2012 Business Plan A Weak Recovery Checks Inflation 23 830 56 BPlan 2012Library Ch3 4th Qrt Forcast
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[ 4Q Cost Report ] Forecast By Tim Grogan with Bruce Buckley Treading Water A Weak Recovery Checks Inflation N o more federal stimulus money, no highway bill, a weak economic recovery, a stalled housing market, a nonresidential building market yet to bottom out, gridlock in government, continued high unemployment—it could add up to no inflation in 2011. That is about as simple as a cost forecast can be. Inflation? Not so much. Engineering News-Record expects its Building Cost Index to increase just 1.3% next year after rising 3.6% in a difficult 2010 market. ENR projects its Construction Cost Index to increase 2.0% in 2011 following this year’s 3.6% gain. The accuracy of ENR’s forecast is heavily influenced by union wage settlements, which account for 80% of the CCI and 65% of the BCI. With the economy still limping along and construction starts in a slump, there is little confidence that labor wages and benefits could improve significantly in 2011. Union settlements through 2011 will see an average increase of 3%, according to the Construction Labor Research Council, Washington, D.C. Bob Gasperow, president of the CLRC, notes that some of those increases were settled three years ago, before the economic downturn. “Those settlements [from three years ago] are still working through the system,” he says. In light of the downturn, Gasperow ENR’s 2011 Cost Forecast % Chg. notes that short-term deals have been common. “So many one-year deals were negotiated in 2010 that 2011 will be a heavy bargaining year,” he adds. Those agreements will be negotiated under the cloud of historically high unemployment, which in November was still stuck at 18.8% for construction, according to the Bureau of Labor Statistics. Denise Gold, associate general counsel for labor and employment law for the Associated General Contractors of America, says many AGC members expect that 2011 settlements will remain consistent with 2010 levels. A year ago, ENR predicted that the skilled labor component of the BCI would increase 3.0%; it ended the year with a 3.3% gain. The labor component of the CCI was projected to increase 3.3% this year but ended 2010 with a 3.5% gain. Next year, ENR believes wage settlements will be hard-pressed to match the 3.0% increase already agreed to in multi- Materials Price Inflation Through 2012 2010 2011 09-11 10-11 2007 2008 2009 2010 2011 Building Cost Index 4969.92 5032.60 +3.6 +1.3 ASPHALT PAVING 9.2 22.3 0.7 4.6 0.9 1.2 SkILLLED LABER INDEX 8634.23 8893.26 +3.3 +3.0 CEMENT 5.4 –0.3 –1.7 –5.3 0.3 3.9 47.92 49.36 +3.3 +3.0 REINFORCING BARS 12.3 38.6 –36.8 13.9 –2.6 9.9 2.9 3.2 3.6 –0.3 2.6 3.2 3.1 Wage, $/hr. 2012 8952.40 9127.36 +3.6 +2.0 CONSt. MACHINERY 19103.29 19657.29 +3.5 +2.9 FABRICATED PIPE –1.3 7.6 5.2 11.8 1.1 36.30 37.35 +3.5 +2.9 GYPSUM PRODUCTS –15,2 –9.8 –0.6 –2.6 –0.9 3.5 MATERIALS COST INDEX 2730.89 2673.54 +4.3 – 2.1 LUMBER, SOFTWOOD –9.9 –8.4 –9.5 13.1 –0.4 10.8 PORTLAND CEMENT, ton 102.62 102.11 – 0.9 +0.5 PLYWOOD 2.0 –0.7 –6.3 8.4 –1.0 7.0 LUMBER, 2X4, mbf 396.27 390.33 – 2.1 +1.5 AGGREGATES 8.7 6.6 4.6 1.1 0.5 1.8 45.85 44.70 +5.5 –2.5 SHEET-METAL WORK 3.1 6.1 –2.7 –0.6 –0.8 4.1 STRUCTURALS, STEEL 16.4 31.3 –26.6 0.8 –2.5 3.3 CONST. COST INDEX COMON LABOR INDEX Wage, $/hr. STRUCTURAL STEEL, CWT ENR’s Cost indexes forecasted to December 2010; Percent changes are December vs. December. 52 ENR Source: IHS GLOBAl INSIGHT INC., NOTE: ESCALATION RATES ARE ANNUAL AVERAGES December 27, 2010 enr.com ENR12272010QCR_For.indd 52 12/20/10 9:00:58 PM year contracts. ENR’s forecast is for the labor component of the BCI to increase 3.0% next year, while the CCI’s labor component is expected at 2.9%. The materials component of ENR’s cost indexes is expected to see little inflationary pressure next year. The most common themes voiced by economist interviewed by ENR were that prices were “bottoming out, flat or trending sideways.” In ENR’s forecast, that translates to a 2.1% decline in the MCI, which increased 4.3% this year. The Portland Cement Association, Skokie, Ill., forecast that cement consumption in 2011 will inch up just 1.4%, following a 27% decline in 2009 and a mere 0.3% gain this year. That will not be enough to budge prices. The forecasting firm IHS Global Insight, Washington., D.C., predicts that cement prices will increase just 0.3% next year after falling the previous three years. Overall, ENR’s forecast calls for a 0.5% decline in cement prices. Lumber prices, which experienced some volatile swings this year, are expected to be relatively calm in 2011. The composite lumber price tracked by the Bedford, Mass.-based forecasting firm RISI peaked last April at $357 per thousand board ft, which was up 85% from the previous year. By this month, that price was back down to $263. “After some seasonal movement we expect prices to end next year at $260,” says Robert Berg, an RISI economist. “The industry is operating at 60% capacity, and that won’t get above 70% next year,” he says. “It’s hard to sustain price increases in that environment.” ENR’s forecast calls for lumber prices to decline 1.5% next year. Steel prices will also trend sideways in 2011, says John Anton, analyst for Global Insight. He says scrap prices are very high right now. “Demand is so bad that scrap prices should come down and with it prices for structural steel.” He says prices have already fallen from a peak of $736 a ton last summer and expects prices to hit $664 a ton by the fourth quarter of next year. ENR’s forecast calls for 2.5% decline in steel prices. n Builders’ Construction Cost Indexes oct. NAME, AREA AND TYPE 2009 GENERAL-PURPOSE COST INDEXES jan. april 2010 july 2010 oct. % CHANGE 2010 2010 QUARTER ENR 20-City: Construction Cost1 800.28 806.22 807.76 823.31 830.46 +0.9 ENR 20-City: Building Cost1 704.84 710.53 712.93 726.72 732.20 +0.8 +3.9 BuRec: General Buildings2 305.00 307.00 314.00 316.00 317.00 +0.3 +3.9 — 283.00 — 278.00 na na na 823.52 824.50 822.23 830.56 836.42p +1.0 +1.8 FM Global: Industrial3 LSI, Sierra West: Material/Labor1 +3.8 Means: Construction Cost4 181.00 181.60 182.30 183.50 184.00 +0.3 +1.7 ECC, Edwartoski