Commodity Collapse Craters Construction Costs

The commodity bubble has collapsed, and construction materials prices are beginning to follow.

After years of doubling and tripling raw materials prices from oil to copper caused by burgeoning world demand and a weak U.S. dollar, the bottom fell out in the final quarter of 2008.

As the world”s largest economies shuddered into recession, inflation hit the brakes.

After running at an annualized rate of 5.4 percent as recently as August, the year ended with the lowest rate of inflation seen in 54 years at just 0.1 percent.

The most obvious relief to beleaguered consumers came at the gas pump where prices fell by more than $2 per gallon from July”s peak prices to as low as $1.38 at some Northwest Arkansas stations.

The main beneficiary in 2009 should be the government and entities like the University of Arkansas and churches, which should see dramatically lower cost estimates as more and more contractors chase less and less work.

“It”s a buyer”s market,” said Don Heckathorn of Heckathorn Construction Co. in Fayetteville. “Prices now are better than they ever have been and interest rates are really low. You”re looking at a billing cost that may be 10 or 15 percent less than a year ago.

“It”s the time to do it if you have the courage.”

According to Reed Construction Data, for 2008 the construction materials price index increased 8.2 percent from 2007.

With infrastructure spending at the centerpiece of economic stimulus proposals, the best news is how the decline in oil prices is affecting asphalt and highway mixes.

The index for the mix of materials used in highway projects declined 5.4 percent in December according to Reed, and 16.1 percent in the last three months. The commodity prices for asphalt mix is still up 48 percent on the year, but that also includes a 41 percent drop in the last three months.

According to Reed, the most significant declines in December were 24 percent for diesel fuel (at the pump), 20 percent for asphalt (at the refinery), 17 percent for nonferrous pipe and tube, 9 percent for plastic resins, 7 percent for structural steel, and 6 percent for aluminum.

Ryan Bennet of SSI Inc. in Tontitown, which recently won a bid against 11 other contractors for the expansion/renovation of the KUAF building in Fayetteville, said asphalt prices are dropping faster than he can keep up.

SSI purchased enough asphalt to cover 8 acres for a recent job, and Bennet said they could have saved 3 percent to 4 percent per acre at the prices available two months later.

The wild fluctuations are making it tough on customers and estimators, Bennet said.

“Like the last two or three years when prices were escalating, we had no historical record to draw from,” he said. “It”s the same situation now. When you have a client looking for a quick budget, it”s difficult to give them one because you don”t know the price points because they are changing day by day.”

Heckathorn said he expects to lose money or break even in 2009, and recently had to lay off employees for the first time in 18 years. He”s gone out of the Northwest Arkansas area to find work for the first time, and SSI is pursuing out-of-state jobs as well.

“There”s a lot going on with the petrochemical companies in Oklahoma and Texas,” Bennet said. “Those are the hot spots in the country right now.”