After seven months of falling prices, engineering and construction costs rose in November, according to IHS Markit (NYSE: INFO) and the Procurement Executives Group (PEG). The current headline IHS Markit PEG Engineering and Construction Cost Index registered 50.3 in November. The materials and equipment portion of the index came in below 50, indicating respondents are seeing falling prices in this category. However, the sub-contractor labor portion came in well above 50, indicating respondents are seeing rising prices.
The materials and equipment sub-index recorded the ninth consecutive month of falling prices, with survey respondents reporting price declines for seven out of the 12 components. Copper prices continued rising, marking the fifth month of price increases. For the first time since July, ready-mix concrete prices increased after remaining consistently flat for the past three months. Alloy steel pipe finally crossed the 50-point threshold in November, with an index level of 57.1.
“Alloy pipe prices are rising on higher raw material costs; nickel prices increased more than 40 percent over the second and third quarters and remain elevated, meanwhile molybdenum oxide prices have increased nearly 25 percent since late July,” said Amanda Eglinton, associate director, IHS Markit. “Nickel markets are incredibly bullish and are pricing in very little downside risk, despite rising COVID-19 cases globally and a second round of lockdowns going into effect in parts of Europe and the United States. We expect nickel prices to fall through the end of the year, resulting in a modest pullback in alloy pipe prices in early 2021.”
The sub-index for current subcontractor labor costs registered 54.7 in November. Labor costs increased across all regions in the U.S. and Canada, with the exception of the Midwestern region of the U.S. and Eastern Canada — where prices were flat.
The six-month headline expectations for future construction costs index surpassed the 50-point mark once again in November, at 78.1. Both the materials and equipment sub-index and the labor sub-index again recorded expectations of future price increases. The six-month materials and equipment expectations index rose to 83.8 this month, with respondents expecting higher prices for all 12 components. Expectations for sub-contractor labor came in at 64.8 in November, signaling labor markets tightening in the near future.
In the survey comments, respondents are now reporting more optimism as demand begins to pick up. Still, respondents see no shortages for most categories.
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