Katrina to Affect Construction Costs Via Cement, Fuel Prices
Ken Simonson, chief economist for the Associated General Contractors of America, discussed the impact of Hurricane Katrina on construction activity, materials and labor at AGC’s Midyear Legislative Conference in Washington, D.C. earlier this month, saying that construction material prices will rise at least 10% next year, as opposed to the 6-8% increase he anticipated before the storm.
Diesel fuel price increases are one contributing factor, and Simonson noted that these increases will manifest as freight surcharges on the thousands of deliveries to a typical job site. “Most of the increased costs in construction materials throughout the country will result from a reduction in oil and natural gas production, and not from higher demand for those materials for the reconstruction projects in the devastated areas,” he said.
He noted that New Orleans led the U.S. in imports, with 12% of total imports accounting for more than 3% of the nation’s cement shipments during the first six months of 2005. With a decrease in cement shipments, he expects that cement shortages will worsen and spread and that cement prices will rise even more steeply than the 12.7% increase that occurred between August 2004 and August 2005.
“In light of the lost supply, it is imperative that other supply sources be made available as soon as possible,” Simonson said. “Without it, construction projects and manufacture of concrete products in many states will have to halt, potentially laying off thousands of workers. Moreover, vital infrastructure repairs and reconstruction in the hurricane zone could be imperiled.” He added that one possible solution would be to import cement from Mexico by barge to Gulf states and by rail to the Southwest. “But the current 55% anti-dumping duty makes Mexican cement prohibitively expensive.”
For more analysis on the impact of Hurricane Katrina on construction costs, please see this special report PDF from Reed Construction Data’s chief economist Jim Haughey.