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News Jan. 19, 2021

Construction material prices rose in December 2020

An Associated Builders and Contractors analysis of information provided by the Bureau of Labor Statistics shows construction material prices rose 1.8% from November 2020 to December 2020, according to www.abc.org. On a year-over-year basis, the price of construction materials increased 2.7%.

Nonresidential construction material prices rose 2.1% from November 2020 to December 2020 and increased 2.4% compared with one year ago. The higher increase in overall construction materials prices is largely attributable to crude petroleum prices, which rose 17.5% in December 2020, and softwood lumber prices, which rose 12.2%.

“A growing number of nonresidential contractors are expressing concern regarding a spike in materials prices expected later this year,” said ABC Chief Economist Anirban Basu. “They are right to be concerned. After a period of low commodity prices and truncated supply, the global economy will eventually enter a post-pandemic world, fueling demand for materials and potentially driving prices higher. According to ABC’s Construction Confidence Index, contractors expect profit margins to decrease over the next six months despite general optimism regarding sales.

“This dynamic is already observable, for example, in the prices of softwood lumber,” Basu continued. “As America’s single-family housing construction boom continues, many builders are ordering softwood lumber. With suppliers collectively lacking the near-term capacity to easily fill these orders, prices were spiking for much of 2020. Similar conditions may influence other commodities later this year as global growth accelerates. This means that contractors need to think long and hard about the existence and structure of escalation clauses as they negotiate future work.”

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