The IHS and Procurement Executives Group just released the IHS PEG Engineering and Construction Cost Index. The index fell to 52.7% in December from 53% in November, putting the month’s total among the lowest for 2014. But don’t let these numbers fool you. December’s numbers notwithstanding, 2014 brought more cost increases than price drops.
The latest materials/equipment price index reached 50.2%, its lowest reading since June 2013, putting the rate a bit higher than flat prices. Around 50% of individual components registered neutral price ratings. Strongly performing subcomponents structural steel and ready-mix concrete were offset by falling freight costs. Although the majority of subcomponents are expected to strengthen, expectations for freight rates and copper wire/cable have fallen below the neutral mark. These decreases are the latest in a 3-month trend of falling price pressure in the subcomponent market.
However, the Index shows that the materials/equipment rate for 2014 overall was higher than past years. Steel-related products were the bellwether for shifts in the index last year. Especially important was alloy steel pipe, which suffered from a rollback in nickel production caused by political tensions in Indonesia and Russia. According to Research Director for the IHS Pricing and Purchasing service, “Prices for alloyed steel pipe and fabricated structural steel stayed stubbornly high throughout the year, with ready-mix concrete being another source of pricing strength,” he says, adding that, “on the flip side, copper-based wire and cable saw the highest frequency of falling prices of any component in 2014, driven largely by concerns over Chinese growth and a market surplus.”
Labor proved to be a major source of cost increase as well. The subcontractor labor index rose to 58.6% in December, a 5.2% gain over the previous month. The South continues to register the highest index ratings of all regions nationwide, with the Gulf Coast region being the tightest. Welders and pipefitters are the two most in-demand trades.