Industry News

Copper Price Increases and Tightness in Supply Drive Engineering and Construction Costs Higher in March

Engineering and construction costs increased for the fifth consecutive month this month, according to IHS Markit and the Procurement Executives Group (PEG).The headline IHS Markit PEG Engineering and Construction Cost Index for March totaled 79.5, up from a reading of 68.2 in February, indicating widespread engineering and construction costs increases this month. The materials and equipment portion of the index reached 83.3, marking its fourth straight month of reported price increases and an 8.5-point increase from February. The subcontractor labor index came in at 70.5, indicating labor price increases were even more widely felt among respondents than in February.

Survey participants’ responses noted increases for all categories under the materials and equipment sub-index for the third month in a row in March. Costs of ocean freight from both Europe and Asia to the United States increased for the seventh consecutive month. The carbon steel pipe price index rose to a figure of 83.3 in March, an increase of 4.7 points from February. Fabricated structural steel prices also rose 11.9 points from a score of 71.4 to 83.3. Transformer prices recorded their fourth straight month of price increases, up to a sub-index level of 77.3 in March from 66.7 the prior month. Lastly, copper prices continued to increase, notching their eighth consecutive monthly gain.

“We continue to see the copper market as a richly priced one that has seen prices swing by over $800 per metric ton in the past month,” said John Mothersole, director of pricing & purchasing research, IHS Markit. “To be sure, copper’s fundamentals are tight. On the demand side, strong Chinese consumption growth and heavy investor buying have provided significant support; pandemic-related disruptions to mine production and port operations in South America have roiled the market on the supply side. The net result has been a drawdown in visible inventory on all the major exchanges and a takeoff in prices.”

The sub-index for current subcontractor labor costs came in at 70.5 in March, significantly higher than February’s index figure of 52.7. According to survey responses, labor costs rose in all regions of the United States and Canada.

The six-month headline expectations for future construction costs index registered 81.3 in March, displaying respondents’ expectations of continued price increases through the first half of 2021. Both sub-indexes reflected this sentiment, with the materials and equipment sub-index totaling 83.6 this month. The six-month expectations index for subcontractor labor recorded a reading of 76.0 in March, with labor costs still expected to continue increasing in all regions of the United States and Canada.

Most survey responders did not report any shortages for materials and equipment, other than shipping constraints.

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