India Biannual Construction Review 1Q/2Q 2023
Price trends
After the pandemic, market and price volatility became the new normal. Although 43% of our survey respondents said material price increases levelled off in the first quarter of 2023, the majority (57%) said prices have not yet settled.
Steel
The performance of rebar steel in 2023 is expected to remain strong due to continued demand in the construction industry by way of an increasing need for infrastructure, housing and industrial projects as well as rising popularity of pre-engineered steel buildings.
In January 2023, India consumed 10.5 million tonnes of finished steel, up 1% from the previous month and 3% from the previous year. Domestic steel consumption rose by 11% year-on-year to 96.38 million tonnes in the first 10 months of the 2022–2023 fiscal year.
Domestic prices are exhibiting a similar upward trend to global prices, which is supported by robust domestic demand.
As a result of temporary supply disruptions last year, prices for coking coal, used in steel production, remained volatile. However, supply and demand stabilised, encouraging increases in production. Enhanced supply has softened prices, resulting in steel costs easing. Prices are forecast to remain steady, compared to average prices in previous years.
Source: SAIL
Note: The above rates represent SAIL standard rates for a Fe550d 16mm diameter as published on their website for March 2023. However, as seen by Gleeds Intelligence, typically as part of final buyout, SAIL and other grade A steel products are generally procured with a discount of 10 to 12% from their listed price.
Cement
Increased cement prices in India have significantly impacted the affordable and middle-income real estate markets. Despite fluctuating prices, the general trend has been upward.
Prior to the COVID-19 outbreak, the price of a 50kg bag of cement was approximately 200 rupees, a cost which has now risen to 300–400 rupees, primarily attributable to three factors: the Russia-Ukraine conflict, the coal shortage and the depreciating rupee.
In order to meet volume targets for the end of the year, Indian cement manufacturers announced discounts and schemes towards the end of financial year 2023, creating the illusion of marginally negative prices when compared to the previous quarter.
However, there are strong signs of price increases from April 2023 onwards as a recent dip in global energy costs for products including petcoke/coal, in combination with expected price escalations and an anticipated demand for infrastructure, will likely inflate the profit margins of many cement manufacturers.
Source: Gleeds internal database for Mumbai
Note: All year prices are averaged for the month of March and in INR, rates excluding taxes.
Key construction materials (cement and steel)
The majority of our survey respondents believe that the price of cement and steel has increased from 4Q 2022 to 1Q 2023, with around 60% indicating a price increase between 1%–5%.
Crude oil
After a turbulent 2022, a period of calm was expected for 2023 and prices were capped after Brent trade surpassed $130/bbl last year. In March, crude oil rose to $83.06 per barrel, compared to $82.59 the previous month. Overall, the price has decreased by 29.16% in the past twelve months.
In February, India imported a record-breaking 1.6 million barrels of crude oil per day from Russia, accounting for 35% of its total import and exceeding the combined share of Iraq and Saudi Arabia, the second and third-largest suppliers. Strong growth is a clear indication that Russian crude is well-liked by Indian refiners due to its affordable price.
The continued importation of Russian crude by India is contingent on the availability of financial and logistical services to facilitate trade. Since all dollar transactions are settled in the US, Indian refiners are switching to the UAE dirham and the Russian rouble to pay for cargoes and avoid western scrutiny.
The OPEC has recently unexpectedly announced production cuts, which has led to an increase in oil prices. In addition, Russia has extended its restriction of half a million barrels of oil a day until the end of the year. Currently, the price of Brent crude oil is near $85/bbl and fears of rising oil prices are adding additional pressure to inflation, aggravating the cost of living crisis and increasing the likelihood of a recession.
Source: Country Economy
Note: All year prices are averaged for the month of March and in INR, rates excluding taxes.
Diesel
Fuel prices remain unchanged in 2023. The last change recorded in country-wide fluctuation of fuel prices was witnessed in May 2022 when the centre cut excise duty. Although diesel is a volatile commodity and linked to a global index, the Indian government has placed informal price controls on both petrol and diesel, to combat inflation.
