Material and energy prices on the rise in 2010

The building industry has seen a drop in material and energy prices since the peak of summer 2008, with lower average prices for diesel, copper, steel and aluminum. However, “we’re now at the low point, and material costs will soon be heading higher,” said Ken Simonson, chief economist of The Associated General Contractors of America, during Reed Construction Data Oct. 22 forecast Webinar. He forecasts an increase between 0 percent and 8 percent in 2010. “Going forward, we’ll see rising demand from markets like China and India. Even though construction will remain weak in the U.S., we still buy products produced overseas,” he said. “Expect increases of 6 [percent] to 8 percent [in the producer price index].”

John Mothersole, principal, industry practices, IHS Global Insight, provided a similar forecast during his presentation at the Outlook 2010 Executive Conference, McGraw Hill Construction. The forecast for the construction materials producer price index shows steep gains during the first half of 2010, followed by more gradual gains during the second half of the year, info 2011. Energy prices, oil and natural gas, will also rise during 2010, with oil seeing steady gains throughout the year, and natural gas seeing steeper increases during the latter half of the year, he said. Diesel prices are expected to rise gradually through 2010, with prices closing in at $3 per gallon at the end of the year, and continuing to rise through 2011.

Simonson said to watch out for copper, aluminum and diesel prices in 2010. “Copper is most vulnerable to price increases—prices more than doubled in the last 10 months, and we could see movements up and down again. China is a huge factor in copper purchases,” he said. “Diesel is just very volatile. Cold spells, refinery outages drive up demand. … Also, keep an eye on aluminum. Those prices have been edging up and could move more strongly.”