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Historical Increases in Pricing Continue Throughout Electrical & Construction Markets

June 17, 2021
Wire and cable and lumber are leading the parade of price increases, but they have settled down a bit over the past two weeks.

While electrical distributors, reps, manufacturers and contractors are shaking their heads in disbelief in the astronomical increases in electrical product pricing over the past few months, they should be glad they aren’t in the homebuilding industry, which has seen even more volatile activity.

The +11.7% year-over-year increase in Electrical Marketing’s Electrical Price Index (EPI) for May (see page 3) is larger than anything EM’s editors ever remember, but homebuilders and other construction contractors are seeing increases many times that for lumber and other some other building materials.

Robert Dietz, chief economist for the National Association of Home Builders (NAHB), Washington, DC, said in the association’s May housing release that price increases are driving some potential home buyers from the market for new homes. “While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines,” he said. “Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans.”

 In the broader construction industry, the cost of goods and services used in construction climbed by a record-setting +4.3% in May and +24.3% over the past 12 months, jeopardizing contractors’ solvency and construction workers’ employment, according to an analysis by the Associated General Contractors of America, Arlington, VA, of government data. Association officials urged the Biden administration to move more quickly to end tariffs and quotas that are adding to construction materials costs and availability problems.

“The increase in producer prices for construction materials over the past year far outstrips contractors’ ability to charge more for projects,” said Ken Simonson, the association’s chief economist, in the press release. “That gap means contractors are being hit with huge costs that they did not anticipate and cannot pass on.”

The +24.3% increase in prices for materials used in construction from May 2020 to last month was nearly twice as great as in any previous year, Simonson said. Items with especially steep price increases over the past year covered a wide range of materials, including products made from wood, metals, plastics and gypsum. AGC said the producer price index for lumber and plywood more than doubled — rocketing +111% from May 2020 to last month. The association also said the index for steel mill products climbed +75.6%, while the index for copper and brass mill shapes rose +60.4% and the index for aluminum mill shapes increased +28.6%. The index for plastic construction products rose +17.5%. The index for gypsum products such as wallboard climbed +14.1%. Fuel costs, which contractors pay directly to operate their own trucks and off-road equipment, as well as through surcharges on freight deliveries, have also jumped, said AGC.

Association officials said the Biden administration can provide immediate relief from some of the price pressures by ending tariffs on Canadian lumber, along with tariffs and quotas on steel and aluminum from numerous countries. Officials said the administration took a first step today by announcing agreement on a working group with the European Union that will aim to end to tariffs on steel and aluminum from the EU by the end of 2021 but that much more tariff relief is needed, and sooner. The administration should also end the duty on Canadian softwood lumber, instead of doubling the rate, as the Commerce Department has proposed, the officials added.

“The administration is right to recognize that ending tariffs on our allies is good policy,” said Stephen Sandherr, the association’s CEO, in the press release. “But there is no reason to wait six months to adopt good measures. The president should go further by ending tariffs and quotas on steel and aluminum from other trading partners as well as the European Union.”

The Associated Builders and Contractors (ABC) trade association, Washington, DC, also closely track costs associated with the construction market, and said that according to its analysis of the U.S. Bureau of Labor Statistics' Producer Price Index data, nonresidential construction input prices increased +1.6% for the month and that some of the largest increases were seen in energy and lumber costs. ABC said the price of crude petroleum rose +245.2%, while unprocessed energy materials and natural gas increased +117.7% and +114.6%, respectively. Softwood lumber prices have increased +121.1% over the past year.

“Over the past several weeks, the major challenge facing the U.S. nonresidential construction industry has shifted from COVID-19-induced disruptions to the ongoing surge in materials prices,” said ABC Chief Economic Anirban Basu in the press release. “Nonresidential input prices have surged, and much of that increase has occurred since the start of 2021. While some of this is attributable to so-called base effects — the result of unusually low prices that prevailed a year ago for certain commodities — it has become clear that supply is unable to keep pace with rapid demand growth in many instances, driving prices uncomfortably higher.”

Because of the overwhelming impact copper prices have on wire and cable, they have always been the most closely watched commodity. And while copper prices sat at record levels for a good part of this year, they have dropped over the past week. John Gross, publisher of The Copper Journal, has been tracking copper pricing for at least 50 years, and he says a pullback is in line with past cycles. “Copper has not had a meaningful correction since the bull market got underway more than a year ago, so a pullback may be expected at any time,” he wrote in a recent article.

Electrical Marketing's editors dug into the May data for the Producer Price Index to look at some other product categories with notable YOY price increases from May 2020 and spotted a few that will impact the electrical market: Electronic wire & cable (+26.4%); Plastic resins & materials (+48.6%); Iron & steel scrap (+76.6%); and Copper base scrap (+89.6%). Electrical Marketing’s subscribers should check out the EM’s Electrical Price Index on page 3 for more price increases, and the digital version of the EPI at www.electricalmarketing.com to get more historical EPI data.