In February, domestic sales of petrol and diesel increased by 12% and 13%, respectively, compared to the same month of the previous year, due to increased mobility of people and goods as the economy expanded. Less precipitation and a rise in retail sales have all contributed to higher diesel demand.
Source: My Petrol Price
Note: All year prices are averaged for the month of March and in INR, rates excluding taxes.
Aluminium and copper
Copper and aluminium are both anticipated to perform well in 2023. In the automotive, construction and electronics industries, demand for both metals has increased in recent years, a trend anticipated to continue throughout 2023.
Copper prices are expected to average $8,500/t in 2023. Prices will remain elevated as a result of the increase in Chinese consumption so far this year, as well as supply constraints caused by the political situation in Peru, which although accounts for 2% of global metal production, has currently been operating at a reduced level.
The combination of a faster-than-anticipated rebound in Chinese demand and a decline in Latin American supply because of social unrest, coupled with low inventories, could cause copper prices to exceed current projections.
The production of aluminium increased by 3.3% in January, according to the International Aluminium Institute. Analysts predict that aluminium prices will rally high in 2023 due to supply constraints, rising demand and China's easing of COVID-19 restrictions.
With global inventory at a 21-year low, European aluminium production continues to be impacted by elevated energy costs: prices are anticipated to average between $2,500 and $3,000/t this year.
Source: World Bank
Note: All year prices are averaged for the month of March and in INR, rates excluding taxes.
Polyvinyl chloride (PVC)
The PVC market in India is expanding, due to growth in the construction and infrastructure sectors increasing the demand for PVC pipes.
Additionally, mounting environmental concerns are driving the production of PVC-based products, such as insulated wires and recyclable goods. The annual average price of PVC last year was INR 111/kg in 2022, decreasing to INR 91/kg in 1Q 2023.
Crisil predicts that manufacturers of PVC pipes and fittings will maintain their momentum and see a 13–15% year-on-year volume increase in this financial year, driven by increased government spending on water supply, irrigation, housing and infrastructure. To meet rising demand, key producers in the PVC market may incur greater capital expenditures — the volatility of PVC resin prices and demand conditions must be closely monitored, going forward.
Source: Plastemart, Reliance, Mumbai
Note: All year prices are averaged for the month of March and in INR, rates excluding taxes.
Contractor’s overheads and profits
When asked about the overall cost impact on contractor overheads and profits from 4Q 2022 to 1Q 2023, 27% of respondents had seen an increase of 1–5% and 24% reported no change.
Material prices
Table 1: Material prices in various cities
Source: As per Gleeds research. Prices are current for March 2023.
All prices exclude goods and services tax (GST).
All prices are supply prices only and are only for guidance.
Transportation and any other abnormal costs are not included.
Labour rate trends in various cities
The construction industry is India's largest source of employment. It is anticipated that current rapid urbanisation and increased demand for infrastructure will continue to drive growth, creating employment opportunities within the labour market that will produce competitive wages for skilled and semi-skilled workers.
To ensure that the construction industry has access to a qualified labour force, the Indian government has implemented various skill development programmes. Measures have been taken to improve the construction labour market, including providing raw material subsidies, facilitating credit access and encouraging private sector investment in infrastructure projects.
According to the Economic Survey for 2022–23, employment opportunities arose and migrant workers were able to return to cities due to a thriving real estate market and improved construction activities. However, in both the Indian real estate and construction sectors, women earn 30 to 40% less than men according to an industry report highlighting gender inequality.
The rising number of unskilled labourers and the shortage of skilled labour poses a significant challenge. Without sufficient vocational institutions, the workforce acquires skills at a glacial rate. This disparity necessitates a wage increase for skilled and semi-skilled labourers in the industry.
When asked by what percentage labour costs have increased from 4Q 2022 to 1Q 2023, the majority (40%) reported an increase of 1–5%.
Our survey revealed that 61% of respondents had experienced a labour supply problem during the second half of 2022. Over 90% of these said they had struggled to source skilled labour, the difficulty is often due to a lack of social security and other amenities for migrant skilled labourers.
