The Good, The Bad and The Ugly: A Supply Chain and Escalation Update
Despite battling supply chain issues since late 2020, the construction industry will see continued material price escalation over the next couple of years, according to industry sources. Key takeaways are:
- The forecast for year-over-year price escalation in 2022 remains between 9% to 12%
- When looking ahead into 2023, year-on-year escalation of 7% is being forecasted with a return to the long-term average of 2.7% in 2024
- By 2024 we will have seen three years of dramatic price escalation and if projects (and compounding effect) are true, we will see material prices approximately 25% to 28% higher than they would have been by equivalence in 2020
But not all common construction materials have negative trajectories. Here are the outlooks for five essential construction material categories:
Rising: Cement and Concrete
Cement and concrete prices have continued to climb recently, reflecting higher production costs, which were up about 14% year-over-year in the third quarter of 2022. With production and transportation costs unlikely to ease markedly, cement and concrete prices will remain close to current highs.
Falling: Steel and Lumber
While prices for cement and concrete jump, other structural materials, such as steel, have experienced a slightly different journey. Steel prices declined significantly from their high points in the third quarter, with national prices down approximately 12%. Weakening demand also indicates more downside in prices for steel.
Leveling Off: Insulation Material
The hardest insulation material to procure over the last couple of years has been polyiso insulation, a closed-cell, rigid foam board typically used for roofing. That’s because 2021’s winter storm Uri, in addition to causing issues with cement, also disrupted the supply chain of MDI, one of the raw materials that goes into polyiso insulation material. That resulted in a shortage of insulation materials starting in February 2021.
During the third quarter of 2022, drywall prices saw their seventh consecutive quarterly increase, adding another 8% to bring national average prices to their highest point since the residential-driven peaks of the third quarter in 2020.
Longer Lead Times: Mechanical/Electrical Components
Don’t expect a quick recovery for mechanical components, such as HVAC equipment or wiring and electrical items. HVAC right now is probably one of the most challenging items that we have to procure in terms of equipment