Turmoil in the commodities markets before the COVID-19 pandemic and before the current President Donald Trump took office was driven by both perceived and actual global supply and demand dynamics.

Price fluctuations attracted attention from countries known for significant demand, such as China, Russia, and the U.S., as well as raw material suppliers like Chile, Brazil, China, Canada, Mexico, and the Democratic Republic of the Congo. The COVID pandemic altered the usual factors influencing commodity pricing in 2020-22, and we are still dealing with the ongoing inflation related to the pandemic. 

News about supply and demand remains relevant; however, it has now been overshadowed by the constantly changing U.S. tariffs.

This uncertainty causes the markets to be nervous, resulting in frequent price fluctuations. Certain sectors, such as automotive, manufacturing, and electronics, are facing significant cost increases.

Yet, in the construction materials sector for homebuilding, prices — except for copper and aluminum — have not significantly impacted our expenses thus far. None of the homebuilders we consult with have yet accepted any tariff-related cost increases, adopting a stance like that of Albertsons, which operates more than 2,200 grocery stores and publicly announced that the company will not accept any tariff-related price increases. So far, Albertsons has stood firm on this position.

Importers, manufacturers, and distributors are absorbing the bulk of any price hikes. As second-quarter earnings reports emerge, a common theme among suppliers is lower profit margins, likely resulting from a combination of rising costs and declining sales prices due to decreased demand.

The question remains: How long can the supply chain absorb deflation in profit margins? Unlike a typical recession, where companies lay off workers only to rehire them later at lower wages, COVID-related inflation persists. As long as forklift drivers continue to earn $26 per hour, compared with a prevailing wage of $16 per hour before the pandemic, our supply chain’s fixed costs are rigid. 

What better moment than now to modernize our supply chain? Do you know that most trade contractors still use fax machines?

We encourage homebuilders to take proactive steps to influence how materials are delivered to jobsites. It’s time to move away from using flatbed trucks that deliver only a single box at a time. Homebuilders can communicate their SKU demand so that distributors can optimize inventory levels and manufacturers can produce the right items at the correct times. We’ve waited too long for our trade contractors to sophisticate the supply chain. It’s time for homebuilders to step forward and take a leadership position in finding ways to optimize dealer and manufacturer operations. Homebuilders have the potential to make a difference—if they choose to do so.

Quarterly Highlights

In the chart above, it may seem less relevant to continue comparing to 2019, but we think it is essential to stay grounded in pre-pandemic metrics so that we do not become content with accepting today’s prices as the new normal. Making houses more affordable depends on our ability to reduce costs. Building material prices were not exactly low in 2019, but it’s a good benchmark for now.

Aluminum Wire

With an increasing number of homebuilders using copper-clad aluminum wiring, the commodity pricing index for aluminum wire is rising on our watch list. Currently, aluminum wire prices are up 20% since January and have surged 1142% since 2019. Most of the aluminum wire we use in the U.S. is made here, so we do not think this is a tariff-related increase. 

Copper Wire

Approximately 17% of copper wire used in the U.S. is imported. Copper wire made in the U.S. is made from copper ore, which is not subject to the 50% tariff on imported copper, so the tariffs will not have much of a direct impact on pricing. However, all wire manufacturers will likely see this as an opportunity to raise prices. And, just as expected, prices have risen 29% in July. Copper wire is up 44% since January, which is eating away at the 74% drop in pricing that occurred in April and is up 179% since 2019. 

Lumber

If lumber prices go down any further, we will likely see curtailments at the mills — it will be better for them to close shop than continue to sell at these prices. It may be a good time to stock up or lock in prices. If you are using lumber from Canada, you are probably already looking at domestic sources to avoid tariff charges. As long as home sales are slow, we do not expect lumber prices to change much. 

Wall Insulation

Prices went down slightly in April, May, and June, but not enough to erase the 10% increase in February. Current prices are up 6% since January, and up 68% since 2019. 

Cement and Ready-Mix

Cement prices are stable again this quarter. Prices have come down slightly in seven of the past nine months. Current prices are up 6% since January, and up 112% since 2019.

Acrylic Resins

Acrylic resin prices are trending downward slightly and will likely follow the oil price index for the rest of the year. Acrylic resins are used in a variety of products, including vinyl windows, carpets, plastic pipes (PVC, ABS, PEX), cultured marble, housewrap, paint, exterior insulation, acrylic stucco, vinyl fencing, and materials that require adhesives (such as plywood, wood flooring, and laminated beams).

Looking Around the Next Corner

If it weren't for the slow new-home sales, we would likely be advising to brace for price increases in Q3. Falling profit margins will make suppliers nervous without an avenue to raise prices. This is a great time to improve collaboration with them. Start by asking, “What is it we do that costs you money?”

Homebuilders bear the cost for all inefficiencies throughout the supply chain, yet have no control over them; these inefficiencies are included in their overhead costs. We pay for all of it. So why not explore ways to help lower their operating costs? In our experience, suppliers appreciate the opportunity to collaborate on how to take cost, not margins, out of the supply chain. Many of the solutions we have implemented required minimal adjustments for us, such as changing the construction schedule template or making adjustments to purchase order information. 

There will continue to be concern about tariffs, and if home sales were better, we would likely see a surge in price increase requests. Let’s take advantage of this lull in home sales to sit down with those in control of supply chain efficiencies and see if we can work together to find more effective ways of doing things. We believe you can make a difference, and that it will likely result in lower prices and preferential treatment. That’s what happened to us.