By CHUCK GREEN
Builders in the United States are feeling the effects of Russia’s invasion of Ukraine, leading some experts to say there will be ramifications in the home and commercial markets.
“Already, retail gasoline and diesel prices have jumped by record amounts and reached record levels. Construction firms use large amounts of fuel for their own trucks and offroad equipment,” said Ken Simonson, Chief Economist of The Associated General Contractors of America.
Doubling down on the notion that the conflict is putting builders in a sticky situation, Simonson said they pay directly through fuel surcharges. Costs are embedded in the thousands of deliveries of equipment and materials to job sites as well as the hauling away of dirt, debris, and equipment from job sites.
Leah Brooks, an Economist at George Washington University’s Trachtenberg School of Public Policy and Public Affairs, said builders could be impacted by the war in Ukraine even if they don’t use any Ukrainian inputs — or inputs linked to Ukraine.
“The war’s increased oil prices, and we feel that increase in every single segment of society. The war’s also increased uncertainty for firms, and uncertainty by itself should work to increase prices as firms work to hedge choices in a way they may have not before this,” Brooks said.
Peter Colson, Senior Economist at Oxford Economics in Westminster, London, said they expect much of the impact of Russia’s invasion of Ukraine to impact the construction sector by increasing already high input costs as oil, gas, and other non-energy commodity prices rise globally.
Colson observed that “confidence shocks may reduce investment into the sector. Countries located in Eastern Europe with greater interlinked supply chains with Ukraine and Russia will face more direct disruption, while builders in the U.S. and Asia will see impacts via further rising input costs as commodity prices rise and the cost of trade increases globally.”
As the combat continues in Europe, concern over the ramifications it could have on the U.S. economy and specifically what could unfold in the construction sector is ratcheting up, according to marksnelsoncpa.com.
Business advisors at the Kansas City company pointed out that diesel and gasoline have busted through all-time highs. That’s where the first significant tolls are being felt by construction firms.
Also feeling the strain of the battle are commodity metals. Among those materials that will be targets of a degree of near-term inflationary heat on top of current high prices are aluminum, copper, nickel (stainless steel production), and titanium, according to marksnelsoncpa.com.
Many of the materials needed by construction firms require considerable energy to mine, mill, manufacture, mix, and deliver.
Others – notably steel and steel alloys – have experienced extreme price increases as the shutdown of production or supply lines from Russia and Ukraine has disrupted global supplies.
The price tags of copper, aluminum, nickel and other materials – among products Russia leveraged in numerous construction components – have ascended to unprecedented highs since they began the invasion, according to a report by costar.com, which appeared in the elginchamber.com.
Russia’s a significant player in the production of aluminum and copper. In the past couple of years, both have experienced year-over-year price hikes of 33 and 25 percent, respectively, according to International Risk Management Inc.
A decree putting a crimp on the import and export of specified goods and raw materials “to ensure the security of the Russian Federation” recently was signed by Russian President Vladimir Putin, according to finance.yahoo.com.
Specific goods and services that would be impacted weren’t specified.
The overall stakes among builders as a result of the invasion are fanned considerably by the fact that worldwide approximately 374,000 businesses bank on Russian suppliers.
90% of them are U.S.-based.
Russia exported over 5% of total global iron and steel exports in 2020 – just over $16 billion in value.
Additionally, Russia’s a large exporter of wood, exporting 6.3% of total global wood exports in 2020, valued at $8.2 billion.
Russia exported just under 1% of total non-metallic minerals exports in 2020, worth approximately $0.51 billion.
According to Dun & Bradstreet, around 241,000 businesses across the world – with 93% based in the U.S – depend on Ukrainian suppliers.
Developers and construction contractors have their thinking caps on.
They’re grappling with how to conduct business in a way that mitigates the potential of a lack of materials and the burgeoning price tag of projects, according to elginchamber.com.
With inflation, the cost of fuel, and a disruption in supplies, what is the most pressing issue?
“The energy prices are immediate and they’re the biggest,” said Terrence Roche, president of Bensenville, Illinois-based Denk & Roche Builders, a carpentry contractor with ongoing residential projects in several Midwest states.
“It’s like stacking straw onto the camel’s back,” Roche told CoStar News. “We’ve already been dealing with all the supply chain challenges. You’re already running scared and there’s just another calamity. You wonder: Are we ever going to turn a corner? This extra energy cost on top of inflation, you worry about the economy just toppling over. Will lenders still have the confidence to keep lending when these projects just cost so much more?”
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