Oil Crisis Highlights Plastics' Hidden Costs For Construction

The Middle East conflict that has sharply cut international oil supplies has offered a difficult lesson in the reliance that building trades have on petroleum-based products. 

Nearly 20% of the total annual global plastic production goes toward the built environment, from PVC piping and vinyl flooring to furnishings, paints and carpet, making the material vital to multifamily buildings and many other construction and renovation projects. Plastics' use in construction is only projected to grow, and prolonged pressure on oil prices could make that a more costly part of project budgets.

“Plastics prices are going up, they're used on many different things, and it's definitely having an impact if the situation in the Middle East doesn't get resolved,” said Robert Cantando, national strategics supply director at Skanska.

Pricing has surged for the raw materials that make up key plastics, especially PVC, used in everything from piping to roofing to sheathing copper wire.

The price of PVC nearly doubled from 30 cents per pound in January to just under 55 cents a pound in April, according to data from Ferguson Supply, before coming back down to around 42 cents last month. 

The prices of polypropylene — found in exterior cladding and weatherproofing — and polyethylene — vapor barriers and moisture protection — have followed similar curves connected to the price of oil, according to Ferguson. 

“It's been rising for a couple months now, and that has a lot to do with oil prices,” Associated Builders and Contractors economist Zack Fritz said. “But it's very, very modest compared to what we've seen with other inputs.” 

Copper prices have hit decade highs, rising more than 30% last year, and steel and wood prices have also risen. While experts say those materials more directly impact construction project budgets, the increased use of plastics in different parts of the process has made their cost a growing factor. 

Certain specialized uses of PVC and other plastics have added pricing pressure to projects, such as PVC membrane roofs, which are often used for apartment buildings or data centers. Cantando said the price for these types of roofs has risen 10% to 15% so far this year.

“The reason prices haven’t gone up more is that residential construction is down,” Cantando said. “If we see a surge in residential construction, that will change the equation.”

This pressure has yet to produce a crisis for commercial real estate. Industry analysts note that a weak residential market in the U.S., and a weaker overall domestic construction market, have kept finished PVC pipe prices from surging. According to Federal Reserve data, construction plastic prices have so far only increased 3.5% year-over-year. Price increases often lag behind the oil markets. 

That moderate increase in plastics prices is one of many factors contributing to the broad increase in overall construction materials prices, which federal data shows was nearly 10% year-over-year.

The exceptional jump in plastic feedstock prices, and the direct way in which these materials prices are tied to petroleum prices, highlight an increasing reliance on plastic byproducts in the industry.

Resin prices alone have spiked 60% this year, Cantando said.

And the uncertain nature of the deal with Iran that President Donald Trump has heralded this week — which has yet to impact shipping traffic through the Strait of Hormuz — suggests continued uncertainty in the oil market. 

“If this deal falls apart and oil prices continue up, these numbers will go up,” Cantando said. “Oil companies are sounding the alarm that if this thing continues, and the Strait stays closed for much longer, it's going to get really serious. What that means — maybe shortages, maybe some rationing of supplies — is not sure, but thank goodness we haven’t gotten there yet.”

Cantando said any signs that the shortage may start getting to that point could cause panic buying, which would further exacerbate the issue. 

Plastics have become ubiquitous in so many facets of construction.

Ease of use, lower costs and the prevalence of plastic alternatives to traditional building materials has slowly made the material much more crucial to modern building methods and material supply chains.  

“There’s a lot more plastic than you think,” ABC’s Fritz said.

In recent decades, subsidies for petrochemical production have decreased the cost of plastic building alternatives, said Teresa McGrath, chief research officer at Habitable, an advocacy group formerly known as the Healthy Buildings Network. That has created a flood of such products in building and construction. A Habitable analysis of building materials in affordable housing in Minnesota found that plastic use was prolific across different projects. 

This growing popularity has made the built environment a key growth sector for the plastics industry and industry lobbying. In the U.S., 70% of PVC production goes into building materials. 

“A recent industry report said housing is the key to plastics recovery, that they're banking on that being the savior of their market,” McGrath said. 

A number of plastics firms and industry groups declined the opportunity to comment for this story, including The Vinyl Institute, M. Holland Co. and the PVC Pipe Association.  

Despite the rise in raw materials costs, some analysts argue that the impact on final plastic materials prices for builders has been muted.

“From our side, plastics are often important components within construction materials and systems, but they are not typically a primary driver of overall construction costs in the same way as steel, aluminum, major equipment or diesel,” Linesight Senior Marketing Manager Christine Bernard said. “Any increase in plastic-related input costs is usually filtered through a long and complex supply chain, which can make the effect harder to isolate at project level.” 

But the importance of plastics in the construction process is only growing. Between now and 2050, Habitable predicts that the volume of plastics in buildings will double.

“The awareness of plastics in the built environment is in its infancy right now,” McGrath said. 

ABC’s Fritz projects that plastics prices will rise if oil remains in the $90-a-barrel range or higher. But the current situation stands in stark contrast to predictions that oil would get to $150 a barrel if the Strait of Hormuz remained closed for months. 

Rising oil prices impact just about every material input in construction, from diesel prices to the cost of transporting goods to labor prices, due to workers flinching at paying more to fill up at the pump for their commutes. While plastics may not be as dramatic or as well understood of a cost center for construction, it’ll be another factor that could send material costs soaring if the current geopolitical situation worsens.

Oil is an input to virtually everything, Fritz said, and it's inevitably going to put upward pressure on pricing.

“It's not out of the question that a few months from now, plastic prices are up by 7% year-over-year, and that hurts,” Fritz said. “We certainly don’t want another cost pressure, but it isn’t the biggest problem out there.”