PHILADELPHIA -- Prices of several key materials used in new-home construction and home remodeling continue to rise, industry experts say.
A construction boom in China is swallowing up large chunks of U.S. steel and cement, creating shortages in some regional markets here and sending prices skyrocketing, they say.
In addition, lumber prices in this country continue to surge. Not only are plywood and oriented strand board commanding record prices, but framing lumber used to build the majority of new homes reached $460 per 1,000 board-feet on May 7, according to Random Lengths, of Eugene, Ore., which tracks lumber prices.
The year before, 1,000 board-feet of framing lumber cost $281.
The reason for the higher costs: While demand has increased over the last three years, production capacity has not expanded to meet it, said Michael Carliner, former chief economist for the National Association of Home Builders.
The fact that oriented strand board and plywood prices have more than doubled in a year "is strictly related to home building in this country, not to a global situation," he said.
But shortages of cement and an increase in the price of steel are global in origin.
In response to unprecedented economic growth, China is adding, or expecting to build, 9 billion square feet of housing by the end of next year.
Coupled with government efforts to improve the nation's infrastructure, China is rapidly becoming the world's biggest consumer of steel and cement.
In an article in the People's Daily, Li Shijun, deputy secretary-general of the China Iron and Steel Association, indicated that the importation of vast quantities of steel from world producers such as the United States would continue.
China is consuming 250 million tons a year but producing only 210 million tons, he said. Annual consumption will reach 310 million tons in 2010, Li said.
China has the fourth-largest economy in the world, and is consuming one-third of the world's steel production and 40 percent of the world's cement, Carliner said.
In response to lumber-price increases in the past, the home builders' association has encouraged residential builders to use alternative materials such as light steel -- used to frame commercial buildings -- instead of lumber.
But steel-price increases have put a crimp in that idea. Carliner said light steel, typically made of recycled material, now costs more than framing lumber.
Higher oriented strand board and plywood prices and the delays mills are experiencing in delivering the material have led some builders to use nonstructural insulated panels to close houses to the elements, Carliner said.
"But these panels aren't suitable for exterior use as are structural panels" such as oriented strand board and plywood, he said.
The rising price of steel is contributing to an increase in demand for cement, said Ed Sullivan, chief economist for the Portland Cement Association in Skokie, Ill., which includes the industry's major producers.
Unlike most winters, cement producers were unable to stockpile this year in anticipation of the spring demand.
"Construction is a cyclical industry, and the United States depends on imported cement to fill the gap between domestic production and fluctuating demand," Sullivan said.
Slightly more than one-fifth of the Portland cement consumed annually in the United States is imported, Sullivan said.
Florida, for example, imports 40 percent of its cement, a larger share than the national average, Carliner said. So South Florida, which is in the midst of a building boom, is experiencing shortages, he said.
"We use a lot of concrete in building sidewalks and roads, so we are conscious of price increases," said Gary G. Schaal, vice president of sales and marketing for Orleans Homebuilders Inc. in Bensalem, Pa.
Schaal noted that, although steel is not a staple of residential construction per se, a lot of what goes into a house is made with steel.
"I was surprised by that, but we use steel girders and as rebar in concrete foundations," he said. "There is steel in appliances and in light fixtures."
Schaal and other builders also mentioned increases in the price of drywall and insulation, but those are typically seasonal.
And that will mean higher new-home prices, as well as a lot of renegotiated remodeling contracts.
No one anticipated that construction and remodeling would reach their current pace. Interest rates have remained relatively low, but even a slight increase will turn procrastinators into buyers.
"Construction spending reached an all-time high in March with a seasonally adjusted annual rate of $944.1 billion," Sullivan said. The 1.5 percent increase over February activity exceeded the expectations of most economists.
Manufacturers are nervous when talking about prices, because there is a stigma to being the first company in a product category to raise them.
Vinyl-siding producers, who use petroleum in their product, say it is more than just the higher cost of the ingredient that can cause increased prices. It is also increases in the price of energy used to make siding and the costs of transporting it.
The challenge, in the siding producers' view, is to see whether the energy and raw-material prices will right themselves before producers are forced to consider a price increase. So the producers are monitoring the situation closely, and watching what others in the industry are doing.
The same is true with makers of composite lumber, which uses a petroleum-based resin.
Most manufacturers estimate their expenses at the beginning of a fiscal year, so they can establish the margin they expect to make.
When a fixed cost -- raw materials or energy -- increases, it affects the bottom line.
Over the course of a season, a few cents' change in the price of some raw materials can make a considerable difference in a builder's margin.
Dennis Dunbar, owner of Dunbar Roofing & Siding Co. in Berwyn, Pa., said he expects the price of shingles to increase 10 percent to 15 percent from last year.
But he said price increases aren't hurting him. On the contrary, the effects of the winter's and spring's weather have increased the demand for his services, and business is booming.
"My problem is shortage," he said. "Manufacturers can't keep up with the demand and haven't increased production capacity, so they can't get the product to the wholesalers we deal with. So I can't tell my customers exactly when I can do their roofs."
Transportation is another issue -- not just gasoline prices, but new federal rules governing how long a truck driver can spend behind the wheel without a rest, Dunbar said.
For veteran plumber Marcel Pallaird, the price of gasoline for his panel truck is a major issue.
"I just spent $1.96 a gallon to fill it up," said Pallaird, who lives in Hatfield, Pa., but has a Philadelphia customer base. "It's Wednesday, but I haven't been to my city office since last Thursday. These days, I really need to have a big job to make the trip pay."
Prices for certain materials used in building are increasing. A number of factors are at work:
* Steel. As a construction boom takes place in China, greater quantities of steel are being imported, from the United States and elsewhere. The result is less supply to meet demand here.
* Cement. Because China also cannot produce sufficient cement to meet its building needs, it is importing cement. But the United States has had a construction boom of its own in the last few years and was importing cement, too, to meet fluctuating demands. Hence, some regional shortages here.
* Lumber, plywood, oriented strand board. With our own domestic building boom, shortages already existed, primarily because production capacity has not increased to meet the demand. That situation has not changed.
* Alternative materials. As framing materials such as lumber become scarce, builders turn to other materials, such as light steel -- the price of which has increased with demand.
* Vinyl siding/composite lumber. As petroleum prices increase, so can the price of these products, which are made with petroleum-based ingredients.