Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The Associated General Contractors of America (AGC) are concerned by the steep producer price index increases in July, the association’s chief economist Ken Simonson told Davis Index. 


With extended lead times for production and delivery, contractors’ ongoing projects are being affected and making them hesitant to engage in new contracts, Simonson observed. 


Construction has been affected largely by increases in steel prices, plastic resins, and related products in 2021, especially through the summer months. The AGC has already urged the Biden administration to end the ongoing Section 232 tariffs and quotas that are fueling higher prices to contractors, Simonson said. By ending tariffs and quotas on steel, aluminum, lumber, and other essential construction items, the administration could halt the present inflationary pressures. 


Additionally, with continued tariffs, the infrastructure bill benefits to the US public would be mitigated at higher prices. The situation could be, especially, exacerbated in product availability and cost given some Buy American policies by federal and state programs since the US market has the highest prices on steel at present. 


Steel mill product prices rose by 108.6pc, steel pipe products by 48.8pc, copper, and brass by 49pc, lumber, and plywood by 56.8pc, and diesel fuel by 81.9pc in July 2021 against the previous year. According to Simonson, a 4.4pc price increase on non-residential buildings for end consumers, therefore, does not compensate for the 48-108pc increase in input costs that contractors must bear at present.


The consumer price index (CPI) rose by 5.4pc in July against the year-ago month and the producer price index for final demand increased by 7.8pc in the same time frame. Construction prices for private capital investments grew by 4.7pc while construction for government projects grew by 4pc in July compared to the year-ago month. 


Input costs for construction soared by 25.6pc in July against the same year-ago month. Given that materials represent at times half or more than half of a project’s costs, the increase in inputs affects profitability and could discourage contractors from bidding on projects, Simonson pointed out. While prices soared, according to the association, bid prices only rose by 2.8pc over the 12-month period ended May while adjustments in pricing in contracts are difficult to forecast when planning forward but buying closer to needs. 

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