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Ongoing Construction Materials Price Increases – Part 2

In my last blog, I pointed out that price increases in building material products like steel and wood were due to a combination of factors including the stifling in supply lines due to COVID-19 and the boom in construction projects.

 

Even though the Covid-19 pandemic played a role in exacerbating the current pricing woes, it certainly was not the only factor.

 

The US accounts for almost 70% of Canadian softwood lumber exports and the sheer size of the US housing marketing demanding Canadian lumber far outweighs Canadian domestic supply. The housing market in the US rebounded fast after the peak of the pandemic and at the same time as the Canadian housing rebound due to low housing mortgage interest rates fueling the construction boom and DIY renovation projects. Even the current softwood lumber dispute and tit-for-tat tariffs between Canada and the US has not done enough to stem the demand from south of the border and so Canadian lumber continues to flow south even as sawmills struggle to replenish stocks and become fully operational.

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In addition to the struggle to meet US and local construction demand, other building materials and products have also faced another supply chain problem- availability of shipping containers. China, which exports more products and raw materials than any other country, relies on containers to ship out raw materials and products to the rest of the world. Unfortunately, most of the shipping containers China sent out just before the pandemic are stuck at the ports where they unloaded but have not been able to be returned Asia due to most of the world shutting down because of Covid-19. As China’s economy further rebounded much faster that the Wests, production there also rebounded desperately but with a limited supply of shipping containers available China became very aggressive in trying to get any available containers to ship out its raw materials and products thereby creating not only creating a massive demand (and further shortage) for shipping containers but also driving up the cost of freight costs by at least 300%.

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So, the question on everyone’s mind now is – when, or will prices ever return to pre-pandemic times? Unfortunately, the short answer is NO. Prices will never get back to where they were pre-pandemic in 2019 simply because inflation and increase in production costs of products and raw materials will still have to be factored in for over the past 18 months or so in spite of the global shut down. Some analysts, however, predict prices will lower once the supply chain congestion and pandemic restrictions around the globe ease up.

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