too upbeat regarding their collective future,” said Basu. “Increasingly, the data suggest that they were. At the time, many contractors reported surging backlog and an ability to pass along hefty cost increases to project owners. For months, contractors expected sales, employment, and margins to expand. The most recent ABC survey indicates that, to secure work and to induce project starts, a growing fraction of contractors is having to trim margins.”
Costs of IMPs, Steel Much More Stable than Lumber
Looking at the Producer Price Index graphs for softwood lumber and steel mill products since the start of the pandemic is a tale of two different stories:
- Steel mill products prices steadily and rapidly rose from the onset of the pandemic, peaking in late summer, early fall of 2021, and then fell back down before showing a stabilizing trend the last few months
- Softwood lumber prices showed a sudden spike in 2020 followed by a sudden decline, only to spike up even higher in 2021 before an extreme plunge, and then rapidly rising again in 2022 before the latest plunge.
“Since early 2020, softwood lumber prices have been extraordinarily volatile,” reported the National Association of Home Builders(NAHB). “The average monthly change in the PPI for softwood lumber has been 2.6 percent since January 2020, nearly nine times the average change (+0.3 percent) from 1947 to 2020.”
While the NAHB says that lumber prices have historically known a bit more volatility than steel prices and other commodities, being 19.7 percent more volatile over the 1947-2020 period, nothing could have prepared the construction industry for the wild ride since the pandemic started with softwood lumber prices 100.1 percent more volatile than the broader index since January 2020.
The NAHB estimated that the volatility of lumber prices has had a significant impact on average new-home prices, as well as rental rates for new apartments, with lumber products adding $14K to new home prices.
Steel Prices Cut in Half from 2021 Peak
Steel prices, which shot up 215 percent from March 2020 to last summer, have since been cut in half.
The benchmark price for hot-rolled steel climbed to nearly $2,000 per ton, up from the pre-pandemic range of $500 to $800. The 52-week high for steel is $1,945, reached last summer, but the current price is $845.
U.S. Steel CEO David Burritt told Bloomberg in January that he does not see steel prices returning to that near-$2K level but he also thinks the long-term average will be much higher compared with the past decade.
Fortune explains the 2021 spike in steel prices came when steel mills were caught off-guard from rising demand after they had shut off production due to recession fears after economic shutdowns when COVID-19 hit.
“What happened, which is similar to lumber, demand during COVID-19 was stronger than first anticipated because of switches in consumption patterns. Instead of paying for experiences and vacations, they were buying a new lawn mower, buying a new car, or white goods like appliances—which are steel intensive,” Thorsten Schier, a metals expert at Fastmarkets, told Fortune.
IMP Installation Ease Can Save on Rising Labor Costs
The construction industry not only has to deal with inflation and the rising costs of goods and materials, but average hourly earnings for production and nonsupervisory employees in construction continues to rise, reaching $32.19 per hour in May.
Construction Dive says that 6.3 percent increase in hourly construction wages from a year ago is the highest gain in the last 40 years.
“The industry has emphasized that higher pay rate to recruit more workers into what they often perceive as a more dangerous job, without the perks of remote work, climate-controlled offices or more flexible hours,” said Construction Dive.
It has become tougher and tougher for employers to keep their construction crews fully staffed.
“As other industries have ramped up their pay rates in the face of worker shortages and skyrocketing inflation, construction is losing its lead in the wage race,” Ken Simonson, chief economist for the Associated General Contractors of America, told Construction Dive.
The ease of installing IMPs can help save on construction labor costs, with some estimates that IMPs can make projects about 25 percent less expensive compared to installing insulated precast and tilt-up concrete walls.
“The quicker installation results in labor cost savings and dramatically shorter project schedules. It allows the inside work to begin sooner,” says the Metal Construction Association.
Contact Green Span Profiles today to find out how you can save money on your next commercial building with sustainable and cost-effective insulated metal panels.