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29 Dec 2020

Econ Digest

Construction costs continue to surge in the first half of 2021

         KResearch views that overall construction costs may increase by approximately 1.03-1.33% per project in 2020, as COVID-19 preventive measures may drive up construction costs by 0.2-0.5% per project while labor costs will rise by another 0.83% per project due to labor shortages.  

         In 2021, measures to prevent and control the COVID-19 pandemic will lead to volatility in construction material prices due to shortages of iron ore supply from Brazil, the world's leading iron ore exporter. This, coupled with China’s rapid containment of the COVID-19 pandemic and the introduction of economic stimulus measures via infrastructure development, will drive up the global steel demand and bring about a subsequent rise in steel prices. This situation is likely to ease in the second quarter of 2021, because China has implemented policies to reduce iron shortages by importing scrap for steel casting and the use of iron ore. As a result, KResearch views that construction costs during the first half of 2021 may increase by 1.41-1.94% YoY, mainly due to higher steel prices. However, if the iron ore shortages improve or COVID-19 vaccines are widely inoculated, it may mitigate the costs incurred from volatile steel prices and labor shortages.

         Constructors should assess costs and construction processes to reflect higher costs in future bid prices. They should also prepare sufficient cash flow and new construction methods for the construction of future projects. Over the long term, the Thai construction industry should address the standards to cope with any pandemic and consider using technologies to speed up their construction and reduce the density of personnel on construction sites.

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Econ Digest