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Raw Material Prices: It’s Affecting Your Bottom Line

Raw material prices affect your construction business. Whether prices are up or down, it correlates with profit, labor costs, etc. While raw materials are not the only factor that can contribute to your bottom line, it’s definitely an important one.

For instance, if raw materials are high, you may need to charge customers higher costs for a final product. Reversely, lower raw material prices may allow a reduced pricing structure.

Continued Slump

Recently, raw material prices have been down. There has been more than a yearlong slump in prices for the raw materials used in construction. Although this may seem like a win for your construction business, the industry hasn’t benefited the way one might assume.

Raw material pricing statistics include:

• Asphalt: Dropped more than 42%
• Iron: Fallen nearly 15% over the past year
• Steel: Fallen nearly 15% over the past year

Even with these decreased raw material pricing, the average construction costs reportedly increased by 1.8%. This is due to the average hourly wages for construction workers continuing to climb.

Learn how to combat the construction labor shortage here.

While the prices of many key construction ingredients have dropped dramatically over the past 18 months, a falling global demand for commodities has counteracted this development. Such demand led to significant cost of asphalt, iron, steel and diesel.

While most raw materials prices are not significantly growing, cement prices are on the rising.

Global

Deni Koenhemsi with IHS said the construction uptick in the U.S. didn’t impact most building materials in 2015. As mentioned above, a shrinking global demand affected pricing. Raw materials, such as lumber and steel, lost their value because of abundant supply and a lacking global demand.

The slowing of China’s construction, a previously fast-paced emerging market, affected global demand. China was a big consumer of raw commodities. Other emerging countries, such as Brazil and Russia, are also experiencing multi-decade lows in terms of growth rates.

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