Engineering & Construction Costs Continue to Rise

Nov. 30, 2021

Engineering and construction costs continued to rise in November, though at a slower rate than in October, according to IHS Markit and the Procurement Executive Group (PEG).

The November 2021 headline IHS Markit PEG Engineering and Construction Cost Index declined from 74.2 in October to 67.4 in November; the sub-index for materials and equipment costs drove the decline, as it dropped 11.6 index points to 65.8. The subcontractor labor index rose 4.4 index points to 70.9 in November.

Shipping rates rose for the fifteenth consecutive month in November, though the sub-index for ocean freight costs from both Europe and Asia to the United States fell to 77.8 from 84.6 and 85.7 respectively, indicating price increases were less widespread than in October. The electrical equipment sub-index also fell to 77.8 in November from 85.7 in October. The sub-index for copper-based wire and cable prices fell to 59.1 from 78.6 last month.

“The rate of increases in nonferrous wire and cable prices are slowly easing into the winter months, in line with easing copper prices. Wire and cable prices remain high due to the robust demand still emerging from the energy and telecommunications end-markets; two major North American manufacturers, Prysmian and Southwire LLC, both reported sales increases confirming the presence of this demand through the third quarter of 2021,” said David Smith, electrical wire and cable analyst, IHS Markit.

“Another pressure on wire and cable prices remains the limited availability for copper on spot and its continued high cost. Copper prices remain volatile, ranging between $9,100 and $10,650 per metric ton on the LME between the end of September and early November," Smith said. "Still, despite this volatility, prices have been trending slowly lower since hitting an all-time high of $10,725 per metric ton in May. Their recent spike back above $10,000 per metric ton reflects an engineered short squeeze in the market and is not related to fundamental tightness.”

The sub-index for current subcontractor labor costs came in at 70.9 in November, an increase from October’s index figure of 66.5. According to survey responses, labor costs continued to rise in all regions of the United States and Canada, particularly in the western region of the United States.

The six-month headline expectations for future construction costs index totaled 76.1 in November, as respondents still expect prices to continue increasing through the middle of 2022. Recording a total much higher than prior months, the six-month expectations index for sub-contractor labor recorded a reading of 94.4, with respondents expecting labor cost to increase robustly in all regions of the United States and Canada. Further, this sub-index total is 14.1 index points higher than last month’s reading of 80.3 and marks the fifteenth consecutive month of readings above 50 for the sub-index.

Some survey respondents still report shortages for materials, especially metals, and difficulty in hiring new workers for projects. Proposal activity has reached its highest index level ever recorded at 81.8 in November.

Source: IHS Markit