El Segundo, Calif. (Jan. 31, 2014)—Materials and equipment costs for the North American construction industry rose in January as pricing for carbon steel pipe and fabrications increased for the first time in eight months according to IHS Inc. (NYSE: IHS) and the Procurement Executives Group (PEG). However, the price gain does not signal a fundamental shift to the IHS forecast for stable steel pricing in 2014.
The current materials and equipment price index—one of two components of the IHS/Procurement Executives Group (PEG) Engineering and Construction Cost Index (ECCI)—rose to 54.2 percent this month, up from 51.4 percent in December. This represents the highest level for materials and equipment since March 2013, with the index having hovered around the breakeven point of 50 since April 2013.
While the ascent in construction materials and equipment prices was broad-based, the primary factor driving the increase was a jump in steel costs. Notably, eight consecutive months of falling prices for carbon steel pipe came to an end in January. In a similar fashion, pricing for fabricated structural steel also ticked up after falling during November and December. These moves come after a series of modest increases in steel product prices, such as plate.
“Steel prices climbed starting in August through November, which is resulting in increases for pipe and fabricated metals in January,”said John Anton, director of the steel service at IHS. “Despite the upward movement in these fabricated steel products, the current level still is only slightly more than 50 and does not signal a sustained upsurge in steel prices for the North American construction industry. In fact, IHS sees no change to our forecast for flat prices through 2014.”
The attached figure presents the monthly results of the materials/equipment segment of the ECCI. A number higher than 50 indicates a monthly increase in prices paid, while a reading lower than 50 shows a decline.
Steel pricing has been eroded by Chinese mills that are producing excessive quantities of the metal.
Outside of steel, materials and equipment costs rose in most other areas as well, with 10 out of the 12 subcomponents of the index showing higher prices in January. The other component of the ECCI, the current subcontractor labor index, registered 53.8 percent in January, down slightly from 55.2 percent last month and the lowest reading since June 2013.
The overall ECCI showed that current construction costs grew for the 24th consecutive month in January. The index registered 54.1 percent in January, up 1.6 percentage points from December.
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.
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.