Lumber, steel prices make local impacts

Jun. 2—It's economics 101 — supply and demand.

Whereas the most prominent effect of the pandemic for many in the last year related to health, the trickle-down effects today revolve around the pocket book. Specifically, costs for products used around the home, outside the home, and to actually build that home.

According to the U.S. Department of Labor, Bureau of Labor Statistics, consumers are spending 1.2 percent more for food now as compared to 12 months ago. "The largest increase was the fruits and vegetables index, which rose 3.3 percent," the Bureau's latest report stated.

Meanwhile, chlorine prices have skyrocketed as well. August 2020's Hurricane Laura is one reason for the surge — the storm caused a fire in the Lake Charles, La., Bio-Lab, Inc. plant, which is a major producer of chlorine for the United States. Early reports state the manufacturer will reopen, but not until 2022.

The other reason for the shortage is simple: people stayed home during most of last summer, so they took advantage of that time by purchasing pools. More pools led to a greater chlorine demand. Now, there simply isn't enough to go around.

And that's exactly the problem consumers may be encountering with lumber and steel — items used to build residential and commercial properties.

RESIDENTIAL IMPACT

"When COVID hit, a lot of factories and lumber mills shut down," said Mike McCord of McCord's Do-It-Best in Logansport. "People were quarantined; children were home. This got a lot of people thinking about building projects."

Instead of using money stashed away for planned vacations that just weren't possible in 2020, people opted to add onto homes, build decks, or even go so far as to construct a brand new home. Lumber was flying off the shelves. Many businesses have struggled to keep items stocked.

And it's getting worse.

McCord said that import/export tariffs coupled with low interest rates contribute to the situation as well.

In fact, banks throughout Cass and surrounding counties have reported high demand in refinancing. Wells Fargo reports mortgage rates between 2.250% for a 15-year fixed rate to 3% for a 30-year fixed rate, with a slight increase for adjustable rates, and between 2.375% and 3.125% for refinancing rates. Depending on the financial institution, rates are at a 10- to 16-year low.

While people are saving money on mortgage and refinancing rates, they're choosing to spend the dollars in other ways. And they're not concerned about the high costs because they have money to burn.

"It's crazy," said McCord. "People are building more houses this spring than they have in the last 10 years."

Despite the fact that lumber costs four times the amount it did one year ago and despite the fact that prices for items such as sheet goods, metal products, wood glue, and paint have jumped tremendously due to the raw materials used to manufacture these items being in short supply, consumers are taking the construction plunge.

And it comes with a higher price tag.

The National Association of Home Builders states that a new single-family dwelling costs almost $36,000 more in 2021 than it did in 2020. Likewise, renters could expect to pay an estimated $119 extra per month for a new apartment.

For the homeowner who wants to add on to an existing structure or start from scratch, McCord said the construction phase may take longer than expected. From a truck driver shortage at the docks where cargo is unloaded and then transported to Indiana to suppliers not getting enough products, people will need to be patient.

"We're going to find our way through this," he said. Right now, though, "it's crazy that prices are high and our business is up ... that there's more demand for lumber than supply ... everything about it just makes you scratch your head. It's a big mess right now, but it will all get back to order eventually."

COMMERCIAL IMPACT

Even those associated with local projects, including the construction of Logansport Community School Corporation's new Intermediate School on Chase Road, are experiencing price issues.

Bill Cuppy, school board president, said that "we paid a premium on steel to have it on a timeline that we needed. Availability is not like it was. There's less of it, so people are paying a premium for timing and not the actual product."

A fear of price increases has been kept at bay, he said, because competition is at a high. "We're getting a lot of interest with bidders and contractors. To be competitive, they're putting their best prices out there ... and we're benefitting from multiple (groups) looking to do our project, which has offset any potential increases."

Never did the board anticipate being in a situation like this when deciding to build the school, he added. "We knew some parts would be a challenge, and we'll work through any challenges to get it done on time. We want to be open and in operation by school year, 2022."

And that means moving forward cautiously.

As Tom Smith of Skillman Corporation, an Indianapolis-based construction firm and supervisor of this project said during a recent school board meeting, "it's very volatile. We have seen snafus ... (throughout) the country. There's a lack of worker supply, which keeps us guessing on a daily basis. And vendors aren't guaranteeing prices."

But at 4 p.m. Monday, June 7, the school board will find out the extent of any price hikes or drops. This is when the bids for the construction will be opened. This package will include construction of the walls, drywall, roof and HVAC system. It also will feature paint and interior work costs.

POWER PLANT IMPACT

Since January 2016, the Power Generating Plant at 8th and Race streets has ceased to operate. Since then, the facility has become a health hazard due to falling asbestos products, a leaking roof, and various other issues.

So Logansport Municipal Utilities Superintendent Greg Toth decided to apply for a Community Development Block Grant (CDBG) with the Indiana Office of Community and Rural Affairs (OCRA) in order to receive approximately $500,000 in funding. The monies would be used toward the demolition of the power plant's coal conveyor and smokestack. The removal of asbestos-containing material on the conveyor and throughout the plant also would be covered.

In May, OCRA representatives toured the plant and met with city leaders to complete the application process. Toth expects to learn if the grant is won by Aug. 12th.

If it is, this would defray some of the city's expense toward the plant project. He said LMU has agreed to commit approximately $700,000 to the current project, contingent upon receipt of the Blight Clearance Grant/CDBG funding from OCRA. Additional monies also are being sought from the federal government through HB 1319, more commonly known as the American Rescue Plan (ARP) Act. Logansport expects to receive $3.6 million from the Act, but an exact amount of funding that could be earmarked for the coal-fired power plant project is unknown at this time.

And another surprising twist may be entering the mix.

While steel prices are increasing, leading to higher out-of-pocket expenses for construction projects, it may have a positive impact for LMU.

In fact, the current economic situation may grant LMU an opportunity that the group never thought possible: tearing down the entire structure. Toth said the anticipated cost hovers just around $5.6 million.

However, scrap steel is in such high demand that buyers are willing to purchase on-the-spot. As of June, the national scrap rate is $169 per ton. Sheet iron is at $232 a ton, clean sheet is $280 per ton, and rebar is around $200 per ton, according to Merrillville Metal Recycling.

Because the scrap metal is worth so much, Toth said contractors want the plant to come down this year. The cost of taking it down versus the money recovered from sale of scrap won't "zero-out" the bottom line, he said, but it is leading to some conversations about what "can be afforded or not afforded."

Reach Kristi Hileman at kristi.hileman@pharostribune.com or 574-732-5150