Cost Consulting5 160.05 160.55 na na na na na SELLING PRICE INDEXES—BUILDING LSI, Sierra West: Subcontractor1 912.07 888.65 883.30 870.60 870.51p –1.2 Turner: General Building1 803.00 799.00 798.00 798.00 801.00 +0.4 –0.3 Rider Levett Bucknall6 142.48 141.80 142.21 142.58 142.60 0.0 +0.1 –4.9 SPECIAL-PURPOSE BUILDING COST INDEXES U.S. Commerce: One-Family House7 97.20 97.80 95.70 96.00 96.70 +0.3 – 0.5 U.S. Commerce: New Warehouses7 123.80 123.50 123.30 123.60 124.10 +0.4 +0.2 U.S. Commerce: New School Buildings7 130.40 131.10 132.00 131.80 131.90 +0.4 +1.2 U.S. Commerce: New Office Buildings7 112.70 112.60 112.20 112.60 112.30 – 0.1 – 0.4 PowerAdvocate: Powerplant8 170.60 172.20 173.90 175.50 175.60 +0.1 +2.9 1BASE: 1967=100; 2BASE: 1977=100; 3BASE: 1980=100; 4BASE: 1993=100; 5formerly Smith group, 1992=100; 6BASE: APRIL 2001=100; 7BASE: 1992=100; 8Powerplant for a 550-MW Combined-Cycle Facility. P=PRELIMINARy represents September DATa for LSI. Construction Materials Price Movement in 2010 june july aug. sep. AGGREGATES apr. may Monthly % chg. Annual % chg. +0.2 +0.1 +0.4 +0.6 –0.2 +0.6 –0.1 +0.6 +0.7 +1.5 +0.6 +1.8 –0.5 +2.1 ALUMINUM SHEET Monthly % chg. Annual % chg. +3.7 +19.7 –1.3 +16.6 –2.8 +13.0 –1.5 +9.8 +2.4 +9.2 +0.9 +7.7 +2.0 +9.9 ASPHALT PAVING Monthly % chg. Annual % chg. +2.1 +8.2 +0.4 +5.8 0.0 +7.8 –0.2 +6.8 –0.4 +5.3 –0.3 +5.5 –0.6 +5.1 CEMENT Monthly % chg. Annual % chg. –0.9 –7.1 –0.7 –6.9 –0.5 –6.1 0.0 –5.3 +0.7 –4.2 –1.1 –5.1 –0.4 –4.9 COPPER PIPE Monthly % chg. Annual % chg. +5.0 +31.0 –5.8 +21.4 –7.0 +14.9 –0.2 +16.5 +6.1 +5.2 +5.4 +5.9 +5.5 +15.4 DIESEL FUEL Monthly % chg. Annual % chg. +6.4 +43.4 –1.8 +41.7 –5.9 +16.1 –1.5 +26.4 +5.8 +13.2 –1.5 +17.8 +7.2 +20.3 DUCTILE IRON PIPE Monthly % chg. Annual % chg. +1.3 +7.4 +2.4 +11.5 0.0 +9.2 +1.1 +10.8 –1.8 +6.6 +0.9 +7.3 +1.7 +8.4 FABRICATED STEEL Monthly % chg. Annual % chg. –0.1 –6.7 –0.1 –5.7 –0.5 –4.6 +0.5 –2.9 +0.1 –2.3 +0.2 –1.0 –0.8 –0.8 GYPSUM PRODUCTS Monthly % chg. +2.2 +2.6 +3.3 –3.6 –0.1 –3.1 +0.6 Annual % chg. –5.8 –2.1 +2.0 +0.6 +0.4 –1.8 +0.5 LUMBER, Softwood Monthly % chg. Annual % chg. +5.2 +28.9 +2.7 +34.5 –9.6 +20.1 –1.9 +10.1 –3.1 +6.8 –1.3 +4.7 –1.1 +4.9 PLYWOOD Monthly % chg. Annual % chg. +8.7 +16.8 +4.1 +21.2 –4.8 +16.2 –0.9 +13.3 –3.6 +8.3 –1.9 +4.7 –1.4 +5.1 PVC PRODUCTS Monthly % chg. Annual % chg. +0.7 +3.6 0.0 +3.3 –0.2 +3.3 –0.5 +2.7 –0.3 +2.9 –0.2 +1.6 +0.7 +2.0 READY-MIX CONCRETE Monthly % chg. Annual % chg. –0.8 –2.8 –0.1 –2.8 0.0 –2.8 –0.5 –3.2 +0.5 –2.0 +0.1 –1.7 –0.1 –1.0 SHEET METAL Monthly % chg. Annual % chg. +0.6 0.0 +0.4 +0.8 –0.2 +1.2 –0.1 +0.7 +0.3 +1.0 –0.1 +1.1 +0.1 +0.3 oct. SOURCE: BUREAU OF LABOR STATISTICS enr.com December 27, 2010 ENR12272010QCR_For.indd 53 YEAR ENR 53 12/20/10 9:00:58 PM [ 4Q Cost Report ] Confidence Index By Gary J. Tulacz Heads of Major Firms Believe Market Is Nearing Stability Industry executives’ consensus on the prospects for recovery: maybe not now, but soon M aybe it is the gains on Wall Street. Maybe it is the recent midterm elections. Maybe it is the general optimism of the construction industry at work. Whatever the reason, major contractors, design firms and subcontractors are feeling decidedly less pessimistic about construction market prospects than they did just three months ago, according to the ENR Construction Industry Confidence Index survey for the fourth quarter of 2010. The ENR Construction Industry Confidence Index (CICI) for the fourth quarter of 2010 spiked to 43 on a scale of 100 from 32 in the third quarter (ENR 9/27 p. 33). An index of 50 would mean a stable market. The 756 executives of large construction and design firms responding to the survey believe that firms continue to be more ENR the market is moving out optimistic about a turnConstruction Industry around in the near term of free fall and may soon Confidence Index be stable. than general contractors The CICI measures or subcontractors (see executives sentiment chart, p. 55). about the current market Applying the CICI forand projections for where mula to individual market it will be in the next three sectors, respondents felt more optimistic in all to six months and over a Up 11 points 12- to 18-month period. markets except for transThe index is based on responses to sur- portation, which remained unchanged at veys sent to more than 3,000 U.S. firms a level of 50. Markets in which responon ENR’s lists of the leading contractors, dents see growth either currently or in the subcontractors and design firms. The cur- near future include health care, rated at rent index is based on a survey conducted 66 on the CICI scale, higher education from Nov. 23 to Dec. 13. (55), petroleum (59), power (67), water/ This quarter, 46% of all respondents sewer/waste (57), and hazardous waste say the market is still in decline, down (56). from 63% in last quarter’s survey. Design Another survey that sees an increase in 43 Outlook for Individual Sectors by Firms Working in Those Markets Currently (%) 3-6 Months (%) No. of Declining Stable Improving Declining Activity Firms Activity Activity Activity Market Stable Activity 12-18 Months (%) Improving Declining Activity Activity Stable Activity Improving Activity 34 Commercial Offices 526 71 27 3 48 46 7 14 52 Distribution/Warehouse 293 54 41 6 35 52 13 12 49 39 Education K-12 406 32 58 10 27 54 19 13 50 37 Entertainment 205 48 43 9 33 56 12 14 57 29 Health Care 475 14 56 31 8 49 43 3 34 63 Higher Education 485 21 62 16 17 54 28 6 45 48 Hotels 332 52 39 9 34 51 15 13 48 39 48 Multi-Unit Residential 273 39 44 17 26 45 29 7 45 Retail 388 57 36 7 40 44 16 12 48 40 Industrial/Manufacturing 373 36 49 16 22 52 25 8 41 51 Transportation 259 30 57 13 24 49 27 9 42 49 Water, Sewer and Waste 243 21 58 21 14 56 30 6 44 49 Power 181 15 53 31 8 43 49 3 22 75 Petroleum 92 20 65 15 7 62 32 3 33 64 103 23 59 17 12 58 30 5 40 55 Environmental/Haz. Waste source: ENR figures may not add up to 100% due to rounding. 