Dive Brief:

• Although the prices of some raw materials fell in December, costs are still sky high for contractors looking to purchase them, according to a new analysis by the Associated General Contractors of America. Overall, the price of construction materials jumped nearly 20% in 2021, the group said Thursday.
• The price index for steel mill products rose 0.2 % in December, its smallest rise in 15 months, but soared 127.2% over 12 months, according to a press release from the AGC shared with Construction Dive. The index for diesel fuel declined 5.3% for the month but increased 54.9% for the year. The index for aluminum mill shapes slid 4.9% in December but rose 29.8% over 12 months, while the index for copper and brass mill shapes fell 3.3% in December but rose 23.4% over the year.
• With an influx of new civil projects on the horizon with funding from the federal infrastructure act, contractor optimism is high for the coming year, according to a separate member survey from the AGC. The association found that 74% of surveyed firms planned to hire in 2022 despite supply chain issues and other challenges.

Dive Insight:

The producer price index for inputs to new nonresidential construction — the prices charged by goods producers and service providers, such as distributors and transportation firms — increased by 0.5% in December and 19.6% in 2021 as a whole, according to the release.

The index price for plastic construction products, for example, climbed 1.3% for the month and 34% over 12 months, according to the release. The index for lumber and plywood rose 12.7% and 17.6%.

One key issue, said the AGC in the release, is that the rising materials prices are threatening to set back a strong picture of economic growth and recovery for the construction industry and damage its outlook in 2022. In particular, the AGC asked that President Joe Biden reconsider the administration's plans to double tariffs on softwood lumber coming in from Canada, and remove mechanisms that are driving inflation of key construction materials.

"Making lumber and other materials even more expensive will not tame inflation, boost supplies of affordable housing or help the economy grow," said AGC CEO Stephen Sandherr in the release. "Instead, the administration should be removing tariffs and beating inflation."

Feeling the squeeze

Contractors have had an uphill battle dealing with price escalations throughout the course of the pandemic, and many felt squeezed from pre-pandemic contracts that lacked flexibility in regards to materials shortages and price hikes. To help mitigate this, experts recommend locking in different material price clauses into new contracts.

"Contractors have the most difficult job in America today because every decision is fraught with risk and uncertainty," Anirban Basu, chief economist for Associated Builders and Contractors, told Construction Dive.

The U.S. has butted heads with the European Union over tariffs imposed during the Trump era, but came to an agreement to ease the ones on steel and aluminum late last year. Under the two-year agreement, the U.S. lifted tariffs on a certain amount of steel and aluminum from the EU, and the EU removed billions in retaliatory tariffs on American products such as bourbon.