Steel Price Uptick Triggers Rise in Materials Costs for North American Construction Industry in January

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. 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 break-even 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.

Weak Steel

“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.