54 ENR December 27, 2010 enr.com ENR12272010QCR_Conf.indd 54 12/20/10 8:53:31 PM industry optimism is the most recent CONFINDEX survey, which is about to be released by the Construction Financial Management Association, Princeton, N.J. CFMA polls 200 chief financial officers from general contractors, subcontractors and heavy and civil contractors. “Our CONFINDEX went from 106 to 117 in the fourth quarter,” says Brian Summers, CFMA chief operating officer. How Different Types of Firms View the Overall Market Declining Designers 23% 47% Post-Election Hangover The CICI survey also asked industry ex- 6% 60% 7% Currently 3% 2% 9% 44% 54% 81% 3 Years 9% Currently 48% 17% 3-6 Months Subcontractors 10% 12% 32% 49% 42% 9% Currently 22% 74% 48% 19% 3-6 Months 12-18 Months 12-18 Months 3 Years All 4% 42% 50% 23% 74% 47% 17% 12-18 Months 29% 42% 47% 3-6 Months General Contractors/Construction Managers/ Engineer-Constructors 17% 47% 46% Timing Is Everything Like ENR’s CICI, CFMA’s CONFINDEX dropped in the third quarter, only to rebound strongly in the fourth quarter. “Part of this drop may have been the timing of the survey responses,” says Summers. He notes that both the CICI and CONFINDEX surveys were collected in late August, during a plunge in stock prices and concerns over economic fundamentals, which may account for both indexes’ plunge last quarter. “Wall Street in not a reflection of the construction market, but falling stock prices have a psychological effect on people,” he says. The CONFINDEX is broken down into four indices. The strongest rise in optimism concerned business conditions, which surged from to 129 from 110 on a scale of 200, indicating the belief that the market is ready for a turnaround. However, the survey’s “financial-conditions” index inched up to 105 from 101. The results suggest industry CFOs believe financing may still be a problem in 2011. CICI survey respondents are also worried about project financing. ENR once again asked about client access to capital for project financing. In the fourth quarter, 34.5% of respondents said the credit markets continued to tighten for construction projects over the past six months, while 51.2% said the availability of credit was unchanged during that period. While still troubling, these figures are an improvement over the last quarter when 45.2% respondents said the credit market was continuing to tighten. Improving Stable 3 Years ecutives about the potential impact of the congressional midterm elections. Of the 756 respondents, 401 (53.0%) thought the election would be good for the overall economy, while 64 (8.5%) said it would be bad, and 160 (21.2%) did not believe it would have any impact. When asked about the election’s impact on the construction industry, 40.5% said the industry would benefit, while 12.2% said the impact would be bad; 26.5% said it would have no impact. The favorable response to the midterm elections may have buoyed industry confidence a bit. However, the election may be a double-edged sword. “There are many in the industry who believe that gridlock in Washington [with the Republicans now a majority in the House] is a good thing, but gridlock may hurt companies in the infrastructure sector that are hoping for additional federal funds for sectors like transportation, water and sewer work,” says Anirban Basu, CEO of Baltimore-based economic consultant Sage Policy Group Inc. and an economic 9% 46% 44% 54% 45% 8% Currently 3% 21% 28% 76% 48% 17% 3-6 Months 12-18 Months 3 Years advisor to CFMA. He says partisan politics may further stall bills such as the federal transportation reauthorization bill. Many CICI participants continue to worry about inflation. In this quarter, 52.1% of respondents said they had seen upward price pressure in at least some materials or equipment. Copper and steel were the most frequently mentioned items experiencing price increases, along with concrete, drywall, fuel and petroleumbased products. “These findings are consistent with the November [Producer Price Index] report,” which rose by 0.8%, says Basu. He says that, while materials prices have been creeping up recently, there continues to be heavy competition for work, leading to a further squeeze on profit margins. Summers notes that there is another element for construction firms to consider: staff salaries. “Many top staff people, including CFOs, have gone without raises for two years or more. Now that the market is beginning to brighten a little, they will expect increases.” enr.com December 27, 2010 ENR12272010QCR_Conf.indd 55 ENR 55 12/20/10 8:53:32 PM [ 4Q Cost Report ] Equipment By Mike Larson Why Few Are Debating the New Federal Fuel Economy Rules Estimated Cost Per Truck to Comply With New Standards (2008 dollars) Year 2014 2015 2016 2017 2018 2020 HD Pickups and Vans Vocational $225 $292 $567 $848 $1,411 $1,406 $374 $367 $400 $392 $359 $343 Semi-Tractors $5,896 $5,733 $5,480 $6,150 $5,901 $5,661 Source: EPA, NHTSA. Estimated cost per vehicle for producers in 2008 dollars, class 2b through class 8. 56 ENR (such as dump trucks and concrete mixers) and combination semi-trailers. The targets for all these groups focus on fuel economy, which has a direct impact on greenhouse gas emissions, according to environmental experts. The cuts will kick in with the 2014 model year and run through 2018. They are seen as just the first step in improving fuel economy and reducing greenhouse gas emissions from these kinds of heavy vehicles. The targets would cut heavy-duty pickup and van CO2 emissions by 10% for gasoline engines and 15% for diesels. Vocational trucks would emit 10% less CO2 while increasing fuel economy 20%. Combination trucks would emit 20% less CO2 while using 20% less fuel. Looking for Payback Regulators estimate the program would cost $7.7 billion initially but produce $49 billion in benefits for a net gain of $41 billion over the lifetime of the model-year 2014 to 2018 vehicles. The new technology the trucks will need in order to meet the standards would increase the cost of a typical heavy-duty pickup truck by an estimated 4%, the proposal says. For a typical vocational vehicle, the cost bump is an estimated 1% and about 6% more for a typical combination tractor-trailer truck. How those figures will translate to retail prices is a guess at this point. Despite the anticipated cost increases, the rule could provide payback. Expected fuel efficiency gains ranging from 7% to 20% would pay back most new-truck buyers in one to two years. Buyers whose mileage is considered below daily averages would see payback in four to five