MOSCOW (MRC) -- Engineering and construction costs in North America fell in May, with lower prices expected to continue into the fourth quarter of 2020, according to IHS Markit and the Procurement Executives Group (PEG), said Chemweek.
The current headline IHS Markit PEG Engineering and Construction Cost Index (ECCI) registered 38.2 in May, a slight increase compared with last month’s figure of 34.9, but still “well below” the neutral mark of 50, which indicates falling prices, IHS Markit says. The materials and equipment portion of the index came in at 35.0, with the subcontractor portion at 45.7.
The ECCI tracks construction costs for large capital projects in industries including the energy, transportation, communication, mining, and oil and gas sectors in North America. "The widespread declines in equipment prices reflect broad energy industry trends as low oil prices have forced companies to reduce spending, especially on new projects. This had led to lower equipment demand from engineering, procurement, and construction firms that build infrastructure and refining facilities in the energy industry," says Thomas McCartin, senior economist at IHS Markit.
The materials and equipment sub-index recorded a third consecutive month of falling prices, IHS Markit says. Survey respondents reported falling prices for nine out of the 12 components, with only ready-mix prices increasing. Ocean freight prices to the US from Europe and Asia stayed flat.
Index prices for fabricated steel, alloy steel pipe and carbon steel, and copper wire and cable were higher relative to April, although still in contraction territory in May. This illustrates that although the majority of respondents noted falling prices, there were a few responders who registered price increases, it says. On the other hand, index figures for equipment fell relative to April, with falling prices more widely observed in these categories, it adds.
The sub-index for current subcontractor labor costs came in at 45.7 in May, a slight uptick from April’s low of 34.3. Labor costs rose in the US northeast and south but fell in the Midwest and west. Labor costs also declined in both eastern and western Canada, the ECCI shows.
The six-month headline expectations for future construction costs fell in May to 42.0, an all-time low for the ECCI, says IHS Markit. Both the materials/equipment and labor subcomponents recorded expectations for future price decreases. The six-month materials and equipment expectations index came in at 39.9 in May, down from 40.7 in April, with responders expecting falling prices for nine out of 12 categories.
Expectations for subcontractor labor registered 46.9 this month, a slight uptick from 45.2 in April. While the Northeast is expected to see higher labor costs in six months’ time, those costs are expected to stay flat in the South. Labor costs in Canada, the US Midwest, and West are expected to keep falling, according to the ECCI.
Respondents noted in survey comments the lower demand conditions were due to the coronavirus disease 2019 (COVID-19) pandemic. The headline IHS Markit PEG ECCI fell in April for the first time since November 2016, sending engineering and construction costs negative after a period of 41 consecutive monthly increases, due to the impact of COVID-19 since January largely on the energy industry.
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