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Megaprojects, U.S. Construction on Upswing

Friday, July 23, 2010

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Onshore megaproject activity will surge worldwide, and U.S. construction is on the rise--at least for now, according to two new economic projections.

The megaproject outlook in the processing industries is so strong that the boom may strain resources, according to a study by Virginia-based Independent Project Analysis, Inc. (IPA), a global capital project consulting business.

"The projected growth rate of over 30 percent per year in megaproject spending will place a strain on engineering firms, suppliers, and construction resources," IPA reports.

Spending "is expected to be more rapid than in the boom period from 2005 to 2008," it added.

"Global demand, especially in the emerging regions (China, India, Middle East, Brazil, etc.), is a primary driver of the increased number of megaprojects. Also, the rebound in commodity prices (such as oil and metals) will contribute to the economic feasibility of these huge capital investments," IPA said.

The analysis is based on a comprehensive listing of announced megaproject developments from public sources as well as IPA proprietary data, the company said.

The study details spending in engineering services, bulk materials, major equipment, and construction activities: "The ramp-up in these developments represents substantial growth and provides a basis for sustained recovery of the engineer, procure and construct (EPC) market for heavy industrial facilities."

However, it added: "The study finds that the resources available to support these developments are relatively narrow and based in "Tier 1" contractors and major equipment vendors."

U.S. Backlog Indicators Rise

The Associated Builders and Contractors' latest Construction Backlog Indicator (CBI) increased to seven months - a 27 percent increase from January of this year. CBI is a forward-looking indicator that measures the amount of construction work under contract to be completed in the future.

ABC Chief Economist Anirban Basu"Construction backlog continues to edge higher and has generally been on an upward trajectory since late 2009," ABC Chief Economist Anirban Basu said of the data for May.

Still, Basu advised caution, saying it was "not clear whether this level can be sustained."

"While this latest data indicate a broader improvement in nonresidential construction activity, there may be several alarming reasons for the increase, including the financial failure of competitor firms leaving more opportunities for surviving companies, or contractors accepting projects with lower profit margins," Basu said.

"Backlog in the infrastructure category remains relatively high, and there was improvement over the past two months in the commercial/institutional and heavy industrial categories, as well," Basu said.

 

However, it added: "The study finds that the resources available to support these developments are relatively narrow and based in ‘Tier 1’ contractors and major equipment vendors."

Among ABC's findings:

  • Backlog in the commercial and institutional category stood at 7.2 months in April and 6.9 months in May. These figures represent some of the best performances since late-2008.


  • Backlog related to the heavy industrial category is now at 7.86 months - the highest level in the history of the survey.


  • Infrastructure continues to report the lengthiest backlog an 8.75 months; however, the May backlog reading for this category was at its lowest level in nearly a year.

"The April-May report appears to be one of the most hopeful in the history of the series. For the first time, there is indication of a broadening nonresidential construction recovery, perhaps a reflection that credit conditions are beginning to thaw and that the broader economic recovery is finally being reflected in privately financed nonresidential construction activities," Basu said.

To read more about the latest CBI, click here.

   

Tagged categories: Construction; Economy; Infrastructure

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