August 3, 2012
Canadian Construction Material Costs were Placid in June (Part 2)
CanaData calculates construction material cost movements based on the Industrial Product Price Index (IPPI) and Raw Materials Price Index (RMPI) publication from Statistics Canada.
The overall construction material cost index is comprised of three sub-indices: residential, non-residential building and engineering.
Each of these is made up of components (lumber, steel, cement, concrete, etc.) weighted according to their usage in the specific construction category.
The most significant component price movements were laid out in Part 1 of this article. The purpose of Part 2 is to show – in graph form – the history of the four key series.
Anyone who’s been in the construction industry for a while knows that it’s characterized by wider swings than other sectors – both in terms of activity levels and bid prices.
The latter are partly a function of current and estimated costs.
The graphs offer confirmation. While residential material costs have been mostly flat for six years, due to comatose U.S. housing starts, both non-residential building and engineering construction have seen two major spikes.
They were based in 2004 and 2008. The emergence of the Chinese economic dragon has led to occasional outbreaks of rapid commodity price increases. Iron ore, steel, cement and copper have all taken flight at one time or another.
Adding to the effect, political tensions in the Middle East have intermittently sent world oil prices skyrocketing.
Right now, conditions are relatively quiet. Europe is struggling to find a growth path out of its debt problems and China is licking its wounds, inflicted by lower export sales.
The building material cost push is in hiatus. History has shown this won’t last forever.
Chart: Reed Construction Data - CanaData.