Global cost review: Materials world

23 December 2005
With most of the construction economies in buoyant form, costs are rising across the world. But nowhere as quickly as the GCC.

Resources costs are a reflection of the pressures affecting contractors in all markets. As with 2004, the big story affecting construction in the West has been the cost of raw materials. Talk of a crisis in connection with the price and availability of steel has been replaced by concerns about the long-term impact of oil price fluctuations. The impact of oil price hikes has varied significantly across the globe. In the UK, fuel is heavily taxed, which has cushioned the blow of increases in spot market rates. Contractors in the US, on the other hand, have experienced wild fluctuations during the year, peaking at around $0.80 a gallon in October 2005.

The effect of uncertainty in the cost of inputs has also been felt in the steel market. Prices in the UK have fallen markedly, and steel remains a highly competitive structural solution. By contrast, contractors in the US have retained substantial risk margins in their pricing of steel due to perceived uncertainty over both price and availability.

In China, prices over the past year have generally been stable, with no change in structural steel costs and reductions in the costs of both concrete and steel reinforcing bar (rebar). In India, however, the emerging picture is one of substantial increases in labour costs, albeit from a low base. In spite of the low intensity of labour utilisation, sustained labour cost inflation may have a significant impact on future overall building costs.

Labour costs have also risen substantially in the UK, on the basis of long-term agreed wage deals. Labour costs are the most significant component of inflationary pressure in the UK and the outcome of the next long-term wage round, to be finalised in June 2006, will have significant consequences for an industry gearing up for Olympic gold.

Simon Rawlinson, head of research, Davis Langdon

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