EL SEGUNDO, Calif. -- Current construction costs increased for the 32st consecutive month in September, according to IHS (NYSE: IHS) and the Procurement Executives Group (PEG). The headline current IHS PEG Engineering and Construction Cost Index (ECCI) registered 57.8 percent in September, up from 53 percent in August, and by a narrow margin, the highest reading since March 2013.
Broad-based movement in materials and equipment
The materials/equipment component of the ECCI strengthened to 59.0 percent, up 5.5 percent from August. The movement in September was broad based, with all 12 components showing higher prices, following an August reading that showed six components either neutral or falling. Alloy steel pipe registered the highest reading in September, a position it has retained for six of the last eight months. While not widespread, there was noted concern over fabricated structural steel shop capacity, which could indicate tightening lead times and by extension, upward pricing pressure.
“Ready-mix concrete prices also remained elevated in the September survey,” said Charlie McCarren, pricing and purchasing analyst for IHS. “This is in line with August’s anecdotes that higher prices appeared to be mainly focused in the Gulf Region, due to delivery issues and labor contracts.”
Tight availability of qualified welders in U.S. Gulf Coast
The current subcontractor labor index also strengthened to 54.9 percent in September, up from 51.8 percent in August. The U.S. South and Western Canada saw the strongest movements over August. Respondents again expressed concerns over tightness in skilled labor markets in the Gulf Coast region, specifically referencing qualified welders.
“Local employers in the Gulf Coast continue to be worried there won’t be adequate supply of qualified workers, particularly welders, for oil, gas and chemical projects targeted for that region, said Laura Hodges, pricing and purchasing director for IHS. “The processing and refining industries need additional workers to build new facilities, particularly in Louisiana and Texas, over the next two years.”
Hydrocarbon projects contribute to strong expectations for six-month index growth
The six-month headline expectations index grew to 72.4 percent in September, up 4.8 percent over August. Both the materials/equipment and subcontractor labor components showed stronger readings over last month. The materials/equipment portion registered 73.7 percent, with pockets of strength again focused in alloy pipe and ready-mix concrete. Expectations for subcontractor labor registered 69.4 percent, up from 64.5 percent in August. The regional detail conveyed high expectations in the U.S. South and Western Canada regions, 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
About IHS (www.ihs.com)
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.
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About The Procurement Executives Group (PEG) (http://peg-eci.org/)
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.