Builders face price spike on wallboard

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BOISE, Idaho – Builders will pay more for wallboard in 2012.

Several manufacturers announced plans to increase prices by 35 percent despite the lull in home construction that keeps demand low. Wallboard will be the first construction material to see a big increase since the recession occurred, said Meridian-based homebuilder Don Hubble.

“A 35 percent increase in a material price will just be an outrageous increase,” he said. “We didn’t have price increases like that even in the heyday of homebuilding.”

Lafarge Gypsum of France, in an Oct. 4 letter to customers, said it is ceasing all job quotations immediately and on Jan. 2 will raise prices on all wallboard products by 35 percent. The company, which bases its North American unit in Virginia, is honoring prior job quotes with documentation. American Gypsum, of Dallas, and National Gypsum Co., of Charlotte, announced similar measures in a September letter that noted they will hold prices steady through 2012.

United States Gypsum Corp., in a Sept. 28 letter to customers, said U.S. wallboard demand dropped by more than 50 percent since 2006.

Job quotes originally were developed to provide price
certainty on big projects bid well in advance of construction, but few such jobs exist today, Chicago-based U.S. Gypsum said. The model is no longer appropriate as the company seeks to improve consistency and efficiency in its pricing policies, the company said.

National Gypsum, in its Sept. 30 letter, said demand that has been low for about three years and is expected to increase slowly over the next year to 18 months. Current prices and pricing procedures are not sustainable despite streamlining and cost-cutting measures, the company said.

The increase is a blow to contractors, who usually must absorb prices increases that happened between the time they submitted a financial proposal and when a contract is awarded.

“You just deal with it. There’s not much you can do,” said Carolyn Palasch, president of Great White Drywall Unlimited Inc. of Boise. “Anytime material prices go up, it affects bids you put out months ago.”

But passing on the higher cost, after giving the project owner-developer a hard number earlier, isn’t a good option, she said. “You probably won’t get the job. Not in this environment and this economy.”

In addition to raising prices, wallboard manufacturers announced they will no longer offer “job quotes” that fix prices for bidding future construction work.

Leon Kerns, owner of Superior Interiors of Boise, said his company has a couple of jobs with bids that figured in the higher price, and his suppliers for those projects are standing by the prices they offered.

“The prices they are announcing, it’s not like it’s a historical high,” Kerns said. The price of about $250 per 1,000 board feet is about what it was 10 years ago, he said.

All suppliers might not impose higher prices at the same time, he said.

“I kind of feel like everybody’s waiting to see what everybody else is going to do.”

Palasch has seen price increases from vendors already.

“For the most part, you should always figure on an increase. Vendors will figure on increases,” she said.

Prices for wallboard increased during the construction boom. Five years ago, they were about 20 percent higher than they are today, said Jeremy White, yard manager with GTS Interior Supply of Boise. GTS started increasing prices when it received notification from manufacturers, he said. The supplier will no longer get volume discounts from manufacturers, he said.

White said he expects a short transition period as projects priced earlier are done and as higher wallboard prices are figured into cost estimates on new work.

The price increase may seem unfair or badly timed, he said.

“But the fact is, the pricing has eroded so much in the last five years that truly they need an increase, to keep open and just to maintain a good supply for everybody,” White said.

Announced price increases sometimes don’t stick, he said.

“Clearly the gypsum manufacturers need price appreciation, and so do the distributors,” White said, referring to the soft mineral that is a key component in wallboard. “Hopefully this last go-round will work, and it won’t erode.”

Hubble said the price increase will be passed on to his homebuyers. Having an established price for a material is especially important for presold homes not yet finished, Hubble said.

“If a material cost increases after the sale, then we would be forced to absorb that cost,” he said.

CARLSON writes for Idaho Business Review, a sister publication to The Mecklenburg Times.