September 22, 2005 — Discussing the recent impact of Hurricane Katrina on construction activity, materials, and labor, Ken Simonson, chief economist for the Associated General Contractors of America (AGC), expects construction materials prices to rise at least 10 percent next year, instead of the six to eight percent rise he had expected before the storm. Joined by Mark Zandi, chief economist for the economic consulting firm Economy.com, and Gina Martin, economic analyst for Wachovia, Simonson spoke at AGC's Midyear Legislative Conference held in Washington, D.C., earlier this week.
“Contractors can expect increased diesel fuel costs to operate off-road equipment such as bulldozers, tower cranes, and trucks,” said Simonson, citing first•hand accounts from member companies. “Fuel cost increases will also show up as freight surcharges on the thousands of deliveries to a typical construction job site.”
Simonson maintains that most of the increased costs in construction materials will result from a reduction in oil and natural gas production — not from higher demand for those materials for the reconstruction projects in the devastated areas.
“Lost production and imports due to the storm will result in higher prices and/or supply disruptions for PVC pipe, other construction plastics, tires for large off•road equipment, galvanized steel, gypsum products, and cement,” Simonson said. “The New Orleans customs district led the nation with 12 percent of total imports, which accounted for more than three percent of the nation's cement shipments during the first six months of 2005. Therefore, cement shortages are expected to worsen in some of the 32 states that were already experiencing shortages and spread to new states.”
AGC recently sent a letter to the U.S. Department of Commerce, urging that the Bush administration provide an immediate suspension of the anti-dumping duty on Mexican cement and allow imports of cement from all countries without duties or quotas in light of the emergency created by Hurricane Katrina.
“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. One alternative is to import cement from Mexico by barge to all of the Gulf states and by rail into the Southwest. Such cement could arrive more promptly than cement from most of the current leading sources of imports, such as South Korea, China, or Greece. But the current 55 percent anti-dumping duty makes Mexican cement prohibitively expensive.”