years, according to the proposal. Kevin Healy, equipment procurement manager for contractor Skanska USA Civil Northeast Inc., Whitestone, N.Y., PayOff Improved fuel efficiency will help defray the cost of meeting new environmental standards. agrees with the rule but would like to see it simplified. “We need to clean up the air, but the rules for doing it should be simpler and clearer,” he says. Both NRDC and ATA would like to see further steps. “One of the largest opportunities for more savings is to improve trailers, which are not included in this proposal,” says NRDC’s Tonachel. “The technology to boost fuel efficiency with aerodynamic improvements and easierrolling tires already exists, so it wouldn’t take a lot of lead time for manufacturers to employ it.” Borgna says that future rules should concentrate on a 65-mph national speed limit for all vehicles, laws allowing moreproductive truck weights and combinations that safely improve fuel economy, and improvements to the Interstate highway system that will reduce congestion and cut truck idling time. The proposed regulation is in the public comment stage until January 31. After that, EPA and NHTSA will analyze the public input, make any adjustments the agencies feel is warranted, and then make the rule final. n Photo by Mike Larson G etting stakeholders to agree on a clean-air rule is no easy feat. So it may come as a surprise that the equipment industry is getting behind new federal greenhouse-gas targets for big trucks. One reason for the lack of debate is economics. “The new, more-efficient trucks will run more cleanly, and their savings at the fuel pump will far outweigh the cost of the technology needed to create those savings,” says Luke Tonachel, a senior analyst at the Natural Resources Defense Council. Another reason? The needed technology already exists. “The trucking industry supports fuel economy standards that are both economically and technologically feasible as one of several preferred methods in reducing its carbon footprint,” says Brandon Borgna, spokesman for the American Trucking Association. The U.S. Environmental Protection Agency and National Highway Transportation Safety Administration jointly proposed the new rules in October, targeting trucks in Class 2b through Class 8—everything from heavy-duty pickups to tractor-trailers. These categories were previously unregulated in terms of fuel economy. The regulation would divide the trucks into three groups: Heavy Duty pickups and utility vans, vocational trucks December 27, 2010 enr.com ENR12272010QCR_Equ.indd 56 12/20/10 8:51:26 PM Lumber [ 4Q Cost Report ] By Mike Moore Chinese Demand Props Up Prices Exports put a 12% premium on western spruce prices despite a weak domestic market C ontractors on the West Coast may be scratching their heads, asking why lumber prices are rising when they are falling every where else. The answer is China. The Chinese have more than doubled their purchases of lumber from Canada and the U.S. within the last year, according to industry specialist Random Lengths, Eugene, Ore. That demand drives a price disparity in the Pacific Northwest, especially for spruce products, and prices in the rest of the country. “Between 2000 and 2009, western spruce 2 X 4 prices averaged about 12% less than our national composite price,” says Robert Berg, an economist with the Bedford, Mass.-based forecasting firm RISI. “It’s now selling at parity to the composite price, which is a 12% premium, and that strength is really tied to the Chinese market.” Nationwide, RISI’s composite price fell from a peak of $357 per thousand board ft last April to $263 this month. Berg predicts prices will end 2011 at about where they are now (see p. 22). Prices for lumber and logs from the western United States and Canada have jumped more than 25% since July of this year due to Chinese presence in the market, says Random Lengths. “We have had domestic builders and industrial users cancel and postpone projects because of the sharp increases in lumber costs since July,” an executive with a large U.S. lumber distributor said. “Prices could increase another 8 % to 10% within the next few months—who knows? People don’t realize how much product is leaving the continent.” China’s North American purchases have focused on lower grades of lumber, which are destined for use in concrete forms for high-rise construction. But recent purchasing trends have seen more higher-grade lumber included in the Lumber and Panel Prices mix, says Random Lengths. Logs are $450 destined for China’s domestic mills Lumber ($/MBF) to supply the country’s enormous 398 Panel ($/MSF) market for composites, plywood and veneers as well as lumber. 346 The seeds for the unexpected rise in western lumber and logs were 294 sown in 2007 when Russia imposed an export tax on logs. The tax started 242 at 6.5% but quickly increased to 25% 190 by mid-2008. Chinese buyers of J F M A MJ J A S O N DJ F M AM J J A S ON wood fiber then turned to North 2010 2009 SOURCE: RANDOM LENGTHS. American forest products, made douCOMPOSITE PRICE FOR FRAMING LUMBER, PLYWOOD AND OSB PANEL. bly attractive by low prices and a weak dollar. China’s impact on North emerge from the current recession. American prices is further amplified by A key question is whether higher the recession, which drove production North American lumber prices could cuts at West Coast mills. cause Chinese buyers to scale back their China’s potential fiber-supply gap (the purchases from U.S. and Canadian mills. difference between total demand and total This does not appear to be the case, acdomestic supply) is projected to reach ap- cording Random Lengths. Concerns that proximately 150 million cubic meters by the Chinese would pull back when mill 2015, according to a report by Interna- prices for West Coast hemlock hit $260 tional Wood Markets Group of Vancou- per thousand board ft several weeks ago ver, B.C. That volume is more than the were overcome when the price blew entire Canadian timber harvest in 2009—a through that level due to new orders from strong indication that China’s wood im- China. ports must continue to rise in the short- to Russia now is now considering dropmedium-term period to match with pro- ping the log export tax as that country