War in Ukraine Will Have Effects on Global Construction Prices

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Rob

A Friday newsletter from the Associated General Contractors of America claims that Russia's conflict with Ukraine will likely drive up the prices of fuel, copper, and aluminum. The war also could further impact global shipping and supply chains.

In the newsletter, Ken Simonson wrote: "The war in Ukraine and the West's response are likely to have multiple effects on construction materials costs and availability." Diesel fuel prices sit at their highest level in nine years. Heating oil futures also rest at premium prices.

Russia produces significant quantities of copper and aluminum; these commodities' prices increased by as much as 33% year over year each January. Simonson predicts further increases in those prices.

The Associated Builders and Contractors (ABC) in the U.S. Bureau of Labor Statistics Producer Price Index analysis shows a 24% growth in nonresidential construction over the past twelve months. "It's as bad as any time during COVID," Ernst & Young's global construction and engineering practice lead Erin Roberts told reporters at Construction Dive. "You've got all this demand after a brief pause shutting down the supply chain, and it's just causing havoc."

Due to materials cost runs, builders put more extensive infrastructure and government jobs on hiatus. "There's this hidden effect of inflation, which is that it should push you to choose projects that have less risk of delay and there's more certainty of cost," Leah Brooks, an economist at George Washington University, told the Journal. "Those are probably smaller projects."

Despite the uncertainty in materials prices, the Architectural Billings Index, which measures projects that retain architects, remains flat. At the same time, the Northwest shows price declines; firms in the South claim their highest billings since before the Great Recession.

With uncertainty in eastern Europe, some predict significant construction increases due to unpredictable materials costs.

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