Rising prices for construction materials and expected increases in transportation costs could further squeeze northern Nevada contractors already struggling with decreased revenues.
Prices for framing lumber and structural plywood panels have remained relatively flat through the first part of the year. But lumberyard executives are concerned that prices may spike due to heavy foreign purchases and the start of the nation's spring and summer building season.
And rapidly rising petroleum prices could potentially add expensive surcharges to U.S. steel sales all of which will further pinch contractors bidding jobs on razor-thin margins in order to land work.
Bill Meek, Sacramento-based president of Meeks Lumber, which operates 42 locations in Nevada, California, Arkansas and Mississippi, says that the Chinese are buying massive numbers of logs and lumber from mills in Oregon and Washington, which puts pressure on U.S. contractors. Once the homebuilding season begins in earnest, Meek says, prices may easily surpass the peaks of last summer.
Green Douglas fir prices in February were up about 10 percent from a year ago, Meek says, and structural plywood panels were up less than 1 percent. Oriented-strand board panels were down 10 percent.
But Meek fears a run-up in prices, particularly for structural plywood panels, which have barely moved off fall lows.
"The weather in the U.S. has been terrible in the building regions," he says. "In California it has been terrible even L.A. had rain. The upper Midwest has been snowed in for weeks. They have zero demand. By now typically panels have a pretty big runup, but that hasn't happened yet. The fear is that it will happen when those areas dry up."
Dennis Bostwick, president and general manager of Piedmont Truss & Lumber in South Meadows, says that though the composite price for both types of lumber has inched up roughly 9 percent from the first of the year, it still hasn't climbed as high as last year.
But that may change, Bostwick says, as mills many of which are still experiencing periodic shutdowns due to lower demand ramp up production to keep pace with foreign demand.
"If it was strictly for production in the U.S. or the West I think prices would be lower than where they are," Bostwick says. "It is not out of hand at this point; the cost to the contractor/developer really hasn't escalated."
However, as the price of oil escalates, as it has done through much of the first quarter, the price of construction materials will also balloon because of increased shipping costs. Bostwick expects to see significant increases in transportation costs by summer.
Mario Bullentini, executive vice president of Martin Iron Works, already has been dealing with surcharges on structural beams and other steel stock. Steel prices have risen nearly every month since October, Bullentini says. Price per ton from U.S. steel mills increased $65 in February, he says, and he feels that a surcharge increase is imminent in March as well.
"We are kind of on pins and needles trying to figure out what kind of surcharge they will hit us with," he says. "What we will see here effective in middle March is that the surcharge will be up substantially and maybe (the mills) will hold raw material prices."
Rising prices for materials means materials suppliers such as Martin Iron Works can't hold price quotes. Contractors who long ago learned that the only way to win work in the current economy is to bid jobs with the tightest-possible margins are looking at paying 20 to 30 percent more for steel now than in September.
"I can't hold prices for a month knowing they are changing every two weeks," Bullentini says. "If an owner put out a job for bid and got pricing several months ago he won't get the same price. Any job we have been in the running for and were told we are the low guy, we are calling the contractors or owners and telling them we hope they understand what is going on with the steel price increases."