North American construction costs fall

By Chris Sleight01 April 2015

Construction costs fell March according to a joint study by economic forecaster IHS and the industry body the Procurement Executives Group (PEG). The IHS PEG Engineering and Construction Cost Index (ECCI) stood at 44.7 in March, a slight uptick from February’s record low, but still below the 50 point mark, indicating falling prices.

“The rout in crude oil markets is clearly having a chilling effect on capital expenditure plans,” said Mark Eisinger, senior economist at IHS. “That said, survey respondents remain optimistic that projects are simply being delayed and not cancelled.”

The current materials/equipment index stood at 43.0 in March, an increase from February’s 39.6 result, but still indicating softer prices. Nine of 12 individual components registered falling prices in March, led by copper-based wire and cable, carbon steel pipe, alloy steel pipe, and fabricated structural steel.

Ready-mixed concrete was the outlier in the March survey as the only underlying component showing higher month on month prices. “Three main forces are supporting cement and ready-mix prices in this environment,” said IHS economist Charlie McCarren.

“First, the demand environment is improving, even if not all end markets are steadily progressing.

"Second, since the recession, the cement industry has become more concentrated, improving the remaining cement manufacturers’ leverage over pricing.

"And finally, a wave of potentially costly capex investments will likely hit the cement industry this year as it struggles to comply with the 2010 National Emissions Standards for Hazardous Air Pollutants (NESHAP); the current pricing environment likely reflects the industry’s attempt to co-opt clients into sharing part of the costs.”

The current subcontractor labour index eased further to 48.7 in March, down from 49.0 in February to its softest reading since January 2012. Nearly all regions registered flat labour costs, with Eastern Canada as the only exception posting a slight easing. For the second month in a row, the Southern US did not register higher month-on-month labour costs. Nevertheless, tightness in skilled labour markets was still reported in the Gulf Coast.

The six month headline expectations index dropped to 45.9 in March, a record low following the 48.7 reading in February. For just a third time in survey history, the forward looking index implies falling price expectations over the next six months and is another sign of the weakness in current market conditions.

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