IHS : Drop in Oil Prices Leads to Easing of Materials/Equipment Components, Cost Index Finds

"These declines are just starting to push downstream into fabricated material and equipment prices with a further easing of the materials/equipment ECCI quite likely in the months ahead."

Drop in Oil Prices Leads to Easing of Materials/Equipment Components, Cost Index Finds

El Segundo, Calif. (October 30, 2014) - Current construction costs increased for the 33rd

consecutive month in October, according to IHS (NYSE: IHS) and the Procurement Executives Group (PEG). The headline current IHS PEG Engineering and Construction Cost Index (ECCI) eased to 54.5 percent in October, down from 57.8 percent in September.

Cost pressures for materials and equipment are dialed back after a strong September

The materials/equipment component of the ECCI registered 53.0 in October, down 6.0 percent from last month, but still showing higher prices on balance. However, there was a noticeable change in sentiment in October, with all 12 components easing relative to the robust September reading. Four components showed falling prices in October - the most since December 2013, with the weakest reading coming in the copper-based wire and cable index. 

"The weakness in commodity prices since the start of September reflects a general softness in demand and, in particular, the lackluster performance of the big emerging markets, which have been the source of demand growth for the past decade," says John Mothersole, research director for IHS Pricing and Purchasing Service. "These declines are just starting to push downstream into fabricated material and equipment prices with a further easing of the materials/equipment ECCI quite likely in the months ahead." 

Continued concern around availability of qualified welders

The current subcontractor labor index strengthened to 58 percent in October, up from 54.9 percent in September.  Regions that experienced elevated readings included Western Canada and the U.S. South and Northeast. Respondents again expressed concern over tightness in skilled labor markets in the Gulf Coast and Alberta regions, specifically in reference to qualified welders.

Strong, near-term expectations for hydrocarbon projects in U.S. South

The six-month headline expectations index eased to 70.8 percent in October, down 1.6 percent from last month. The sub-indexes were split, with the materials/equipment portion downshifting and the subcontractor labor component strengthening. The materials/equipment portion registered 68.3 percent, with readings softening across the board, albeit still well above the neutral threshold and thus indicating higher expected prices. The regional detail conveyed strong expectations in the U.S. South for projects in the hydrocarbon sector to accelerate during 2015. 

About the ECCI

The IHS PEG Engineering and Construction Cost Index (ECCI) is based on data independently obtained and compiled by IHS from the procurement executives of leading engineering, procurement and construction firms. The headline index tracks industry-specific trends and variations, identifying market-turning points for key projects, and is intended to act as a leading indicator for wage and material inflation specific to this industry. 

Each survey response is weighted equally for every $2 billion in spending in North America. Respondents are asked whether prices-either actual paid transactions or company-informed transactions-during the current month for individual materials, equipment, and regional subcontractor rates, were higher, lower or the same as the prior month. 

Respondents are then asked for their six-month pricing expectations among these same subcategories. The results are compiled into diffusion indexes, in which a reading greater than 50 represents upward pricing strength and a reading below 50 represents downward pricing strength. 

To learn more about the new IHS PEG Engineering and Construction Cost Index or to obtain the latest published insight, please visit: www.ihs.com/ecci

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About IHS (www.ihs.com)

IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today's business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs approximately 8,000 people in 31 countries around the world.

IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their respective owners. Copyright © 2014 IHS Inc. All rights reserved.

About The Procurement Executives Group (PEG) (http://peg-eci.org/)

The Procurement Executives Group provides a forum to identify and address procurement related issues which will improve the effectiveness of the engineering and construction industry.  Established in 1994 the Procurement Executive Group has been recognized as an Industry authority on Procurement, Materials Management, and Subcontracting topics. PEG is actively involved in supporting research efforts related to these topics. PEG Member Companies include AMEC, Bechtel Corporation, Black & Veatch, Burns & McDonnell, CB&I, CH2M HILL, Fluor Corporation, Foster Wheeler USA Corp., Jacobs, KBR, McDermott International, Peter Kiewit Sons, S&B Engineers and Constructors, SNC-Lavalin, Technip USA, URS Corporation, Wood Group Mustang, WorleyParsons, and Zachry.