As the Federal Reserve Open Market Committee (FOMC) continues to hold interest rates constant, the economy is grappling with rising raw material and energy costs. In the short term, transportation fuel surcharges are raising the cost of doing business throughout the economy. Longer term, in a more insidious fashion, rising raw material costs are impacting the consumer as producers are forced to pass them through the system.
...Raw material prices have also seen dramatic movements in the last seven months. Steel prices are representative of the changes. Platts’ assessment of U.S. hot-rolled coil steel (ex-works Indiana) has increased 108 percent since January 2, 2008. This and similar steel product price increases are flowing through the fabrication industry and are driving up construction costs. This effect is felt across all industries. For example, we observe oil country tubular goods, which includes tubing, casing and drill pipes, have increased by 40 percent, year-over-year, which is a direct pass-through of higher steel prices to the energy industry. Investment decisions are negatively impacted by high and unpredictable construction costs which lead to delays in oil and gas field developments, refinery, petrochemical and power plant construction projects. As energy supply lags demand, a vicious price cycle is created...
...Raw material prices have also seen dramatic movements in the last seven months. Steel prices are representative of the changes. Platts’ assessment of U.S. hot-rolled coil steel (ex-works Indiana) has increased 108 percent since January 2, 2008. This and similar steel product price increases are flowing through the fabrication industry and are driving up construction costs. This effect is felt across all industries. For example, we observe oil country tubular goods, which includes tubing, casing and drill pipes, have increased by 40 percent, year-over-year, which is a direct pass-through of higher steel prices to the energy industry. Investment decisions are negatively impacted by high and unpredictable construction costs which lead to delays in oil and gas field developments, refinery, petrochemical and power plant construction projects. As energy supply lags demand, a vicious price cycle is created...
