Copper Plunge Continues to Restrain Price Pressure in North American Construction Market

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Tuesday, April 29, 2014 4:06 pm EDT

"While copper prices have recovered from their lows in March because of short covering and seasonal buying, they are still headed down over the near term"

Copper Plunge Continues to Restrain Price Pressure in North American Construction Market

El Segundo, Calif. (April 29, 2014)—Fear of a disorderly liquidation of Chinese copper stocks  is continuing to undercut prices in the North American construction industry this month, as the impact of the selloff moves downstream, according to IHS (NYSE: IHS) and the Procurement Executives Group (PEG).

The materials/equipment component of the IHS PEG Engineering and Construction Cost Index (ECCI) totaled 52.4 percent in April, compared to 51.5 percent in March. While up slightly, the ECCI materials/equipment component remains at a low level—near the 50 percent threshold that represents the boundary between prices rising and prices falling, as presented in the attached figure.

Continuing the trends from the last few months, the construction industry is still seeing a lack of upward pressure on the equipment and materials side,” said Laura Hodges, director of the Pricing and Purchasing Service at IHS. “The impact of the copper price decline in previous months now is moving downstream to impact items that employ the metal, including wire, cable and transformers.”

Chinese cash out of copper caches

Chinese manufacturers in recent years accumulated large stockpiles of copper to use as collateral to fund investments. However, tightening credit conditions are undercutting the attractiveness of these so-called copper financing deals, creating anxiety in the global copper market that large blocks of metal will suddenly be released back into the market. This fear has triggered a sharp sell-off, which is having a worldwide impact, affecting far-flung markets including the North American construction business.

“While copper prices have recovered from their lows in March because of short covering and seasonal buying, they are still headed down over the near term,” said John Mothersole, research director of the Pricing and Purchasing Service at IHS. “Fundamental analysis by IHS continues to show strong mine production growth combined with a widening surplus, which should progressively weigh on prices during the next year and a half.”

Pricing for copper-based wire and cable in April dropped to the lowest level since October 2011. Prices also decreased for pumps, compressors and transformers. Altogether, these decreases offset increases in other areas, preventing the materials/equipment component from attaining any strong upward momentum.

Softer labor costs?

The other segment of the ECCI—the subcontractor labor index—declined to 52.3 percent in April, down from 54.7 in March.

“The easing in the subcontractor index belied reports of tight availability of construction labor in Western Canada and the Gulf Coast regions,” Hodges noted. “Despite the downward move, respondents in these regions again expressed concern regarding tightness in skilled labor, specifically for qualified welders in April.”

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:

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About IHS (

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 more than 8,000 people in 31 countries around the world.


IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their respective owners. Copyright © 2014 IHS Inc. All rights reserved.


About The Procurement Executives Group (PEG) (

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.

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