jected consumption. moves toward meeting World Trade Or“China is expected to be the fastest- ganization membership requirements. growing lumber producer, importer and Thanks to China’s soaring demand, the consumer nation in the world over the impact of that move would probably not next half-decade,” says Gerry Van Leeu- be felt until 2012, with little downward wen, vice president of International Wood price movement expected. Markets Group. He forecasts an average Prices for eastern U.S. pine may be annual increase in Chinese lumber con- starting to feel the effects of Chinese buysumption of more than three billion board ing as prices for western Ponderosa Pine ft per year and says that meeting the needs have risen. of its growing middle class will require Trucks and containers in western ports huge raw material imports over the next are also in short supply to move Chinese five years. This fast-paced consumption purchases from the producers to the ports. growth is expected to have a significant This has led to an increase of $10 per impact on global wood demand, especially thousand board feet for lumber deliveries as the major global economies begin to from the northwest to California. n enr.com December 27, 2010 ENR12272010QCR_Lum.indd 57 ENR 57 12/20/10 8:52:31 PM [ 4Q Cost Report ] International By Peter Reina with Tim Grogan Recession Relinquishes Grip On Global Construction Costs Costs continue to fall in six countries with biggest declines in Eastern Europe T he global recession’s vise grip on construction costs is starting to loesen in several countries, according to the London-based international project and costmanagement firm Gardiner & Theobald Inc. The nineteenth annual survey of costs is conducted exclusively for Engineering News-Record. G&T surveys its 51 offices and affiliates worldwide. Of the 28 countries reporting building cost inflation through 2010, all but two saw either a bump in inflation or an easing in de-escalation. Eastern Europe appears to be the hardest hit by the global recession, with four of five countries reporting declining costs for the second consecutive year. However, the declines were less severe, averaging 7.3% this year compared to a 12.6% decline during 2009. In western Europe, building costs continued to decline in Ireland and the United Kingdom, but less sharply than Building Cost Forecast 2011 brazil: São Paulo bulgaria: Sofia Denmark: Copenhagen Egypt: Alexandria Finland: Helsinki France: Paris Hungary: Budapest India: New Delhi Ireland: Dublin Israel: Tel Aviv Italy: Milan THE netherlands: Amsterdam NORWAY: Oslo romania: Bucharest South Africa: Various SWEDEN: Stockholm Turkey: Ankara 6.6 –3.0 0.4 8.1 1.5 2.3 1.0 6.3 –1.2 5.5 1.6 2.1 1.4 10.3 5.7 5.8 9.3 SOURCE: Gardiner & Theobald Inc. NOTE: RATES ARE ANNUAL CHANGE FOR BUILDING TENDER PRICE INFLATION. 58 ENR the previous year. Not counting Portugal, which reported a whopping 13% jump in building costs, the average inflation rate for countries reporting increases rose to 2.2% from 1.1% last year. In other areas of the world, inflation also started to make a modest comeback from the pounding it took from the recession in 2009 (see Asia story, p. 62). Building costs in Egypt bounced back 8.8%, Building Inflation PERCENT CHANGE 2003 2004 2005 2006 2007 2008 2009 2010 3.4 2.2 2.2 –0.6 18.6 –3.4 2.3 5.3 2.7 2.8 5.3 9.0 15.0 8.0 2.4 2.2 1.9 7.1 7.0 16.9 2.5 2.3 3.0 2.9 8.1 20.0 19.7 3.5 35.1 5.0 4.1 6.0 12.0 7.1 4.9 28.5 6.5 4.5 2.2 8.0 –2.6 3.4 –25.4 –15.0 –15.0 –4.5 — –4.7 –11.1 –5.0 — –10.0 –5.0 — 2.2 –9.0 1.5 3.1 0.1 –0.6 –0.2 6.2 1.8 7.8 2.1 2.6 0.5 3.8 4.2 5.3 3.3 4.8 11.2 4.0 5.9 –4.3 0.0 4.0 2.7 –10.4 –1.3 0.8 0.3 –17.1 1.7 0.6 1.2 ITALY: Milan 1.8 THE NETHERLANDS: Amsterdam 1.3 NORWAY: Oslo 2.1 Portugal: Lisbon 3.4 SPAIN: Barcelona 3.3 SWEDEN: Stockholm 2.7 Switzerland: Zurich –2.1 UNITED KINGDOM: London 4.5 4.5 3.2 4.0 15.0 2.4 4.4 1.6 3.4 4.3 0.6 2.9 16.9 3.9 3.4 1.1 5.8 1.6 6.0 4.4 19.7 3.8 6.6 3.3 5.5 2.4 7.2 4.8 7.1 3.6 5.4 4.2 5.9 3.1 4.0 3.3 –3.1 1.4 4.4 3.9 5.8 –4.6 –2.4 0.5 2.1 0.7 2.1 –1.1 –8.6 –8.4 1.6 1.4 2.4 13.0 2.1 6.2 — –4.3 20.8 4.2 11.5 7.4 16.0 23.0 15.7 3.3 0.1 12.2 5.2 13.1 19.5 7.8 6.9 15.0 — 3.6 –3.4 –3.7 –25.0 13.6 0.0 –0.7 7.9 — 1.7 10.0 0.6 –11.7 20.0 — 7.8 1.4 4.8 8.8 11.9 3.9 2.3 — — 7.4 2.1 7.9 0.0 EASTERN EUROPE bulgaria: Sofia Croatia: Zagreb CZECH REPUBLIC: Prague HUNGARY: Budapest POLAND: Warsaw romania: Bucharest SLOVAKIA: Bratislava WESTERN EUROPE FINLAND: Helsinki FRANCE: Paris GERMANY: Berlin IRELAND: Dublin MIDDLE EAST/AFRICA/ASIA/South and North America Argentina: Buenos Aires AUSTRALIA: Melboume Brazil: São Paulo CHINA: Shanghai Hong Kong egypt: Alexandria INDIA: New Delhi israel: Tel Aviv JAPAN: Tokyo Lebanon: Beruit NEW ZEALAND: Auckland SOUTH AFRICA: Various SRI LANKA: Colombo Turkey: Ankara USA: New York City 21.2 5.0 14.4 0.1 2.7 7.6 3.8 2.4 3.5 4.8 1.1 2.5 0.0 34.9 3.1 25.0 4.0 11.3 0.2 2.6 25.4 6.7 4.9 1.9 29.4 10.0 18.1 12.1 20.0 11.0 10.0 3.1 6.5 –4.9 2.6 10.1 8.3 5.9 –2.9 –4.5 3.1 14.3 32.4 12.0 8.1 23.6 3.0 5.0 0.2 5.0 26.0 6.2 3.5 2.0 2.7 5.8 6.8 7.5 8.0 11.7 21.8 3.6 6.4 7.0 11.9 30.0 18.6 3.1 2.3 11.0 4.4 7.3 19.2 9.8 7.5 SOURCE: Gardiner & Theobald Inc. NOTE: Rates are annual change for building tender price inflation. December 27, 2010 enr.com ENR12272010QCR_Inte.indd 58 12/20/10 11:43:39 PM after falling 25% last year. Cost in China and Japan also increased again, after falling in 2009. In New York City, building costs tracked by G&T held steady this year, following 2009’s 11.7% decline. Euro Crisis European construction is now a mixed bag, with some countries experiencing growth while others struggle to avert economic disaster. However, currency turmoil in the euro zone, caused by unsustainable government debt in some countries, is having little or no impact on construction prices, according to cost consultants in the region. The Irish Republic’s recent bailout by European Union countries and the International Monetary Fund has created great uncertainty over construction prospects, says Kevin James of G&T in Dublin. “Everyone is waiting” for the impact of the “unprecedented” $20-billion public spending cuts over the next four years, announced by the government last month, says James. Already, “infrastructure