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9 Dec 2020

Real Estate and Construction

Construction Costs, 2021: Accelerating Amid Volatile Iron Prices, Labor Shortages and COVID-19 (Current Issue No.3168)


​The construction industry has experienced a sudden spike in costs at construction sites due to operational adjustments to cope with the coronavirus (COVID-19) pandemic. Such costs include transportation, accommodation and personal protective equipment for workers. KResearch is of the view that COVID-19 preventive measures of construction companies may drive up their construction costs by 0.2-0.5 percent from March 2020 until COVID-19 vaccines are available in the market. In addition, their costs will likely rise by another 0.83 percent as they have to increase the number of shifts to reduce crowding at construction sites while also incurring higher labor costs due to labor shortages. In 2020, overall construction costs may increase approximately 1.03-1.33 percent per project.

In 2021, construction material prices will likely become volatile. These include iron prices, which are projected to soar because of supply shortages in Brazil, the world's leading iron exporting nation, after many iron smelting plants there have closed because of the COVID-19 pandemic. In addition, global demand for iron is projected to increase, especially from China because of its effective measures to combat COVID-19 and economic stimulus measures via the construction of basic infrastructure projects. However, strong demand for iron may ease in 2Q21 because China has implemented a policy to reduce iron shortages by importing more scrap for recycling. Given this, we at KResearch view that construction costs may increase by another 1.41-1.94 percent YoY. However, if iron shortages improve or COVID-19 vaccines are available in the market, construction costs incurred from volatile iron prices and labor shortages may decrease.

Construction companies, therefore, are advised to assess costs and construction procedures in alignment with bidding prices. They should also ensure sufficient cash flow and have new operational guidelines for future construction projects in place. Over the long term, the Thai construction industry should have standards in place to cope with any pandemic and consider using technologies to speed up their construction and reduce crowding at construction sites. 

Real Estate and Construction