CONSTRUCTION SECTOR FACING MORE TOUGH TIMES AHEAD

Rising steel prices could cost the global construction industry an astonishing extra $US 70 billion this year compared to 2010 say UK consultants MEPS International Ltd. This prediction is based on data contained in its new construction sector steel purchasing price index forecast.

The price for steels used in construction has increased steadily from January 2010 through to the first two months of 2011. Over that period the MEPS, US dollar denominated, global construction steel PPI moved up from a figure of 105.4 to 149.2 – a rise of approximately 45 percent.

MEPS predict modest steel price reductions for the remainder of this year. The global construction sector steel Purchase Price Index (PPI) average in 2011 is forecast to reach 142.7 compared to 119.4 over the prior twelve month period. This indicates a steel price hike of 19 percent. A proportion of the substantial increase in the global index can be attributed to weakness of the US currency and there are regional differences but the tendency is for more expensive steel in all areas in 2011 compared to 2010.

Construction demand in most western countries is likely to stay quite weak as private and public investment is not ready available. Oversupply in the housing markets in the EU and North America continues to be a problem. Moreover, the slow growth of the economies in the west and much of Asia is restricting investment in infrastructure and commercial buildings. Rising steel costs will mean lower activity in the construction sectors in these areas.

The Chinese government has pledged to build 7 million affordable houses in 2011. This may be scaled back due to the rising steel prices. Reconstruction in Japan has already started after the recent disaster. The money allocated for this work is likely to have been calculated on the expectation of high steel costs this year.

Source: MEPS - CONSTRUCTION INDUSTRY STEEL PURCHASING PRICE INDEX

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