US commercial and residential construction companies breathed a sigh of relief last month as softwood prices fell more than 30% after hitting an all-time high in May.
Although prices remain high, they have dropped to more manageable levels, experts told Construction Dive.
These fluctuations in the price of wood are related to the supply chain, said Daniel Pomfrett, vice president of Cumming Management Group, a project and expense management firm. Now that timber prices have started falling, contractors shouldn’t expect the spikes that marked earlier stages of pandemics, Pomfrett said.
“I think we are now starting to see the demand on this rise as some people withheld their projects during this pandemic time,” Pomfrett said. “But in the supply chains where we actually get this raw material, we’ve really seen that pressure build up and when that pressure eases we see prices go down.” . “
According to Anirban Basu, chief economist at Associated Builders and Contractors, timber prices remain above pre-pandemic levels, despite falling below the peak seen in May 2021. Although massive spikes are unlikely in the future, Basu said there was still “significant volatility”.
Much of the lumber production comes from Washington state, said Pomfrett, who is experiencing a crisis high number of COVID-19 cases. Anecdotally, Pomfrett said that this stop-start nature of operations “will affect production”. Some Canadian producers have also cut production due to various factors, including forest fires, resin shortages, and falling prices. However, with prices still elevated compared to pre-pandemic levels, production is expected to continue to rise to meet demand, Basu said.
However, as the pandemic weakens business confidence and disrupts production, contractors can expect fewer capacity expansions, which will drive prices higher, Basu said. At the same time, the variant also suppresses consumer confidence, which can lead some homebuyers to postpone buying, reducing new housing construction. That would depress wood prices, said Basu.
Dealing with delays
With wood prices reaching record highs at the beginning of summer, many single-family home builders decided to postpone production. Given the high prices for lumber, steel, and other materials, drawing up specifications is riskier, Basu said.
On the commercial and multi-family side, project owners delayed construction in some cases, he said.
To minimize disruption from the ups and downs in lumber and other building materials prices, Granger Hassmann, vice president of Preconstruction and Estimated at Adolfson & Peterson Construction, a Minnesota-based general contractor, said it was important to be “very proactive.” “He said there are delays on the manufacturing side that cannot be prepared for, so it is critical to be flexible by considering different materials, systems or manufacturers.
“A procurement cycle used to take maybe six weeks to two months, now it’s maybe a week, it’s all about speed and management,” says Hassmann. “This is not the usual sequential process of following a project, winning the contract, waiting for a contract, starting the building process. You have to be very proactive.”
Rising labor costs
Together with the high material costs, supply chain disruptions and the threat posed by the COVID-19 delta variant will continue slow the recovery of the construction industry from the pandemic.
As material prices have flattened, labor has become the dominant source of construction costs, Pomfrett said.
“If you take the timber markets, for example, there will still be price increases despite falling timber prices [on the project] overall, because there is a labor shortage out there, “Pomfrett said.” If people come back with more construction projects, we will have more work than labor. “
Workers have become more expensive and the unemployment rate in the construction industry is up again below 5%, suggesting that labor costs among contractors will continue to rise “at an uncomfortable pace” through 2022, Basu said. For this reason, some project sponsors have postponed project start dates because their projects are no longer financially feasible.
“Without the Delta variant, the economy would be racing right now,” said Basu. “Instead, the third quarter will only produce mediocre economic growth. That will keep the Federal Reserve in stimulus mode a little longer than it would otherwise.”