Latest News

Rebuilding the Gulf Coast region will be costly

WASHINGTON—Hurricane Katrina devastated the Gulf Coast with such force that reconstruction is likely to have no parallel in American history.

To make matters worse, already tight markets and high prices for construction materials will make reconstruction costlier, experts said.

The natural disaster comes as the nation is experiencing a housing boom. Strong economic growth in the United States, Canada and China is making many construction materials, including concrete and steel, scarce and prices high.

Concrete prices have risen 14.5 percent over the past year, according to the Labor Department's Producer Price Index. Less formal measurements suggest that concrete prices in some regions have risen by 30 percent.

The Portland Cement Association, which represents cement companies, and Associated General Contractors of America, representing builders and contractors, estimate that 32 states and the District of Columbia experienced shortages of concrete during July.

Rebuilding the Gulf Coast states could drive construction costs even higher.

"To say it won't have an impact is naive because we are already in a tight market for a lot of these commodities," said Bradley Sant, an American Road & Transportation Builders Association vice president.

High prices for steel and metal have made even items such as guardrails pricey, he said.

And if crude oil prices remain high, that's sure to make recovery from Katrina the costliest ever, because many construction staples are derived from petroleum products.

The PVC pipe used in residential plumbing is made from plastics. The roofing tar needed for repairing leaks or securing tiles is petroleum-based. Roofing tiles are more expensive because making bricks and tiles is energy-intensive.

What's more, many manufacturers of plastics and chemicals depend on natural gas as a feedstock, and natural gas prices are even more volatile than oil prices.

Higher petrochemical prices also hits makers of polyisocyanurate insulation, used to keep the cold or the heat out of houses and commercial buildings.

"Anything that impacts petrochemicals and the pricing of petrochemicals will have some impact," said Jared Blum, the president of the Polyisocyanurate Insulation Manufacturers Association.

"The question of meeting this huge burgeoning demand ... I think everybody needs to ask that question, not just us," he said. "Will there be enough to meet the demand?"

The most immediate challenge will be road and bridge repair.

"Historically, recovery from catastrophes happens very rapidly, but I don't think we've ever seen road damage to the extent we have seen here," said Ken Simonson, chief economist of the contractors' association. "I would think they would find the machines and manpower to do road repairs because you can't get to the other jobs until you have access."

The American Road & Transportation Builders Association said that many of its members were already preparing emergency relief for the Gulf Coast region, lining up heavy equipment to aid in rebuilding interstates, bridges and other essential infrastructure.

Perhaps the only bright spot is that reconstruction stretches over a long period of time, lessening demand spikes that create shortages of materials.

"Following past hurricanes, spending growth on construction and building materials peaked four to six months following the disaster. In this case, the lag could be longer due to extensive damage to transportation infrastructure," Goldman, Sachs & Co., a New York investment bank, said in a note to investors late Thursday.

The lumber industry isn't burdened by demand right now. It ramped up production amid two years of soaring demand because of the housing boom.

"The market right now is not as tight as it has been in the recent past. It's not the fevered pitch of just a few months ago," said Jack Merry, a spokesman for the Engineered Wood Association in Tacoma, Wash.

Added Jon Anderson, the publisher of Random Lengths, a lumber price reporting service in Eugene, Ore.: "The demand is going to come later and be stretched over an extended period of time."

The nation's steel framing providers, who compete with wood framing, believe they, too, are positioned to meet reconstruction needs.

"Last year was a terrible year for both price and availability of construction materials. This year is more in line with historical norms," said Larry Williams, the president of the Steel Framing Alliance in Washington, D.C. "If there's a bright spot, that's it."


(c) 2005, Knight Ridder/Tribune Information Services.

Need to map