The cost of building materials continued to climb during the first half of 2007, according to the most recent information on producer prices issued by the U.S. Bureau of Labor Statistics.  As depicted by the composite price measure for construction materials, prices on a month-over-month basis accelerated in early spring, including a large 0.9% hike for April, before the increases settled back to 0.2% in both May and June.  At the midpoint of 2007, construction material prices were up 2.6% compared to the end of 2006.

It’s possible to view the price performance from several vantage points, such as month-over-month, current month versus the same month a year ago, or current month versus the end of last year.  The month-over-month comparisons would suggest that prices are beginning to stabilize, although monthly figures can be volatile, and a longer time frame than two months (in this case May and June) would be needed before saying a trend has emerged.  The same month versus a year-ago comparisons are often useful, and the composite measure showed an increase of just 2.1% for June 2007 versus June 2006.  In contrast, the year-over-year changes during most of 2006 were in the 5% to 10% range.  However, a look at the price pattern during 2006 injects a note of caution – price levels were relatively high in the first half of 2006 and then subsided at the end of last year.  As a result, it’s likely that the year-over-year change for the composite price measure will be seeing larger gains as 2007 proceeds.

The main point of the first half 2007 price statistics is that the cost of building materials are generally moving up again, following the modest easing that was present at the close of 2006.  The most noteworthy increase has been shown by iron and steel products.  Running counter to this broad upward path has been a retreat in the price of gypsum products.

Iron and Steel.  The producer price index for iron and steel products paused at the end of last year, but then registered a sharp increase through April.  While prices did slip back a bit in May and June, this series still showed an 8.8% rise for June 2007 relative to the end of last year.  The demand for steel is being kept high by the healthy construction activity for the U.S. nonresidential building and public works sectors, in combination with the current strength of global construction markets.  The weak U.S. dollar is also playing a role, raising the cost of steel imports coming into the U.S., while encouraging domestic manufacturers to increasingly export their products.  It’s true that steel-making capacity is growing worldwide, but it’s not anticipated that enough of this capacity will become available in 2007 to offset greater demand.  As a result, the price increase for iron and steel products for full year 2007 will likely match the 9.0% gain that was reported for 2006 as a whole.  The large 21.5% increase reported for iron and steel scrap during the first half of 2007 is yet another reason why this year’s price hike for iron and steel products will be close to 10%.

Concrete, Cement, Asphalt.  The price indexes for concrete and cement have generally moved upward during the first half of 2007, with cement in particular showing a strong 1.2% month-over-month rise in April, before leveling off in May and June.  Since the end of 2006, concrete prices are up 2.6%, while cement prices are up a more substantial 4.9%.  The fact that the price of sand/gravel/crushed stone is up 5.8% in the first half of 2007 suggests that concrete and cement prices will still be headed upward in coming months.  Greater demand is supporting the price hikes, given the elevated amount of U.S. nonresidential building and public works construction currently underway.  And, while the past year has seen groundbreaking for several major cement plants in the U.S., it’s still a few quarters away before they begin adding to supply.

With regard to asphalt, the price index for asphalt from the refinery is up 12.4% from the end of last year, reflecting limited refining capacity and the fact that the price per barrel of oil in late spring resided at the fairly high $65.  During July, the price per barrel of oil has moved up some more, climbing above the $70 mark.  The price of asphalt paving during the first half of 2007 grew just 1.4%, although it’s worth noting that the price of asphalt paving stabilized at the end of 2006, in contrast to the retreat shown by the asphalt series alone.  For the full year 2006, the price for asphalt paving soared 27.8%, and the first half of 2007 has essentially seen that higher price be maintained.

Copper Wire, Aluminum Mill Shapes.  The price increase shown by copper wire during 2006 was huge, as the producer price index jumped 61.4% for the full year.  Last year’s pattern showed a sharp rise through June, followed by a fairly steep retreat through February 2007.  The spring of 2007, however, has revealed that the price of copper wire is moving upward once again.  For June 2007, the price index for copper wire was up 2.6% compared to the end of last year (although it was still 17% below the peak reached at mid-2006).  Factors that supported the rise in copper prices were labor unrest affecting South American copper mines and the greater demand coming from China as it expands its power grid.  The price of aluminum mill shapes showed an upward trend in 2007 through May, before retreating in June.  The first half 2007 increase for aluminum mill shapes came in at 2.7%.

Gypsum.  The price index for gypsum products reached a peak in July 2006, but has since experienced a steady decline.  In June 2007, this series was down 9.6% from the end of last year, and down 17% from its mid-2006 peak.  Much of the explanation for the decline is related to weaker demand arising from the diminished level of homebuilding in the U.S. market.  Furthermore, recent years have seen groundbreaking for several new gypsum plants, which will add to the capacity to make gypsum products.  For full year 2007, it’s expected that the price of gypsum products will be down in the 5% to 10% range.

Lumber and Wood Products.  The price index for lumber and wood products is beginning to edge upward once again, after retreating during the fall of 2006.  At mid-2007, the price of lumber products showed a 1.8% gain from the end of last year, boosted by increases for softwood lumber (up 5.1%) and plywood (up 9.3%), although restrained by hardwood lumber (down 1.1%).  Last year’s decline for lumber prices appears to have reached an end, and it’s expected that for full year 2007 the overall price index for lumber and wood products will be up slightly.

Other Materials.  The changes shown by prices of other material types for June 2007 relative to the end of last year were varied.  The price of architectural coatings advanced 4.1%, while glass products increased a modest 0.6%.  Showing very slight declines were plastic construction products (down 0.1%) and insulation materials (down 0.5%).

Construction Material Prices

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