Building commodity costs continue to climb

Commodity prices for almost everything related to construction are on the rise. Steel, copper, brass, tin, and aluminum prices are all going up, according to the Federal Reserve. Even sand, gravel and aggregate prices have increased. And, of course, the backbone material of construction in Idaho — lumber — prices have gone through the roof.

Lumber

Overall prices for all lumber and wood products have risen 50% since March 2020. Price have risen so much that Fortune estimated in February that rising lumber costs are currently adding $24,000 to the price of every new single-family home built.

The causes are not straightforward. Before the winter holidays, some were pointing a finger at the long-standing trade dispute over Canadian lumber imports. The Trump administration levied a 20% tariff on Canadian lumber. In December 2020, the tariff was dropped to 9%, which wasn’t enough to make the National Association of Home Builders happy.

NAHB Chairman Chuck Fowke commented in a statement that: “Tariffs have contributed to unprecedented price volatility in the lumber market in 2020, leading to upward pressure on prices and harming housing affordability for American consumers. The U.S. needs to work with Canada to end the tariffs and achieve a long-term, stable solution in lumber trade that provides for a consistent and fairly priced supply of lumber.”

But lowering the tariff didn’t seem to help rising lumber prices at all. “Some lumber is four times the cost of what it was year-over-year,” said Jeremy Barber, vice president of HC Co. in Boise. “Last year a two-by-four was $1.50. Now one costs $6.50. A piece of OSB sheeting was $11; now that’s doubled to $22.”

“It’s supply and demand,” Barber remarked. “The Oregon fires hurt supply and the COVID hurt the labor pool so the mills got behind.”

Another reason for the price escalation may be an increase in demand, according to Fortune, driven by an increased demand for new homes. That may be driven by the lack of existing home inventory as fewer people put their current houses on the market in 2020. A complete picture of what’s driving costs isn’t clear though. As a result, on March 12, 35 construction organizations led by the NAHB filed a formal request with the U.S. Department of Commerce to investigation lumber prices.

Regardless, an investigation won’t help prices. “It’s making life painful because the sales cycle is so long,” said Chris Blanchard at indieDwell, which builds modular affordable housing units in Caldwell. “The builds that we quoted customers last summer now don’t work anymore. It’s causing a lot of builders to write in price escalation clauses (on quotes). It’s tough to get customers to understand what’s going on with prices right now.”

“It’s changed what we were doing at indieDwell,” Blanchard added. “For example, we used to use OSB board to cover openings before shipping. It’s too expensive now so we’ve been using house wrap instead.”

It’s not certain when lumber costs may drop but until then, don’t expect home prices to drop or stall until they do.

Steel

Another notable commodity whose price has soared recently is steel.  According to Standard & Poors global commodity tracking, the current exploding steel prices in the United States is a combination of lower supply, because domestic steel mills slowed down or idled last year, and increased demand as the construction trades have ramped up going into the spring construction surge. Prices should begin to fall as more U.S. steel mills come back up to fill capacity after idling last year. So the price of steel should start to come down, just not anytime next week.

What’s interesting is that the current price per ton for most steel varieties made in the U.S. versus China is currently almost two to one. For example, for hot rolled coil steel, the current U.S price is just under $1,400/metric tonne while the Chinese price is just over $700. But don’t hold your breath hoping for cheap Asian steel to arrive and drive the price down. That’s because trans-Pacific shipping costs have doubled to quadrupled since March 2020, depending on the commodity, shipping mode (bulk vs, container) and the port of origination.

Transportation costs

One somewhat obscure factor in prices is the strange but disturbing imbalance of shipping containers between east Asia and the rest of the world.

The last four decades have seen a shift in shipping with the international shipping container. The now-globalized standard container has several names, like intermodal container, ISO container, c-can, sea van and Conex box. Regardless, these are the 40-foot steel shipping containers that get double-stacked on flat-bed freight railroad cars, pulled as part of a tractor-trailer rig or piled high on the decks of a container ship.

China ramped up its factories earlier than many other countries and got back to exporting while consumers in North America and Europe were still coping with quarantines, lockdowns and curfews, according to trade journal SupplyChainDive and the Wall Street Journal. Other Asian exporters like Vietnam and Korea followed suit. At the same time, the pandemic in the Americas and Europe caused a large shift in discretionary spending, away from travel, eating out and entertainment to buying goods.

The result is an imbalance in containers.

“What I am hearing about conditions in the industry is upsetting,” Commissioner Daniel Maffei of the Federal Maritime Commission told the Transportation Club of Tacoma in an address in January. The FMC regulates shipping in and out of American ports.

“We hear of allotments of containers — seemingly guaranteed in contracts — being cut more than 95% in some cases,” Maffei continued. “We hear of little or no notice being given when expected containers are not made available, making it impossible to get containers even if the exporter is willing to pay a high premium. And we see that there are stacks of empties accumulating at terminals when, at the same time, exporters are begging for them. Average container turnaround times in China have increased almost two-fold, from 60 to 100 days … Between this lag, and the lopsided trade balance that results from China exporting three containers for every one returning full, availability of the physical equipment is a major problem.”

Like all other supply-and-demand imbalances, the shipping container imbalance is driving the price of container sales and rental up. According to the Wall Street Journal, shipping prices were $4,709 per container from Asia to the west coast ports, almost four times higher than they were in March 2020. For the east coast, rates from Asia have more than doubled to $5,658 per container. The oddity is not a lack of ships to move goods between nations. It’s the lack of shipping containers.

So when nuts, bolts, screws and HVAC units are creeping up in price right now, it may be that the escalating cost of trans-Pacific shipping is one of the causes.