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FAST FACTS:

Highly Cyclical Demand - Spending on US nonresidential construction jumped 11.7 percent in the first five months in 2006 compared to year-ago levels.

Uneven Revenues, Expenses - Steel prices climbed 11.8 percent in July 2006 compared to year-ago prices; cement rose 6.7 percent, according to Engineering News-Record (ENR).

INDUSTRY UPDATE

Rising Copper Prices Drive Up Construction Costs - Copper has joined concrete and drywall in pushing up construction prices. Strong demand for copper has more than tripled the price over the past few years, trading at record levels in May 2006. Experts say rising copper prices may reduce the profitability of projects for construction companies. Vast construction in China has been a main driver of demand. Recent strikes and other labor disputes at copper mines, most recently in Mexico, are also restricting supply. UPDATE MARCH 2007: According to Engineering News Record, First Quartery Cost Report dated March 19, 2007 (subscription required), copper prices have begun cooling slowly. John Mothersole, copper analyst for Global Insight expects copper prices to fall about 33% in 2007.

According to this excerpt from a June 26, 2006 article in Engineering News-Record:

“John Mothersole, economist with the Washington, D.C.-based forecasting firm Global Insight, says you can round up the usual suspects of high energy costs and strong global demand, particularly from China, but what is really driving prices is “pure speculation in the commodity markets.” Because of the speculative nature of the price spike, Mothersole believes it is susceptible to a correction and is forecasting copper prices to decline 15% in the second half of the year and another 27% through 2007. However, even with a correction “nobody will be thinking of copper as a bargain,” he says. “We have not seen any projects canceled because of high copper prices but we have seen a shift in the design phase to other materials,” says Bill Zahner, CEO of A. Zahner Architectural Metals, Kansas City, Mo. “The market is really tight and some shops are not even taking orders,” he adds.”

Immigration Crackdown Hits Construction Sites - The Department of Homeland Security’s (DHS) increased efforts to enforce laws against illegal immigration has led to sweeps at construction sites nationwide. Some experts say the crackdown could lead to a labor shortage in the construction industry, since illegals account for about 12 percent of its workforce, according to the Pew Hispanic Center. Particular emphasis is on finding illegal immigrants employed at sensitive sites such as airports, seaports, nuclear plants, chemical plants, financial institutions, water and food processing plants, and defense facilities, according to DHS.

A full report on rising copper prices is available by contacting the Marketing Department of Smith & Howard at 404.874.6244. The construction team at Smith & Howard is available to answer any questions or concerns you may have about the industry. Please feel free to call us.