Construction materials prices continue their advance

The Bureau of Labor Statistics (BLS) released its producer price index report for December 2021. It showed that construction materials prices were up 1.5 percent in the month, seasonally adjusted. The index was 22.0 percent higher than its year-earlier level.

Overall prices for processed goods for intermediate demand fell by 0.3 percent in the month, as processed fuels and lubricants for intermediate demand fell 4.1 percent in price. The index was 24.4 percent higher than its year-ago level.

For reference, the changes in these indices compare with a 7.0 percent rise in the all-items consumer price index (CPI-U) for the 12 months ending in December. The CPI-U was up 0.5 percent for the month. The shelter portion of the CPI was up 4.1 percent from the year-ago level.

Yield Pro compiled the BLS reported price changes for our standard list of construction commodities. These are commodities whose prices directly impact the cost of constructing an apartment building. The two right hand columns of the table provide the percent change in the price of the commodity from a year earlier (12 Mo PC Change) and the percent change in price from November 2021 (1 Mo PC Change). If no price data is available for a given commodity, the change is listed as N/A.

The pre-COVID column lists the change in the current commodity prices relative to the average of the prices in December 2019 through February 2020, before the pandemic impacted the economy. This may give a truer idea of the magnitude of the recent price increases for commodities, such as lumber, whose prices were already rising sharply last summer, than does the 12 Mo PC Change column. 

Previously, the price indexes for individual commodities published by the BLS were almost never revised after they were released. However, in recent months, revisions have been made to many of the component price indexes, some of them significant. These revisions will be discussed below.

The first chart, below, shows the price index history for wood products over the past 25 months. Note that the prices used by the BLS in compiling the indexes are collected on the Tuesday of the week containing the 13^th day of the month. In December 2021 that would have been December 14.

In December, the price of softwood lumber saw the largest monthly percentage increase of the commodities we track, rising 23.6 percent. However, the price of lumber has been very volatile and it was at a low point in mid-November, so the size of the monthly rise is being accentuated by relative weakness in the price from the month before.

Recently, the market price of lumber has been moving higher again, closing at $1,212 on January 12. This is up approximately $100 since our last report. Lumber prices in the futures markets have been moving up in line with the rise in the spot price. The July 2022 contract was trading at $1,090 in mid-January, up $125 over the last 4 weeks. The September 2022 contract was at $1,025, up $120 over that time.

Again this month, the price of soft plywood products has posted the largest percentage rise compared to its pre-pandemic level of all the construction materials we track, rising 78 percent. It was up in December, rising 3.5 percent month-over-month. In addition, the softwood lumber price index for November was revised upward by 2.5 percent, so the December index is actually up 6.0 percent from the preliminary level reported last month.

The prices of hardwood lumber and of general millworks have not seen the steep climbs and drops of softwood lumber and plywood, but they have recently been moving steadily higher.

The next chart, below, shows the recent history of several other construction materials prices. The prices for hot-rolled steel products and power wire and cable have seen some of the highest percentage increases compared to their levels immediately before the pandemic.

While the table above indicates that the prices of copper wire and of power wire fell during December, this is only because the November price indexes for these construction materials were revised higher this month. The index for copper wire was revised higher by 2.5 percent while the index for power wire was revised higher by a surprising 12.0 percent.

The prices of other metals-based commodities we track, like sheet metal products and nails, are also all up significantly from their pre-pandemic levels.

MarketWatch reports that the NYSE American steel index has moved higher since the end of last year. It closed on January 12 at $1,713, up from its price of $1,547 on December 14. Steel futures are still indicating that lower prices may be coming next year. The April 2022 contract is now priced at $1,074, down from $1,213 last month. The July 2022 contract is now at $991.

The price of copper spiked higher in the last few days, closing at $4.58 on January 12. This is down from its recent high of $4.73 in mid-October but well above its recent low of $4.15 on December 12.

The price of aluminum is down from the recent high of $3,168 it reached in mid-October, but it has also moved higher over the last 4 weeks. While it had been trading around $2,650 at the time of our last report, it closed at $2,917 on January 12, a 10 percent rise.

The price of asphalt roofing and siding took the biggest fall of the construction materials we track during December, but it is still up double digits for the year and since the pandemic started. The price of gypsum products was unchanged for the month.

Price changes for several of the more finished goods from our sample are illustrated in the final chart, below. Electrical lighting fixtures and furnaces and heaters have been moving steadily higher recently. Enameled iron and metal sanitary ware is the only construction material type appearing in our charts whose price gains since July 2017 have been smaller than the rate of inflation as measured by the CPI-U.

The full BLS report can be found here.