Q3 2023: Materials Updates

General:

2023 material pricing continues to trend from flat pricing to declining prices as the economy navigates through recession risks, along with impacts from continued inflation, rising interest rates, some supply chain issues, slowing construction market, and failures in banking sectors, and increased bank loan rates.

It has truly been a roller coaster scenario for construction material prices. The recent decline is a turn of events from the past 2 years. Material prices increased throughout 2022 and remained elevated overall at year’s end. 2022 was a slower rate of increase than 2021 as the overall materials market experienced an increase of 18.6% as a whole in 2022. Currently, despite some drastic price drops in material prices they are still considered high compared to2020-2021 prices.

In Q3 2023, the flattened construction market is playing a significant role in material prices. Residential construction has declined this year and non-residential building shows an overall drop from last year. The main construction markets on the upswing include manufacturing (due to company’s reshoring seeking product from near shore and the computer/battery explosion) and large public works projects such as infrastructure, education, water/sewer/waste line upgrades, and power projects.

The flattened construction market is playing a significant role in material prices. Residential construction has declined 16% this year and non-residential building shows an overall 14% drop from 2022. Construction markets on the upswing include 1) manufacturing due to company’s reshoring seeking product from near shore and the computer and battery explosion, and 2) large public works projects such as infrastructure, education, water/sewer/waste, and power projects.

Metal Stud Framing:

In January 2023, steel prices started dropping. The initial drop was 10% and then dropped another 5% by the end of February. In March, steel increased and by May 2023 the everyday steel costs were back to the same level they were at during the peak in December 2022. However, price drops are back and today, steel is 14% to 16% below the April 2023 pricing and price drops are expected to continue. Steel life cycle is a 90-day lifespan; the manufacturers order it, and it hits their production 90 days later therefore pricing can be out of time with the economy. Due to the economy, prices are expected to continue to trend down.

Gyp Board Products:

A slight drop in price is seen this quarter primarily due to the slowdown in residential building. “Regular” and “Type-X” Drywall pricing has leveled off and is expected to stabilize through 2024. Glass Mat products such as Dens Glass by Georgia Pacific has dropped approximately 10% in price in the last 3 months.

Framing/Gyp Accessories:

Screws and fasteners pricing has heldsteady the past few months after being grossly inflated by tariffs acouple of years ago. Since then, raw material costs are down, and costsare anticipated to hold through 2024.

Insulation:

Fiberglass batt insulation prices spiked over the last couple years due to supply chain issues. Prices had a slight drop at the end of 2022 which helped correct the over inflated pricing. Pricing has been steady in 2023 and we don’t expect any increases for the remainder of the year. Insulation companies typically apply increases in the 4th quarter; however, with rumors of price decreases this is not likely.

Lumber & Plywood:

Clearly the most volatile construction material is lumber! Lumber's 55% to 60% price drop over the 12-month period ending June 5, 2023, making it one of the most severe declines amongst all construction commodities. It's been a push-pull situation. A depressed residential market would typically keep lumber prices in check; however, with Canada’s 2023 wildfire season burning the largest amount of land ever recorded in a single year, this will drive pricing back up as Canada supplies approximately 80% of U.S softwood lumber imports.

EFIS Plaster Products:

Acrylics opened the year with a 10% increase and have increased another 5% in the last few months. We don't expect further increases for the remainder of 2023 due to a decrease in sales.

Cement Plaster and Stucco Products:

Portland Cement and Stuccoused for plastering saw a 10% increase in 2022 and similar increases inQ1 of 2023. Continued price increases are predicted due to scarcity ofcement products.

Structural Steel:

In 2022, US steel prices dropped from May to Nov. There were late-year increases; however, the final calculation was a decrease of 12% in 2022. Predictions show that steel could experience a rebound later in 2023 due to a lack of supply and possible increase in demand. Production numbers are still down. The average price of scrap steel, iron ore, and coke increased in June and July 2023,causing an overall upward trend in steel production costs. Looking at demand, it is predicted construction steel will recover to a certain extent and contribute to the upward trend.

Concrete:

Concrete pricing continues to move on the upward trend. Ready mix concrete (RMC) has increased at a historic pace. Up nearly 20%in the last 15 months and still climbing. These increases have been the trend since January 2021. A major contributor to concrete price increases is the closure of a large limestone quarry in Mexico. Another factor is the scarcity of cement mix, one of concrete’s main ingredients. There does not appear to be any relief in the near future.

Copper Wire & EMT (electrical):

Insulated Copper Wire products for Q22023 were still down. Following the significant 2022 increases, copper wire products seem to be continuously slipping through 2023 and are now at the lowest price seen in 7 months. The forecast shows price rebounds. Data Centers are growing in size and number worldwide to keep up with the staggering amounts of data being generated. Roughly 33% of the world’s data centers are located here in America, and it isprojected that data centers worldwide will be guzzling up 20% of Earth’spower supply by 2025!

Sheet Metal (HVAC Air Dist.):

The global sheet metal market growth is estimated to increase significantly in the next 5 years, and currently increasing at about 1.5% per month. The potential impact could be the drop in demand due to the looming economy and decrease in construction starts.

HVAC Equipment:

The price trend is going up unlike most other construction materials. HVAC units have already seen a significant increase this year, a 14% increase from April to August and another 8%increase is anticipated in October 2023. The increases can be attributed largely to the new minimum efficiency SEER2 standards, green energy, renewable energy, and refrigerant changes are being imposed on manufactures. Lead times for projects are quoted at 18 to 20 weeks (half the lead time as last year). The HVAC industry projected to be a $34.6 billion industry by the end of 2023. Additionally, the popularity

of green energy and the acceptance of renewable energy sources will likely result in higher demand for energy-efficient HVAC systems. EPA regulations on the manufacturing and sale of freon refrigerants in the U.S. is changing. The standard alkyl halide R410A refrigerant will start getting phased out in 2025, which will lead to increase prices for the more ozone friendly 410A refrigerant.

Plumbing Cast Iron and Copper Pipe:

In general, the current pipe pricing has recorded a relatively flat trend pattern. With last year’s banner numbers, a pace of growth of 9% month-to-month and some early 2023 price hikes reaching a peak in April 2023 we are now in a flat trend. More specifically, Cast Pipe has not had any movement while Copper Pipe seems to be thriving a bit more.

Roofing Commercial Flat Systems:

After a long run of drastic price decreases, pricing is slowly rebounding. Roofing membranes material shave declined almost 22% since April 2023 due to stabilizing raw materials. Additionally, manufactures produced membranes “around the clock” in early 2023 to meet projected demands and now overstocked in warehouses as construction demand has slowed. Roofing insulation prices also dropped, but not as much as roof membranes and accessories. Densdeck has not increased their prices since Aug 2022 after losing business to Secure rock by USG. However, word on the street is that limit price guarantees on Densdeck will only be for 30 days since they are most likely to add a price increase in the 5% range.