The Russian invasion and war in Ukraine are a terrible humanitarian crisis on all levels, and most freedom loving people in the world are appalled by the callous and reckless behavior of President Putin and the Russian armed forces. Most Americans understand that we cannot support Russia economically, and the majority agree that heavy sanctions of all products from Russia is a must, but there will be a high cost for those who are in the construction industry.
First, the price of energy will go up as Russia is one of the largest exporters of oil and gas in the world. The price of crude oil is over $125 per barrel, and these high energy prices will be felt heavily in trucking and manufacturing especially in housing as commodity production and logistics are a main part of the pricing equation. Commodities are shipped by boats, trains, and trucks plus the manufacturers of these goods are heavy users of oil and gas products.
Next, most of the European Spruce originates from Russian logs that are shipped to Western Europe for production. Global Trade Atlas estimates that Russia makes up 22% of the world’s share in trade in softwood. Not only is this supply being cutoff, but logistically, with the war and sanctions it cannot be delivered. Over the next month or so, this will put more pressure on spruce and pine producers in the United States and Canada. With wood commodity pricing at record high levels, there is a real chance they could go much higher.
Russia is a Top 5 producer and exporter of metal including steel, nickel, and aluminum. Much of the world’s scrap metal goes through Ukraine to Turkey for production, and these products are now cutoff. Additionally, Rusal, the largest producer of Aluminum in the world was founded by a Russian oligarch and it is facing heavy sanctions as it tries to modify its business model.
Building products made with steel and aluminum could become in very short supply as those product lines currently face pressures from overall demand. Aluminum windows, doors, sidings, and other products necessary for home production may become very tight by late spring or early summer as manufacturers are unable to obtain the raw materials. Also, keep in mind, the armaments of war are made with metal and the weapons makers of the world will have first dibs on all metal supplies.
Finally, the big issue in the United States is housing demand. Currently, there appears to be no softening in the demand for housing as inventories in Florida remain consistently at less than one month. Homes are being sold with people occupying them and this is not a speculative market. The home building industry, as well as most other areas in construction, are seeing heavy backlogs and much longer lead-times. Most builders have enough committed projects right now to last them until early 2023.
Unless the war spreads, and America gets involved, housing should remain robust, but a war would be a Black Swan economic event that would probably result in real fear in the housing markets. Without a slowdown in housing, there is little chance that these price increases from the war in Ukraine will not affect the price of construction in this country. Even a few bumps in interest rates will do little to slow housing as many buyers are using cash, especially in Florida.
This war is terrible, and while there will be pain in the construction industry, nothing compares to the pain of the Ukrainian people. The best outcome for the world, would be for Russia to come to its senses and go down the path of peace.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Show which can be seen at AroundtheHouse.TV.