Stockpiling materials can stabilize prices and guard against shortages, but it risks tying up capital and yielding poor returns.
While early buyers of steel and aluminum benefited from sharp price hikes, those who stockpiled volatile materials like lumber often faced losses from mistimed purchases and high storage expenses.
Alternative strategies like diversified sourcing and incremental or group purchasing may be more practical for many construction professionals.
As the construction industry moves into the third quarter of 2025, contractors and manufacturers continue to navigate material price volatility, fluctuating tariff rates, and, as such, significant cost pressures.
Key strategic questions have arisen: Has preemptively purchasing and stockpiling materials been a profitable and effective response to market conditions? And for those who are still thinking about it, what options remain?
In the construction sector, hoarding refers to the practice of bulk purchasing and storing materials ahead of project timelines to hedge against anticipated price hikes or supply chain disruptions.
Strategic benefits include price stability and reduced exposure to short-term market fluctuations, but these benefits come at a cost. Stockpiling ties up working capital and brings the risk of misjudging market direction. Carrying and storage expenses also play a large role in the success or failure of stockpiling strategies.
An important consideration is opportunity cost. Using capital to stockpile inventory may constrain a company’s ability to pay laborers, mobilize resources, or pursue new revenue and investment opportunities.
For value-added goods, the case for bulk buying can be even more convincing, strongly outweighing these costs. Items made with specialty labor and equipment may have fewer suppliers, thus when hit with tariffs, such products may become unaffordable. In these cases, stockpiling may be a crucial strategy to guarantee a continued supply.
As of late July, material pricing data suggests that the success of pre-Liberation Day buying strategies has varied significantly in part due to material composition.
Steel and aluminum have both seen meaningful price movements since early 2025. According to Trading Economics, steel futures, which directionally lead retail prices, spiked between February and March, rising 19% in just a few weeks. Aluminum futures have risen steadily since mid-April, increasing from $2,339.60 per ton to $2,654.30 per ton, around a 12.3% increase.
Lumber, however, has told a cautionary tale. In late March, lumber futures spiked to $685.16 per 1,000 board feet, only to tumble to $540.14 by early May. As of July 23, prices had climbed back to $679.90, well above last year’s late-July level of $495.98. For firms that bought during the spike and had to sit through the dip, the short-term gains were offset by the accumulation of storage and financing costs.
Copper has also drawn attention, with a projected 50% tariff driving record-high prices. Copper futures increased by over 25% from early June to late July 2025 in anticipation of the new tariff. But the success of stockpiling is determined by more than just the price of materials.
The profitability of inventory hedging is not determined solely by price movements, but by how much it costs to carry that inventory.
Cost of capital is the expected return you give up by using cash for inventory instead of investing it elsewhere, like in labor or new projects. Construction finance expert Dr. Justin Reginato estimates the average weighted cost of capital (WACC) for the construction industry has increased between 2024 and 2025, now ranging from 7% to 10%, with construction and engineering on the lower side and building product manufacturing on the higher side of the range.
Reginato also estimates that carrying costs for the construction industry, which include capital, storage, service, and inventory risk costs, range from 20% to 30%.
The general rule of thumb for investments in a business is that they must be in excess of the WACC.
This means that if the price of a material doesn’t rise by at least 10-15% within a short timeframe, the gains from stockpiling may be wiped out entirely by financing and storage fees. For firms relying on borrowed capital, the hit can be even harder.
For materials like steel and aluminum, where prices rose sharply in a few weeks, buying ahead appears to have paid off. Price increases significantly outpaced the typical cost of capital and carrying costs, making the strategy a financial win for early movers.
For materials like lumber, however, price volatility between March and May made it difficult to profit from stockpiling. Ahead of the tariffs, contractors rushed to buy, driving March futures up by over $1000 per contract. Prices fell shortly after, before recovering later in the summer.
The spike was short-lived and modest, suggesting that overall demand was weaker than expected. Professionals who bought at the peak were penalized with both higher material prices and the additional carrying costs, while contractors who waited and avoided inflated prices saved on both material and inventory costs.
This tells us that stockpiling only makes sense when future demand is strong and sustained. ConstructConnect’s outlook for the residential sector remains degraded, meaning firms stockpiling lumber for housing may be taking on unnecessary risk. On the other hand, data centers and large infrastructure projects, or megaprojects, continue to show strong growth, making strategic inventory plays for those segments more strategic.
A chart of year-to-date US Construction Starts by Top 25 Subcategories through June 2025. Strategically stockpiling materials that are commonly used in growing subcategories may have less risk than those used in declining subcategories. Image: ConstructConnect Construction Economy Snapshot
For those who missed the opportunity to stock up or are hesitant to take on the risk, a shift in strategy may be necessary to navigate changing material costs.
Diversify your sourcing: Balancing local and international suppliers can help reduce dependency on any one region and mitigate the risks of tariffs, shipping delays, or political disruptions.
Avoid overcommitting on bulk purchases: Rather than buying in bulk, spreading material purchases over time may reduce exposure to price swings while preserving valuable working capital. This approach is similar to how people invest for retirement. Making consistent, incremental investments helps to limit exposure to spikes and troughs in the market.
Explore group buying opportunities: Partnering with other contractors or joining purchasing cooperatives can enable access to bulk pricing and shared storage without tying up as much individual capital. This approach may be particularly helpful among smaller or mid-sized companies.
Every stockpiling decision carries risk, whether from volatile prices or the risk of tying up capital that could be used elsewhere.
The decision to elevate inventories must be evaluated with careful consideration given to these risks, particularly the costs of capital and carrying. If material prices are expected to increase by more than 10-15% and you have the capital and storage flexibility to support it, it may be a smart choice.
However, if the material is volatile or your holding costs are too high, the risk associated with stockpiling may not be worth it, and flexibility and smart contracts may be of more value.
In today’s market, stockpiling will not guarantee a profit; it is a calculated gamble that only pays off when pricing, timing, and liquidity align. In the end, tying up capital in materials may save you on price, but if it limits your ability to fund labor or pursue new projects, the true costs could outweigh the gain.
At ConstructConnect, our software solutions provide the information construction professionals need to start every project on a solid foundation. For more than 100 years, our insights and market intelligence have empowered commercial firms, manufacturers, trade contractors, and architects to make data-driven decisions and maximize productivity.
ConstructConnect is a business unit of Roper Technologies (Nasdaq: ROP), part of the Nasdaq 100, S&P 500, and Fortune 1000.
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