Spinning Wheel

"What goes up must come down
Spinnin' wheel got to go 'round"

- Spinning Wheel - Blood, Sweat & Tears

Commodities have been behaving as expected of late. Concrete and masonry have been flat or moving up as expected year to date (ytd). Building materials have reacting to the Fed's hesitating to cut interest rates with lumber. Fabricated steel products continue to decline with steel coil, which had been lagging, taking a more rapid descent in the past months.

Even craft/non-supervisory labor has been starting to slow (down to +4.53% y-y versus a reading of +6.76% y-y this time last year) as inflation (CPI-U) has dropped from +4.94% y-y down to +3.48% y-y.

So things are finally getting better?

Industrial metals though have not followed suit though. The last month has seen a lot of steep price increases on the industrial metal side.

- Aluminum: +4.61% m-m; +7.26% ytd
- Copper: +7.58% m-m; +17.13% ytd
- Nickel: +9.12% m-m; +17.53% ytd
- Zinc: +10.33% m-m; +9.52% ytd
- Iron Ore: +18.07% m-m; -13.45% ytd

Watching supplier and manufacturer notifications, there have been several increases posted. In the last month, copper wire has increased between 15% - 17%, copper pipe/tubing has increased between 14% - 16%. Domestic Steel Pipe has increased around 10% with Carbon Steel Pipe Couplings and Fittings seeing a 6% increase.

So the sky is falling after all?

Not really. Aluminum and zinc will continue increasing over the next year. Iron ore will have ups and downs but should remain fairly level. Nickel should drop as global supply ramps up, particularly in Indonesia to fill the Russian void.

Let's take a step back and look at the most volatile metal, copper. 

After peaking close to $4.70/lb (a two-year high), the price slid down a bit on a weaker than expected jobs report. This is only a temporary drop as there are lingering concerns over supply and the long-term demand. Cobre Panama has seen operations suspended and Zambia's key mines are experiencing power issues. Chinese smelters have agreed to a 10% cutback in output amid shrinking profit margins. The recent ban on Russian metals by the US and UK has certainly played some roll in the price of copper increasing (despite assurances from the government that it wouldn't). Lastly, mines are hesitant to pursue new mines given the investment costs and growing community pushback over environmental and safety concerns.

Demand for copper will only continue to sustain and grow with the push for electrification. It is not out of the question to see pricing get near the $5/lb mark later this year.

At least the increases are only limited to metals right?

The news isn't great on other building products either.  Brass fittings are expected to increase another 8% - 12% in the coming week. Various types of insulation - EPS, XPS, Polyiso, Fiberglass, and Mineral Wool are all looking at increases in the 5% - 10% range. This is in addition to the shortage and long lead times associated with mineral wool insulation.

So what can we do?

Utilize strategies like early procurement of non-typical long lead items or volatile materials. You may need to work out a stored materials clause to accommodate this if buying for price, not lead times. Utilize set based design - evaluate a number of options, eliminate what won't work, and lock into a material or design at the last responsible moment. Be open to reasonable substitutions and avoid sole sourcing specifications. Onboard trade partners to engage in design assist to offer creative ways to navigate a price or lead time issue or to prepurchase materials or equipment directly. Build in allowances or additional contingencies for material volatility to build a project buffer for specific commodities that are increasing in cost at rates higher than inflation or forecasted escalation.