spending is all but gone,” he adds. Contractors are bidding sub-economic prices to keep going. Sales are “down dramatically,” adds James. “Financial robustness of contractors is more important to some clients than the lowest price.” Across the Irish Sea, the U.K.’s construction market “seems to be bumping along the bottom still,” says Gavin Murgatroyd, a G&T partner in London. Prices will be stable to negative in the first half of 2011 and are expected to rise in the second half, he forecasts. Underlying inflationary pressures from rising commodity prices have “not really fed through yet,” adds Murgatroyd. That’s because contractors are bidding so keenly that “they are going into negative margins,” he explains. In continental Europe, the construction market is generally slow, with some exceptions. German construction prices currently are rising, says Jürgen Bartels, a senior project manager with G&T in Berlin. “Every company has a lot [of work] to do,” explains Bartels. Market conditions are similar in eastern and western Germany, but demand is hotter in larger cities, such as Hamburg and Munich, he adds. In Poland, with public finances in relatively good order, “there is a lot of infrastructure work taking place [with] a lot of the money coming from the European Union,” says Jan Holyst, an analyst at G&T in Warsaw. However, infrastructure work fails to compensate for severely depressed building-sector demand, adds Holyst. Polish bid levels “are very competitive at the moment,” he says. But with “glimpses of things maybe starting to pick up,” conditions are better than they were a year ago, he adds. “[The French] have not really had a year of recession,” says G&T’s Chris Gilmore in Paris. “Government spending, which has always been the motor of the general construction market, has been reasonably resilient,” he adds. Nevertheless, competition is stiff, with bid prices “in the region of 7.5% to 10% World Labor Rates COUNTRY BASIC RATES ($/HR) UNSKILLED APPRENTICE SKILLED TOTAL BILLING RATE ($/HR) UNSKILLED APPRENTICE Skilled EASTERN EUROPE CROATIA: Zagreb CZECH REPUBLIC: Prague HUNGARY: Budapest POLAND: Warsaw ROMANIA: Bucharest SLOVAKIA: Bratislava 3.61 6.56 3.84 5.55 2.02 9.07 5.48 15.75 7.73 5.88 3.25 13.62 7.21 27.57 14.69 9.79 4.98 18.55 6.12 13.13 6.64 8.16 3.06 13.07 9.31 26.26 13.74 8.49 4.98 18.16 12.26 44.64 16.40 14.69 6.74 26.66 10.41 14.76 14.36 8.57 19.61 20.75 39.39 21.45 28.99 27.62 12.39 11.33 19.26 21.35 9.88 22.31 23.52 45.97 30.85 28.99 — 14.36 12.52 23.85 24.52 12.52 24.51 26.35 52.56 39.60 30.31 28.78 16.70 18.55 25.05 24.06 14.49 35.50 38.74 43.48 53.79 32.94 54.23 15.85 19.77 32.68 36.59 16.47 40.55 42.69 50.07 63.85 34.26 — 18.37 22.01 40.47 42.56 21.08 44.55 45.72 56.66 69.79 38.21 56.40 22.29 1.16 9.26 0.41 1.05 12.98 20.61 1.92 11.94 0.70 4.97 1.09 1.40 — 0.55 1.16 — 25.02 2.06 18.12 0.82 5.63 1.36 1.65 14.80 0.69 1.33 15.19 28.59 2.47 32.61 0.94 5.96 2.18 1.98 10.68 0.55 1.47 16.57 30.97 2.34 14.57 0.84 6.62 2.18 2.39 — 0.69 1.64 — 37.76 2.61 22.10 0.99 7.28 2.72 2.84 17.11 0.83 1.89 19.88 43.60 2.75 39.78 1.13 8.28 4.36 11.78 2.28 21.93 53.00 34.00 36.40 12.81 2.82 30.07 65.00 42.00 44.84 13.91 4.81 45.91 74.00 53.00 51.39 24.75 6.27 24.15 76.00 54.00 42.22 26.91 7.77 32.17 90.00 68.00 51.57 29.22 13.23 52.46 112.00 85.00 59.10 WESTERN EUROPE CYPRUS: Nicosia FINLAND: Helsinki GERMANY: Berlin GREECE: Athens ireland: Dublin ITALY: Milan NETHERLANDs: Amsterdam NORWAY: Oslo SPAIN: Barcelona SWEDEN: Stockholm UNITED KINGDOM: London MIDDLE EAST/AFRICA/ASIA CHINA: Shanghai Hong Kong india: New Delhi INDONESIA: Jakarta israel: Tel Aviv JAPAN: Tokyo Qatar: Doha SOUTH AFRICA: Durban SrI lanka: Colombo Turkey: Ankara U.A.E.: Dubai NORTH AND SOUTH AMERICA ARGENTINA: Buenos Aires brazil: São Paulo CAYMAN ISLANDS: George Town U.S.: New York City Los Angeles Seattle Source: Gardiner & Theobald Inc. Note: Rates for total billing include guaranteed overtime, statutory and insurance contributions and importation of labor. Rates are based upon a standard work week, which varies. enr.com December 27, 2010 ENR12272010QCR_Inte.indd 59 ENR 59 12/20/10 11:43:40 PM [ 4Q Cost Report ] International below budget,” says Gilmore. Large contractors are bidding low to “cover their overheads,” he adds. Professionals’ fees generally are increasing slightly but falling substantially in the private sector. Sweden is also one of Europe’s better economic performers, says Anders Kivijarvi, chief executive of Stockholm-based cost consultant Bygganalys A.B. But “overall we had a decrease in the [construction] market in 2009 and a small de- crease this year as well,” he adds. The decline in Swedish residential construction has obscured the rise in publicly funded infrastructure work, adds Kivijarvi. But weak demand “has not had a big effect on costs because we are short of resources,” he adds. With the notable exception of Poland, construction market conditions across Eastern Europe are tough. Hungary’s construction market, for example, remains “very depressed,” says Jim McDaid in G&T’s Budapest office. Few commercial building jobs are going forward, he adds. At the same time, residential construction is being hit by a wave of mortgage defaults. Construction prices have dropped since 2008 but now are steadying, says McDaid. “Everybody has stripped out all the fat, all the profit and all the overhead that they can.” n International Commercial and Industrial Building Costs OFFICE INDUSTRIAL BUSINESS PARK Hotel $/SQ FT $/SQ FT $/SQ FT LOW HIGH FLOOR LOW HIGH FLOOR LOW HIGH FLOOR $/SQ FT Low High 135 97 90 89 102 100 92 135 141 137 130 144 129 132 6 20 6 7 — 15 10 51 46 49 54 55 48 49 71 64 85 67 76 52 82 1 1 1 1 — 1 1 116 78 88 79 — 80 82 128 98 132 97 — 98 110 7 1 6 — — 4 5 110 122 117 166 135 153 116 152 183 220 299 174 226 212 10 7 8 5 — 7 7 147 189 236 201 147 196 192 110 224 150 242 175 245 238 295 279 294 257 318 163 368 239 289 321 — 5 5 5 — 5 — — — 10 3 12 110 105 214 67 86 84 88 104 107 77 128 37 184 131 268 134 165 122 212 115 236 138 134 73 — 1 4 1 — 1 — — — — 1 1 122 166 216 147 147 80 257 98 196 132 195 110 196 208 270 209 220 110 379 107 307 214 275 146 — 5 2 4 — 2 — — — — 1 3 220 239 269 202 245 220 273 178 337 220 302 212 282 275 253 336 367 343 404 196 460 312 363 292 — 7 10 6 — 6 — — — — 3 8 86 171 72 62 276 92 153 81 36 9 96 128 234 103 88 364 116 179 123 41 12 132 35 — 10 — 15 14 30 — 8 15 20 45 100 41 50 104 63 96 36 25 4 71 77 151 62 55 199 76 108 71 27 7 104 1 — 2 — 1 1 — — 1 3 — — — 72 50 — 82 166 — 28 7 91 — — 113 55 — 105 191 — 34 8 126 — — 5 — 10 4 — — 2 5 — 145 265 72 82 418 193 217 121 32 8 228 186 322 92 100 554 232 255 169 35 11 304 25 — 15 — 20 18 20 — 14 10 — — 68 252 279 274 255 — 153 375 650 534 715 — 10 6 45 15 45 37 57 76 93 102 105 80 74 95 214 177 230 1 1 1 — 1 — — 65 — 139 153 165 — 153 — 279 348 350 — 3 — — 1 — 102 98 252 269 251 235 115 131 314 595 548 510 10 20 5 40 25 40 Floor EASTERN EUROPE Bulgaria: Sofia croatia: Zagrab CZECH REPUBLIC: Prague HUNGARY: Budapest POLAND: Warsaw ROMANIA: Bucharest SLOVAKIA: Bratislava WESTERN EUROPE CYPRUS: Nicosia FINLAND: Helsinki denmark: Copenhagen GERMANY: Berlin GREECE: Athens Irland: Dublin italy: Milan netherland: Amsterdam NORWAY: Oslo SPAIN: Barcelona SWEDEN: Stockholm UNITED KINGDOM: London MIDDLE EAST/AFRICA/ASIA CHINA: Shanghai Hong Kong INDIA: New Delhi INDONESIA: Jakarta JAPAN: Tokyo lebanon: Beruit qatar: Doha SOUTH AFRICA: Durban srilanka: Colombo turkey: Ankara U.A.E.: Dubai North and South America ARGENTINA: Buenos Aires Brazil: São Paulo CAYMAN ISLANDS: George Town U.S.: New York City Los Angeles Seattle SOURCE: GARDINER & THEOBOLD INC., NEW YORK CITY, LONDON WORLDWIDE. NOTE: OFFICES INCLUDE RAISED FLOORS, CARPETING, SUSPENDED CEILINGS, HVAC, LIGHTING AND POWER, BUT EXCLUDE DRYWALL. OFFICE BUILDING HEIGHT IS TYPICAL OF a MAJOR CITY IN the COUNTRY. INDUSTRIAL BUILDING IS FOR a LARGE, SINGLE-STORY UNIT WITH a STEEL FRAME AND ALUMINUM CLADDING. Business park IS TWO-STORY, WITH A FIRST-FLOOR WAREHOUSE AND SECOND-FLOOR SUITABLE FOR HIGH-TECH WORK.” 60 ENR December 27, 2010 enr.com ENR12272010QCR_Inte.indd 60 12/20/10 11:43:40 PM This is going to be dummy copy for International Materials Prices2the rather complicated master pages 3of REBAR $/TON EASTERN EUROPE BULGARIA: Sofia CZECH REpUBLIC: Prague CROATIA: Zagreb HUNGARY: Budapest POLAND: Warsaw ROMANIA: Bucharest SLOVAKIA: Bratislava AGGREGATE SAND PLASTER it will come to be any 16of the dummy LUMBER BRICKS BLOCKS $/CU YD $1,000 GLASS $/CU YD $/CU YD text that87.00 is included the walls 751.00 55.0017within 11.00 21.00of 350.00 this kind of work 18This is18.00 going 26.00 to be 147.00 1,575.00 126.00 96.00 —dummy 109.00 64.00 21.00 33.00 — 1,616.00 copy 114.00 68.00 15.00 14.00 191.00 for19the rather complicated mas800.00 134.00 62.00 24.00 11.00 232.00 ter pages 20of this magazine. 1,943.00 126.00 58.00 16.00 13.00 184.00 1,131.00 142.00 77.00 13.00 16.00 166.00 196.00 289.00 181.00 203.00 200.00 98.00 212.00 216.00 394.00 528.00 270.00 359.00 415.00 408.00 11.00 22.00 7.00 22.00 18.00 35.00 26.00 6.00 23.00 18.00 31.00 23.00 31.00 22.00 540.00 1,714.00 966.00 1,664.00 527.00 602.00 988.00 1,120.00 1,320.00 1,186.00 1,591.00 944.00 there rivers16.00 nor 158.00 1,054.00 Hopefully, 90.00 69.00 21be no 16.00 544.00 any other stuff 22to interfere with 815.00 685.00 2,769.00 214.00such187.00 27.00 21.00 1,916.00 167.00 16.00 16.00 505.00 359.00 the way the text75.00 23dummy text looks. 2,194.00 265.00 63.00 24.00 27.00 195.00 322.00 There should be 24no paragraph breaks 988.00 72.00 60.00 16.00 16.00 145.00 403.00 and the voices 755.00 175.00 66.00 20.00 22.00 186.00 245.00 masses101.00 to find dummy like 200.00 201.00 1,647.00 25the 179.00 24.00 text 28.00 26this290.00 and make79.00 it look so easy. easy 435.00 378.00 2,240.00 9.00 So 8.00 2,805.00 111.00 19.00 27that231.00 no person would ever know19.00 that 305.00 404.00 2,372.00 158.00 86.00 21.00 22.00 28it took so much effort to create the 94.00 191.00 — 268.00 177.00 18.00 13.00 557.00 1,072.00 29dummy file. And people who find it 1,101.00 142.00 96.00 16.00 16.00 315.00 361.00 632.00 — 721.00 583.00 105.00 573.00 198.00 461.00 1,072.00 182.00 752.00 315.00 13.00 20.00 15.00 25.00 — 6.00 13.00 22.00 36.00 14.00 24.00 46.00 13.00 110.00 50.00 19.00 17.00 45.00 23.00 17.00 62.00 47.00 — 20.00 236.00 — 710.00 636.00 203.00 483.00 89.00 535.00 — 500.00 — — 176.00 83.00 — 100.00 42.00 — 941.00 435.00 12.00 — 269.00 — 132.00 — 3.00 6.00 4.00 4.00 6.00 14.00 8.00 10.00 20.00 10.00 4.00 17.00 10.00 4.00 13.00 7.00 9.00 26.00 17.00 12.00 12.00 138.00 48.00 14.00 19.00 — 928.00 1,481.00 185.00 105.00 — 261.00 — — 143.00 149.00 138.00 136.00 516.00 793.00 — 510.00 420.00 425.00 56.00 7.00 11.00 18.00 18.00 19.00 119.00 61.00 51.00 79.00 71.00 67.00 MIDDLE EAST/AFRICA/ASIA CHINA: Shanghai Hong Kong INDIA: New Delhi INDONESIA: Jakarta Israel: Tel Aviv JAPAN: Tokyo kenya: Nairobi lebanon: Beruit Qatar: Doha SOUTH AFRICA: Durban sri lanka: Colombo Turkey: Ankara U.A.E.: Dubai CEMENT CONCRETE no rivers nor any$/TON other such $/TON stuff to $/TON 5intk $/CU YD $/TON $/TON 552.00 1,050.00 1,155.00 730.00 702.00 1,094.00 1,048.00 WESTERN EUROPE CYPRUS: Nicosia denmark: Copenhagen FINLAND: Helsinki Germany: Berlin greece: Athens Ireland: Dublin Italy: Milan THE netherlands: Amsterdam NORWAY: Oslo SPAIN: Barcelona SWEDEN: Stockholm UNITED KINGDOM: London this magazine. Hopefully, there will 4be STEEL 610.00 664.00 818.00 943.00 815.00 715.00 1,059.00 700.00 687.00 908.00 881.00 573.00 517.00 Subhead 30solace in the complicated master 31people who find solace in the ability 32com973.00 51.00 41.00 10.00 12.00 pose dummy text.