"Raw Material Price Increase Leads to 28.5% YoY Rise in Construction Material Prices in Q4 Last Year"

Volatility Increases Due to Ukraine Crisis... Construction Investment Expected to Recover Gradually

[Asia Economy Reporter Seo So-jeong] Due to the rise in global raw material prices, construction material prices in the fourth quarter of last year recorded a high increase rate of 28.5% compared to the same period the previous year. Recently, with the Ukraine crisis and other factors greatly expanding the volatility of raw material prices, as well as the reduction of upside risks in the construction market, future construction investment is expected to show a somewhat gradual recovery trend.

On the 29th, the Bank of Korea released a report titled "Constraints on Construction Investment Recovery: Causes and Effects of the Sharp Rise in Construction Material Prices," stating that construction material prices rapidly increased since the first quarter of last year, recording a high increase rate of 28.5% in the fourth quarter of last year. This is the highest rate since the 30.2% increase in the fourth quarter of 2008.

The proportion of items among all construction materials whose prices surged by more than 10% compared to the same period last year also expanded significantly from 8.9% at the end of 2020 to 63.4% at the beginning of this year, indicating widespread price increases.

Park Sang-woo, head of the Trend Analysis Team at the Bank of Korea's Research Department, explained, "The sharp rise in construction material prices was caused by a combination of several supply and demand factors, including the rise in global raw material prices, shortages in some material supplies, and increased domestic and international demand for materials," adding, "It was analyzed that supply factors, such as the rise in global raw material prices, had a somewhat greater influence than demand factors."

The impact of raw material price increases accounted for 51.1% of the rise in construction material prices. By item, prices of metal products such as steel led the overall price increase.

The report compared the recent rise in construction material prices with past price increase periods and noted that, unlike previous times, prices are rising rapidly without accompanying increases in construction investment, and the proportion of items with sharp price increases is very high. Considering these points, the situation superficially resembles the price rise period from 2007 to 2009.

Park said, "Considering the long time lag between construction orders and construction performance, the sharp rise in construction material prices is likely to worsen construction companies' profitability and act as a factor limiting the recovery of the construction market in the future," adding, "The rise in construction material prices significantly reduces the upside risk of the construction market, and the greater the price increase, the longer the negative impact lasts, further restricting the recovery of the construction market."

In particular, recently, uncertainties surrounding construction material prices are high due to the greatly expanded volatility of major raw material prices caused by the Ukraine crisis and other factors. Although the price increase rates of major raw materials used in construction material production, such as iron ore and thermal coal, showed a slowdown since the second half of last year, they have risen again since January this year.

Park forecasted, "Although recent leading indicators related to construction are favorable and sentiment indicators are also improving, the stabilization of construction material prices is progressing slowly," adding, "Since the upside risk of the construction market is estimated to have been reduced, future construction investment is expected to show a somewhat gradual recovery."

This content was produced with the assistance of AI translation services.