Jul. 15, 2008 at 12:15pm

Fuel, materials costs 'clobber' budgets

Surging prices for diesel fuel, asphalt, steel, plastics, gypsum and other materials are battering construction company budgets, according to analysis by the Associated General Contractors of America of the state of the industry. The research came after the Bureau of Labor Statistics report on the Producer Price Index.

The PPI for construction industries – materials used in all types of construction plus items consumed by contractors, such as diesel fuel – surged 10.4 percent since this time last year. The index for highway and street construction leaped 18.9 percent.

"Bad as those figures sound, the increases in asphalt and steel costs have been even worse since these prices were collected in mid-June," said AGC Chief Economist Ken Simonson. "In the first two weeks of July, asphalt prices have jumped by 40 percent in several parts of the country. Prices for rebar – steel used to reinforce concrete in highways, bridges and buildings – soared $200 per ton."

Diesel fuel, the Energy Information Administration reported, is now at a new high of $4.76 per gallon, up 12 cents just in the past two weeks.

In the futures markets, aluminum has been setting records, while natural gas has doubled in price from a year ago. That has triggered jumps in the cost of construction plastics – such as polyvinyl chloride pipe, insulation and flooring--that use natural gas as a feedstock.

The rising costs could mean the industry will continue its decline as developers hold back on projects and government agencies delay construction plans because of budget shortages.

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