—The pages — 77.00 6.00 of 33the 10.00 book comprise dummy copy and 34the 840.00 122.00 76.00 15.00 24.00 1,165.00 54.00will not be 22.00 22.00 notion122.00 of goodness 35what we 2,706.00 181.00 58.00 19.00 think it will come to be any 36of20.00 the 1,191.00 1,863.00 1,150.00 2,748.00 2,760.00 1,514.00 384.00 2,042.00 120.00 179.00 86.00 110.00 174.00 116.00 86.00 79.00 114.00 85.00 63.00 63.00 111.00 63.00 35.00 44.00 28.00 20.00 20.00 21.00 29.00 18.00 10.00 17.00 31.00 17.00 20.00 19.00 23.00 19.00 11.00 33.00 — 5,871.00 4,939.00 1,125.00 1,030.00 937.00 396.00 178.00 190.00 150.00 110.00 101.00 279.00 94.00 193.00 103.00 111.00 99.00 38.00 49.00 42.00 20.00 11.00 12.00 70.00 87.00 45.00 18.00 12.00 11.00 — — 221.00 50.00 — 542.00 — — — 610.00 — 79.00 76.00 NORTH AND SOUTH AMERICA ARGENTINA: Buenos Aires Barazil: São Paulo CAYMAN ISLANDS: George Town U.S.: New York City Los Angeles Seattle 4,810.00 2,936.00 893.00 1,120.00 1,140.00 948.00 SOURCE: GARDINER & THEOBOLD., NEW YORK CITY, LONDON AND WORLDWIDE. NOTES: PRICES INCLUDE DELIVERy TO SITE and LOCAL DISCOUNTS, BUT excludes VAT and LOCAL taxes. PRICE ARE FOR HIGH-YIELD STEEL REBAR, STRUCTURAL STEEL, ALL GRADES of AGGREGATE, COARSE SAND, FRAMING LUMBER, CLAY BRICK, 4-IN. CONCRETE BLOCKS,1⁄4-IN. GLASS. How To Use the International Cost Survey C omparing construction cost data among countries with vastly different economic, political and social systems poses several hazards of which readers should be aware. Due to constantly changing market conditions and fluctuations in exchange rates, the above data should be used for broad “comparative purposes only,” cautions Gardner & Theobald Inc., London. G&T compiled the international constuction-cost survey from its worldwide network of offices and associated companies. All costs were provided in local currency and converted to U.S. dollars using the exchange rates in effect on Dec. 9, 2010. The information on building costs includes contractors’ overhead and equipment costs. enr.com December 27, 2010 ENR12272010QCR_Inte.indd 61 ENR 61 12/20/10 11:43:41 PM [ 4Q Cost Report ] Asia By Tom Nicholson Overseas, Inflation Creeps Back T he global recession knocked down building costs in many Asian countries in 2009, but inflation appears to be making a modest comeback in the region this year. The London-based international cost consultant Gardiner & Theobald Inc. reports that building costs in Shanghai declined 3.4% in 2009 after increasing about 7% in both 2007 and 2008. This year, building costs in Shanghai increased 1.4%, says G&T. In Hong Kong, G&T saw building costs fall 3.7% in 2009 after posting double-digit gains during each of the previous two years. In 2010, building costs in Hong Kong were back up 4.8%, says G&T. The firm reports a similar trend in Japan. In India, building cost escalation is slowly coming under control. It has been declining from an annual rate of 19% in 2007 to 12% for this year, according to G&T’s report. Vietnam is experiencing its own building boom, and Turner Construction Co., New York City, is there working on several projects, ranging in size from 74,500 sq meters to 930,000 sq m. This activity is starting to drive costs up in Vietnam, says Ken Osterland, Turner’s project manager in Hanoi. Osterland says the overall market has been impacted by 12% inflation of the dong, which in turn has had an impact on material prices. In Ho Chi Minh City and Hanoi, Osterland says, contractors face price hikes of 23% for structural steel since last January, which has pushed prices in Vietnam to $792 per tonne. During the same period, Turner saw prices for concrete reinforcing bar go up 19% for medium-sized bar and 13% for larger bar, while prices for cement increased 3%. Local contractors on Turner’s projects “are starting to ask for 5% price-escalation clauses in their contracts as a result of inflation,” says Osterland. China’s relentless growth is starting to push prices back up after 2009’s set-back. Prices for concrete reinforcing bar in Shanghai increased from 3,682 Renminbi per tonne in December 2009 to 4,346 RMB per tonne this December, according to the international cost consultant Rider, Levett and Bucknall, which is headquartered in Phoenix. RLB notes that, during the same period, cement prices in Shanghai went to 398 RMB from 367 RMB per tonne. For rebar in China, “the trends are going up despite a downward adjustment in rebar prices in the middle of this year,” says H.K. Yu, analyst in RLB’s Hong Kong office. “Although the Chinese government has recently implemented stringent measures to curb the rising property market, construction activities in China appear not to have been affected, and there is still a strong demand on construction materials,” he says. On average, cement prices in China this year have risen by about 500 RMB per tonne, says Liu Zuoyi, spokesman for the China Cement Association in Beijing. He cites “increases in demand and production costs, along with electricity-use restrictions imposed by the government this quarter on energy-intensive industries,” as the reasons behind the recent price increases for cement. The same dynamics are also pushing up steel prices in China. Iron-ore prices went from $60 per ton in December 2009 to $170 per ton currently, says Gan Yong, spokesman for the China Iron & Steel Association in Beijing. “Robust global demand plays a role,” says Yong. “This year, steel operations recovered significantly in South Korea and Japan, resulting in a surge in demand for iron ore which remains huge,” he says. Despite higher production costs that impact Chinese steel mills, construction costs in China are being driven by “a demand pull rather than a cost push,” says Peter Morris, an analyst with Londonbased Davis Langdon. “Rising costs in China have everything to do with demand for a limited resource.” n Asian Construction Cost Inflation CHINA % Chg. 8 % Chg. 20 6 16 4 12 2 8 0 4 -2 0 -4 2006 2007 2008 2009 2010 -4 HONG KONG % Chg. INDIA 20 17 14 11 8 2006 2007 2008 2009 2010 5 2006 2007 2008 2009 2010 % Chg. 3.0 2.5 2.0 1.5 1.0 0.5 0 -0.5 -1.0 JAPAN 2006 2007 2008 2009 2010 SOURCE: GARDINER & THEOBALD INC.. ANNUUAL PERCENT CHANGE FOR BUILDING TENDER PRICES. 62 ENR December 27, 2010 enr.com ENR12272010QCR_Asia.indd 62 12/20/10 8:55:05 PM Copyright © 2010, The McGraw-Hill Companies, Inc., ALL RIGHTS RESERVED The information contained herein has been obtained by The McGraw-Hill Companies, Inc. from sources believed to be reliable. However, because of the possibility of human or mechanical error, The McGraw-Hill Companies, Inc. does not guarantee the accuracy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from use of such information. This material is the property of The McGraw-Hill Companies, Inc. (“McGraw-Hill”) or is licensed to McGraw-Hill. This material may not be reproduced, transmitted, or distributed without the express written permission of McGraw-Hill. The user of this material may not commingle any portion of this material with any other information and shall not edit, modify, or alter any portion. 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