The price of electrical contracting services has been increasing at an estimated annualized rate of 2.9% during the three years to 2017. In particular, a boom in residential construction has strengthened demand for electrical work and caused prices to rise. Additionally, the price of copper has been highly volatile, which has forced suppliers to keep prices elevated to protect their profit margins. Overall, however, the pace of price growth has been mild, which has slightly improved buyer power.
On the demand side, the value of construction has displayed strong growth, bolstering demand for electrical contracting services for residential, institutional, commercial and industrial buildings. As a result, suppliers have had greater leverage to raise service prices. In addition, an increase in local and state government investment has resulted in higher government spending on infrastructure projects requiring electrical services, which has boosted demand for market services. This trend has allowed suppliers to raise service prices without fearing a loss of business interest among buyers.
Additionally, the price of copper, which is a key input for these services, has been highly volatile during the past three years. This instability is due to weak demand, particularly in China, which has resulted in an imbalance in supply and demand. As a result of this supply chain instability, suppliers have opted to keep their prices elevated to avoid the risk of a price shock that could affect their profit margins. While the world price of copper has fallen overall, buyers have not seen falling service prices.
Price driver volatility has been high during the past three years, but service prices have remained stable, allowing buyers to accurately budget for future purchases of electrical contracting services and make plans accordingly.
In the three years to 2020, the price of electrical contracting services is forecast to rise at an average annual rate of 3.2%, reducing buyer power. During the period, intensifying demand will continue encouraging price increases and dampen buyer negotiation power. In addition, the price of copper will begin to grow and place further upward pressure on service prices.
From 2017 to 2020, the value of construction is anticipated to continue rising. Consequently, the need for wiring and electrical system installation for new construction projects will grow, causing demand for electrical contracting services to strengthen. In addition, rising corporate profit will spur demand for market services as businesses have more capital to spend on expanding to new locations and modernizing existing facilities. Furthermore, local and state government investment is forecast to grow as the economy benefits from reduced regulation. These trends are projected to spur demand growth for electrical contracting, which will allow suppliers to raise their prices.
Input costs in this market will also contribute to rising prices. The price of copper, which has been falling unevenly during the recent period, is slated to shift direction and begin rising as demand for metals on the world market becomes restored. Because copper is the most important input costs for suppliers, they will pass these added costs onto buyers in the form of higher service prices. As prices rise, buyer power will weaken because buyers will be inclined to sign a contract as soon as possible.
In light of these conditions, buyers are encouraged to lock in prices sooner rather than later using a long-term service agreement, especially if they have been putting off renovating their existing facilities or delaying new projects. Buyers have greater negotiation power when entering long-term maintenance and repair agreements due to the guaranteed business and reduced risk these agreements provide to contractors. Although increasing service rates hamper buyer power, buyers are expected to benefit from low price volatility during the forecast period stemming from stabilizing copper costs and heavy price-based competition among service providers. Low price volatility will afford buyers more predictable pricing and allow them to make more accurate budgetary decisions and cost estimations in the coming years.