With commercial and residential construction down significantly and an already weak U.S. economy faltering, building material and labor costs are likely to remain relatively low through 2012, but a prolonged period of under-building is “sowing the seeds” for a resurgence in prices in the not too distant future, according to Julian Anderson, president of Rider Levett Bucknall.

Demand from construction bids sets the stage for the supply and cost of materials, he told the McGraw-Hill Construction Outlook 2012 Executive Conference in Washington, D.C. on Oct. 19, and the trend has been weak since late 2008 when contractors started realizing the market was softening.

“What’s happening in the contractor economy at the moment?” Anderson asked. “Almost nothing is happening in terms of increasing demand. Activity isn’t there.”

In 2005, $1.2 trillion in construction was put in place, straining the pipeline. That number is projected to decline to a disappointing $750 billion this year flowing through a pipeline that has slackened, with many jobs having been shed.

On Anderson’s list of building materials:

• Lumber prices are being depressed by a dramatic slowdown in residential construction and remodeling — which account for three-quarters of domestic lumber usage.
  
  According to the Lumber Price Index from the Department of Labor Statistics, prices softened in 2006 and saw a minor recovery last year.
  
  “Prices will spike in the future as housing recovers,” he predicted, with the resurgence of housing, an inevitability since current production is running far below the 1.2 million to 1.5 million units needed to meet long-term demand and population growth.
  
  The lumber pipeline, he noted, didn’t expand during the housing boom even though the amount of lumber going through it soared by a third.
  
  
• Although prices were climbing from 2009 until fairly recently, steel will remain flat until there is an uptick in the general economy that drives demand up and the utilized capacity down.
  
  Utilization of domestically produced steel — which is not the same industry it was 20 years ago — was up to around 90% of capacity in 2008. As the economy soured and demand for contractors and automobiles slumped, it fell to 40% and has since recovered to around 75%.
  
  
• Demand for drywall plunged from 35,000 million square feet in 2006 to 17,700 by 2010, along with declines in new residential construction and home remodeling and repairs, which account for 50% and 17.5% of its consumption, respectively.
  
  Imports have fallen to 15% of the supply, down from 27% in 2006, and pricing for jobs has become intensely competitive.
  
  The gypsum industry has been moving to boost prices, without much success, and is hoping to push through a 35% price increase in 2012. Anderson said it is unlikely to stick because the market will continue to be too soft. “When housing recovers, the price will go up,” he said.
  
  
• No uptick in the price of cement and concrete is expected in the next year or two.
  
  Residential construction accounts for 25% of the cement and concrete used in the U.S., commercial buildings take an 8% share and streets and highways are responsible for 27%.
  
  The price of cement has been on a fairly consistent downward trail since 2009.
  
  
• From 2006 to 2010, copper consumption has declined from 2.1 million metric tons to 1.7 million, and capacity utilization has not yet recovered.
  
  Demand for copper is not very sensitive to price changes; buildings account for 48% of the demand and 21% is used for electrical applications.

Anderson said that construction prices are likely to remain depressed in 2012, but at some point demand for construction jobs will rebound, and the capacity, which has shrunk, won’t be able to meet it.

Price increases may become evident beyond 2013, when the U.S. construction industry will be growing strongly, he said.

"The 2011 summer of deflating confidence leads into a lackluster year and into a do-nothing presidential election year," Anderson said, leaving industry survivors continuing to hang on.

"A permanent decrease in capacity will sow seeds of future upward price pressure," he predicted.

However, "despite a temporary setback, commodities will face ongoing price increases driven by global demand and scarcity," he said.