"In most markets, these industries are keeping up with demand, which remains subpar. However, in the Gulf Coast especially, many producers have a tough time keeping pace with the swelling tide in demand."
Cement and Ready-Mix Prices Remain Elevated, Especially in Gulf Coast, IHS Report Finds
El Segundo, Calif. (August 27, 2014) — Current construction costs rose for the 31st consecutive month in August according to IHS (NYSE: IHS) and the Procurement Executives Group (PEG). The headline current IHS PEG Engineering and Construction Cost Index (ECCI) registered 53.0 percent in August, softer than the July reading, but still in positive territory.
Materials and equipment prices soften
The materials/equipment component of the ECCI eased to 53.5 percent, down 4 percent from the July reading. In August, six of the 12 components of the materials and equipment categories showed higher prices. However, of the remaining components, five registered neutral prices relative to July. Fabricated steel strengthened, while alloy steel pipe and ready-mix concrete have remained elevated since May.
According to survey respondents, higher concrete prices appear to be mostly focused in the Gulf Coast region due to a number of factors, including delivery issues and labor constraints. Although nationally, the cement and concrete markets appear well supplied, pockets of tightness are developing, said Charles McCarren, pricing and purchasing analyst for IHS.
“Unfortunately, the cement and ready-mix industries continue to struggle with fallout from the Great Recession and the collapse in construction activity in 2008 and 2009,” McCarren said. “In most markets, these industries are keeping up with demand, which remains subpar. However, in the Gulf Coast especially, many producers have a tough time keeping pace with the swelling tide in demand.
“Utilization rates in Texas and other Gulf states remain among the highest in the nation,” McCarren continued. “Although we expect a supply response to eventually relieve some of the pressure, it would not be unreasonable to expect (cement and ready-mix concrete) prices there to continue escalating in the single digits over the next year, or almost twice the national average.”
Lack of qualified welders, among others, still a concern in labor market
The current subcontractor labor market index dropped to 51.8 percent in August, down from 52.3 percent in July. While still rising, this is the lowest reading for the current labor index since January 2012. The majority of regions registered neutral prices relative to July. Nevertheless, respondents again expressed concern over tightness in skilled labor markets in the Gulf Coast region, specifically referencing the tight market for qualified welders.
Six-month index shows strong expectations in U.S. South
The six-month headline expectations index sagged to 67.6 percent in August, down from the second-highest reading on record in July. This reflected softer readings in both the materials/equipment and subcontractor labor subcomponents of the index. The materials/equipment portion came in at 68.9 percent, with pockets of strength focused in alloy pipe and ready-mix concrete. Expectations for subcontracted labor registered 64.5 percent, down from 74.8 percent in July. The regional detail conveyed strong expectations in the U.S. South region, driven by expectations for projects in the hydrocarbon sector to accelerate over the second half of this year and into 2015.
About the ECCI
The IHS PEG Engineering and Construction Cost Index (ECCI) is based on data independently obtained and compiled by IHS from the procurement executives of leading engineering, procurement and construction firms. The headline index tracks industry-specific trends and variations, identifying market-turning points for key projects, and is intended to act as a leading indicator for wage and material inflation specific to this industry.
Each survey response is weighted equally for every $2 billion in spending in North America. Respondents are asked whether prices—either actual paid transactions or company-informed transactions—during the current month for individual materials, equipment, and regional subcontractor rates, were higher, lower or the same as the prior month.
Respondents are then asked for their six-month pricing expectations among these same subcategories. The results are compiled into diffusion indexes, in which a reading greater than 50 represents upward pricing strength and a reading below 50 represents downward pricing strength.
To learn more about the new IHS PEG Engineering and Construction Cost Index or to obtain the latest published insight, please visit: www.ihs.com/ecci
IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today's business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs approximately 8,000 people in 31 countries around the world.
The Procurement Executives Group provides a forum to identify and address procurement related issues which will improve the effectiveness of the engineering and construction industry. Established in 1994 the Procurement Executive Group has been recognized as an Industry authority on Procurement, Materials Management, and Subcontracting topics. PEG is actively involved in supporting research efforts related to these topics. PEG Member Companies include AMEC, Bechtel Corporation, Black & Veatch, Burns & McDonnell, CB&I, CH2M HILL, Fluor Corporation, Foster Wheeler USA Corp., Jacobs, KBR, McDermott International, Peter Kiewit Sons, S&B Engineers and Constructors, SNC-Lavalin, Technip USA, URS Corporation, Wood Group Mustang, WorleyParsons, and Zachry.