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
Contractors | Oct 13, 2021
Chicago-based Pepper Construction named the most innovative company in the construction industry
Firm wins AGC Innovation Award for developing a virtual reality safety training program.
Multifamily Housing | Oct 12, 2021
Affordable and sublime: 13 projects that represent the future of affordable housing
These projects prove that it’s possible to develop aesthetically pleasing, high-quality housing for low-income families, the homeless, and veterans.
Building Owners | Oct 12, 2021
6 ways building owners can own their construction projects
Building owners have an important role in executing their capital projects and can greatly increase their project’s chances of success by understanding and actively managing a few key factors.
Green | Oct 6, 2021
My reaction to the UN IPCC Climate Change 2021 report: Ugh!
The recent report of the UN Intergovernmental Panel on Climate Change is not a happy read.
Contractors | Oct 4, 2021
GE Johnson joins DPR Construction
GE Johnson joined the DPR Construction family of companies. This offers both companies strategic growth and employee development opportunities.
Sponsored | Glass and Glazing | Oct 1, 2021
Specifying Responsibly to Save Birds’ Lives
Realizing sustainable, bird-friendly glass design
Sponsored | Glass and Glazing | Oct 1, 2021
Seizing the Daylight with BIPV Glass
Glass has always been an idea generator. Now, it’s also a clean energy generator.
Architects | Sep 30, 2021
Riding the great AEC resignation wave
More people than ever are reconsidering what work and career mean. What can AEC firms do to recruit and retain workers in this changing workplace environment? Karl Feldman, Partner with Hinge Marketing, discusses ideas and strategies with BD+C's John Caulfield in this exclusive interview for HorizonTV.
AEC Business Innovation | Sep 28, 2021
Getting diversity, equity, and inclusion going in AEC firms
As a professional services organization built on attracting the best and brightest talent, VIATechnik relies on finding new ways to do just that. Here are some tips that we’ve learned through our diversity, equity, and inclusion (DE&I) journey.
Contractors | Sep 23, 2021
California office/lab construction site earns world’s first TRUE preconstruction zero-waste certification
Located on a former landfill, the Genesis Marina project site is expected to divert over 90% of its waste from landfills and incineration.