Overcapacity in global iron ore production was a major factor in keeping construction costs low through the first four months of 2015. And for the first time in years, subcontractor labor costs showed signs of softening.
Those are two key findings in the latest assessment of current and future pricing from IHS, the Englewood, Colo.-based market analysis firm.
IHS derives its monthly Cost Index from information it receives from member procurement executives working for several of the world’s largest construction and engineering companies, including AECOM and Bechtel. It breaks down those data into current pricing trends and projections for six months forward.
In April, its Cost Index was 46.2, a bit higher than 44.7 in March, but still below what IHS would consider a “neutral” reading. Its sub index for Materials/Equipment costs in April was 44.9 compared to 43.0 in March. And the April sub index for Subcontractor Labor costs stood at 49.1, compared to 48.7 in March.
Procurement execs from some of the world's largest construction and engineering firms report that costs for materials and labor are still falling, and are unlikely to see much inflation for the next six months. Chart: IHS
IHS notes that eight of 12 construction components it tracks registered falling prices in April, led by carbon steel pipe and fabricated structural steel. Both are victims of “bloated capacity, weak profit growth, and lackluster demand,” explains John Anton, IHS’s Director of Steel Services. Iron ore companies that, in response to demand from China’s steel industry, have initiated massive projects whose capacity, so far, “is far ahead of demand,” and is holding prices down.
Anton adds that while the iron ore market may have some ostensible similarities to the recent decline of crude oil prices, what’s different is that iron ore producers have shown no inclinations toward cutting production to match demand. (IHS points out that three quarters of China’s mines are losing money.)
IHS also notes that several global construction and engineering firms, particularly those in the oil and gas sectors, have been taking a “wait and see” approach to investing in larger capital projects. “The capex environment has yet to thaw,” asserts Mark Eisinger, IHS’s senior economist.
While some markets, like the U.S. South, are still experiencing shortages in skilled subcontractor labor, manpower costs have been receding. For the third consecutive month, the U.S. did not register higher month-to-month labor costs in April. And for the first time in this survey’s history, projections about labor costs over the next six months are below the neutral mark. The six-month cost index for subcontractor labor fell to 47.4 in April, compared to 55.2 in March.
The forward-looking index for materials and equipment, at 43.4 April, rose from March’s record low of 41.9, even as 10 of 12 components showed falling price expectations.
Related Stories
Sustainability | Oct 28, 2021
Reducing embodied carbon in construction, with sustainability leader Sarah King
Sustainability leader Sarah King explains how developers and contractors can use the new EC3 software tool to reduce embodied carbon in their buildings.
Cladding and Facade Systems | Oct 26, 2021
14 projects recognized by DOE for high-performance building envelope design
The inaugural class of DOE’s Better Buildings Building Envelope Campaign includes a medical office building that uses hybrid vacuum-insulated glass and a net-zero concrete-and-timber community center.
Giants 400 | Oct 22, 2021
2021 Retail Giants: Top architecture, engineering, and construction firms in the U.S. retail building sector
Gensler, CallisonRTKL, Kimley-Horn, and Whiting-Turner top BD+C's rankings of the nation's largest retail sector architecture, engineering, and construction firms, as reported in the 2021 Giants 400 Report.
Giants 400 | Oct 22, 2021
2021 Industrial Sector Giants: Top architecture, engineering, and construction firms in the U.S. industrial buildings sector
Ware Malcomb, Clayco, Jacobs, and Stantec top BD+C's rankings of the nation's largest industrial buildings sector architecture, engineering, and construction firms, as reported in the 2021 Giants 400 Report.
Giants 400 | Oct 22, 2021
2021 Airport Sector Giants: Top architecture, engineering, and construction firms in the U.S. airport facilities sector
AECOM, Hensel Phelps, PGAL, and Gensler top BD+C's rankings of the nation's largest airport sector architecture, engineering, and construction firms, as reported in the 2021 Giants 400 Report.
Giants 400 | Oct 22, 2021
2021 Sports Facilities Giants: Top architecture, engineering, and construction firms in the U.S. sports and recreation facility sector
AECOM, Populous, Kimley-Horn, and HOK top BD+C's rankings of the nation's largest sports and recreation facility sector architecture, engineering, and construction firms, as reported in the 2021 Giants 400 Report.
Multifamily Housing | Oct 21, 2021
Chicago’s historic Lathrop public housing complex gets new life as mixed-income community
A revitalized New Deal–era public housing community in Chicago brings the Garden City movement of yesteryear into the 21st century.
Sponsored | BD+C University Course | Oct 15, 2021
7 game-changing trends in structural engineering
Here are seven key areas where innovation in structural engineering is driving evolution.
| Oct 14, 2021
Inside the KCI Airport Terminal Workforce Enhancement Program
The construction and development team for Kansas City International airport's new terminal discuss their Strategic Partnership Program to encourage participation by local minority- and women-owned enterprises, and their Work Training Program to train and hire local KC residents for trade jobs on the KCI Terminal project.
| Oct 14, 2021
The future of mass timber construction, with Swinerton's Timberlab
In this exclusive for HorizonTV, BD+C's John Caulfield sat down with three Timberlab leaders to discuss the launch of the firm and what factors will lead to greater mass timber demand.