Material prices still squeezing construction profit

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While the cost of construction supplies edged down 0.2 percent in December, they still finished the year 5.3 percent above 2010 prices, according to a report from the  Association of General Contractors of America.

Rising supply costs have cut into contractors’ bottom lines as they haven’t been able to increase what they charge by as much. Construction prices were largely flat for December and finished the year up between 3.3 and 4.7 percent, according to the association report.

“Any relief contractors might get from the recent declines in materials prices is being offset by their inability to increase prices for new construction projects,” Ken Simonson, the association’s chief economist, said in a statement. “With overall demand relatively weak and public sector investments in construction declining rapidly, construction remains a buyer’s market.”

Despite inching up slightly in recent months, the price indexes for finished nonresidential buildings, which measure what contractors estimate they would charge to put up new structures, have lagged compared to the year-over-year increases in materials costs, according to a release from the association.

Prices for many key construction materials declined between November and December and the price index for diesel fuel dropped 7.8 percent in November, according to the release. Yet diesel remains up 20.2 percent compared to December 2010.

The index for copper and brass mill shapes continue to decline from record high levels early this year, sinking 0.4 percent in December and down 9.3 percent for the year. Likewise, steel mill products dropped in price for the month, by 0.6 percent, but rose 11.3 percent from a year earlier. Meanwhile, the index for asphalt paving mixtures and blocks increased 0.4 percent in December and 8.4 percent for the year.

The index for new industrial buildings actually declined 0.1 percent in December and is up only 3.3 percent for the year. The index for new office construction inched up 0.2 percent for the month and 3.9 percent for the year. The price for new warehouse construction was unchanged in December and rose 3.8 percent compared to December 2010. And the price for new school construction was up 0.1 percent for the month and 4.7 percent for the year.

Association officials said the fact contractors continue to be squeezed between materials costs and what they can charge is making difficult market conditions worse.