WASHINGTON, D.C. (September 29, 2021) – The September 2021 headline IHS Markit PEG Engineering and Construction Cost Index decreased 11.4 index-points from August to 65.6, though construction costs continue to rise, according to IHS Markit (NYSE: INFO) and the Procurement Executive Group (PEG). For the eleventh straight month, the materials and equipment sub-index remained above 50, indicating increasing prices, but the sub-index fell 11.2 points from last month to 78.7. The subcontractor labor index registered 61.0, an 11.8 index point decrease from the previous month, indicating a consensus for a decelerating pace of labor costs increasing among respondents.
In September, all individual categories within the materials and equipment index witnessed further consensus price increases. However, certain sub-indices continue to drop further from peak levels experienced earlier in the year. The sub-index for fabricated structural steel has fallen further from a peak level of 100 in July 2021 to 68.8 in September 2021. Even the costs of ocean freight from both Europe and Asia to the United States have fallen further from peak sub-index levels. Still, both sub-indices have continued increasing (passed the 50-mark) for well over a continuous calendar year, though the pace of price increases are slowing. The sub-index for the Asia to United States route fell from a level of 100.0 to 95.0, while the sub-index for the Europe to United States route fell from 100.0 to 88.9. The sub-index for copper-based wire and cable prices have fallen further to 50.0 in September from a peak of 87.5 in July, though still a sign of expansion in consensus price levels.
“Copper prices are still at historically elevated levels. We are ending the month at input costs still above $9,000/metric ton on the LME for the nonferrous metal. Prior to the pandemic, manufacturers faced copper prices almost $2,000/metric ton less in comparison,” according to David Smith, economist and electro-industry analyst, Pricing & Purchasing, IHS Markit. “Unfortunately, buyers should not expect to see any further, significant downward movement in copper prices until the middle of 2022. Copper’s fundamentals are tight now and look to remain tight in the long-term given strong demand growth linked to the transition in energy markets. Inventories remain high, but are falling as Latin American copper production remains below pre-pandemic output levels. However, mine capacity through 2023 looks sufficient to meet anticipated near-term demand growth. Further, other input costs are maintaining upward pressure from upstream as well- particularly polymer fittings for wire and cables. The cost of polymer grade propylene in the United States increased nearly 80 percent quarter on quarter in the fourth quarter of 2020. These contract prices jumped another near 20 percent quarter on quarter in the second quarter of 2021 as well. As nonferrous wire and cable producers struggle to acquire these inputs, they will have to deal with the prolonged, lagged cost of copper and polymer inputs per pound until near the third quarter of 2022 at least. Producers in Europe and Asia appear to be faring better with the level of input cost escalations.”
The sub-index for current subcontractor labor costs came in at 61.0 in September, another decline from August’s index figure of 72.8. According to survey responses, labor costs continued to expand in all regions of the United States and Canada.
However, the six-month headline expectations for future construction costs index measured 60.6 in September, as respondents still expect prices to continue increasing into the first quarter of 2022. Yet, many of the sub-indices are showing measures much lower than 50.0. As reference, measures above 50 indicate expectations of higher input costs over the next six months. These sub-index totals are indicating that survey respondents are beginning to expect less input cost inflation than observed earlier in 2021. The fabricated structural steel sub-index dropped again from 50.0 in July 2021 to 43.8 in September. Carbon steel prices are still expected to decline over the next six months, as the sub-index recorded a point total of 40.6 this month after dropping to 45.0 in July 2021. Carbon alloy steel prices are expected to decline over the next six months as well. The sub-index for this category fell from 50.0 in July 2021 to 40.0 in September.
The six-month expectations index for sub-contractor labor recorded a reading of 68.7, as labor costs are expected to continue increasing in all regions of the United States and Canada. Further, this sub-index total is 4.6 index points higher than last month’s reading of 64.1.
Most survey respondents did not report any shortages for materials and equipment currently, though some respondents are reporting shortages for electronic components and computer chips. Respondents still note extremely high freight rates, delays for orders, and limited container availability.
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