Korea Institute of Construction Industry: "A 50% Surge in Global Oil Prices Raises Construction Production Costs by 1.06%"

Amid soaring international oil prices due to the aftermath of the Middle East war, an analysis has found that if global oil prices rise by 50%, domestic construction production costs would increase by more than 1%.

According to the report "Analysis of the Impact of Crude Oil Price Increases on Construction Production Costs," published on March 15 by the Korea Institute of Construction Industry, a 50% increase in oil prices would raise domestic construction production costs by 1.06%. This figure was estimated using the "price ripple effect analysis model" from the Bank of Korea's 2023 Input-Output Table (2020 extended table). The model applied the price ripple effect for imported goods, considering the nature of crude oil as a 100% imported product.

The report also found that, in the event of a 50% increase in international oil prices, the rise in building production costs would be less than 1%: 0.90% for residential buildings, 0.80% for non-residential buildings, and 0.93% for building repairs. In contrast, production costs for civil engineering construction such as road facilities (2.93%), urban civil engineering (2.76%), river and erosion control (2.19%), port facilities (2.03%), and agricultural, forestry, and fishery civil engineering (2.03%) would all see increases exceeding 2% under the same conditions.

Additionally, the Korea Institute of Construction Industry analyzed which of the 380 construction input factors are most affected by a 10% rise in oil prices. The analysis revealed that diesel accounted for 35.2% of the total ripple effect, followed by ready-mixed concrete (8.5%), asphalt concrete and asphalt products (8.4%), and road freight transport services (4.2%), all of which drove up production costs.

The institute explained, "The reason the price ripple effect of diesel is the highest is because diesel is not only directly used as the main fuel for heavy construction equipment on site, but is also essential throughout the production process of major construction materials such as ready-mixed concrete and asphalt concrete." They added, "More than 90% of construction machinery, including excavators, cranes, forklifts, and bulldozers, which are key power sources at construction sites, use diesel as fuel."

However, compared to the outbreak of the Russia-Ukraine war in 2022, the direct price shock to the housing and construction market from the current situation is expected to be relatively limited. The cumulative number of housing starts last year was 273,000 units, a decrease of about 110,000 units compared to 386,000 units in 2022 when the Russia-Ukraine war broke out. In addition, construction investment also fell by 9.5% last year.

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