Mexico’s construction industry faces a significant challenge: the continued rise in the cost of materials, a reality that exceeds the country’s general inflation rate. This phenomenon poses a serious concern, as it could discourage construction activities and have a direct impact on economic recovery and price stability.
The year 2021 marked an important milestone with a 37% increase in the cost of steel compared to 2020, according to the National Producer Price Index (INPP). This increase is intrinsically linked to the COVID-19 pandemic, which paralyzed production in Asia, especially in China, one of the world’s leading steel producers. The resumption of economic activities at the end of 2021 and during 2022 generated a strong demand for materials, resulting in a shortage of supply and a consequent price increase.
Causes of the increase in prices
- Pandemic Impact and International Conflicts: The COVID-19 pandemic had a global impact on the construction industry. Supply chain disruption due to the suspension of activities in countries such as China affected the availability of materials worldwide. In addition, international conflicts and geopolitical tensions have contributed to instability in material prices.
- Increased Demand and Falling Input Production: The rebound in the construction industry has resulted in increased demand for materials. However, this increased demand has been offset by a drop in construction input production since 2018. This disparity between demand and production has put additional pressure on prices.
- Logistics and Transportation Challenges: Increased transportation costs, driven by higher diesel prices, have contributed to higher material prices. In addition, delays in maritime imports due to port congestion have created supply shortages, leading to higher prices due to inventory shortages.
Impact on the Construction Industry
Inflation in the country reached 8.62% in August, the highest figure recorded since 2000, according to data from the Bank of Mexico. However, the construction industry is in a more critical situation, with inflation reaching 15.4% in June of this year, according to the National Institute of Statistics and Geography (INEGI). This price increase poses significant challenges for construction companies, which are struggling to maintain profitability and competitiveness in the market.
Detailed Analysis of Affected Materials
- Steel: The cost of steel has experienced a 37% increase in 2021 compared to the previous year. This increase is mainly attributed to the prolonged suspension of activities in Asia due to COVID-19, which affected global steel supply.
- Asphalt and Mixes: Compared to 2021, asphalt and mixes have experienced a 40% increase in cost in 2022. These materials are key components in buildings and their price increase directly affects construction costs.
- Wire rod and rebar: Wire rod, derived from steel, has experienced a 31.2% growth, and rebar has increased by 18% compared to the previous year. These materials are essential in construction, and their rising prices impact the economic viability of projects.
Future Prospects
Although no price decline is on the horizon in the coming year, growth is expected to slow by the end of 2023. This is because many projects halted during the pandemic have already been completed. As the economic situation improves, demand for materials is expected to gradually normalize and prices are expected to stabilize.
Mexico’s construction industry faces a considerable challenge due to the continued rise in the cost of materials. This phenomenon, which exceeds the country’s general inflation, could discourage construction activities and have a negative impact on economic recovery. It is crucial that effective measures are taken to address this situation and ensure the stability and viability of Mexico’s construction industry.
Alher Sem, engineering experts, recognize the seriousness of this situation in the Mexican construction industry. We are committed to seek viable solutions and effective strategies to mitigate the impact of the rising cost of materials in the sector. Our dedication lies in contributing to the sustainable development of the industry, promoting efficiency and innovation in every project we undertake. Together, we can overcome these challenges and build a prosperous future for Mexico’s construction industry.
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