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Fuel price affecting the construction industry

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For the last few years, we are seeing a decrease in the oil price across the globe. The price of crude oil that was $129 a barrel has now fallen down to less than $50.00. This is a quite a fall and it has affected the economies of many developing and developed countries. However, there are very few countries whose economy has not been affected by this reduction. Any rise or fall in the price of fuel has a huge impact on the heavy equipment and construction industry and as per the current scenario where the prices have dipped sharply it has left a huge impact on the construction sector. If we assume that the cost of construction will fall with the fall in the oil price, it may not always be the case. On the contrary we also see an increase in the price of finished products. However, the chances are more for the price to go down.

Fuel price plays a significant role in lowering the price of transporting raw materials and other items that are necessary for the construction business. Also the fuel required in heavy equipment will cost the company less which means that the company can now utilize the funds for some other purpose or can just keep it as reserves so that whenever it needs to take any strong financial decision, it can do so and utilize the reserves. Even the industries that are associated with the construction sector benefits a lot when the fuel price is down.

Market experts are of the opinion that the fuel prices that are currently at its bottom will soon pick up and then the picture of the construction industry will differ from what it is for the time being. As of now, it is hurting the oil and gas exploration and production companies but is benefitting the rest but as soon as it starts to increase, they will start benefitting and the construction sector might have to face the heat. Countries that import oil while the prices are down experiences good profits but as soon as the price goes up, they feel the pinch. They then have to import oil at higher price. As a result of this, the construction sector at that time takes a hit. They can’t afford to sell the end product at a lesser price.

Countries like Saudi Arabia, Kuwait and other Gulf countries that extracts oil and are also the major exporter do not experience any crunch when the prices are high. They in fact find it to be convenient to them. They can sell the fuel at an increased price to the rest of the world. The construction industry in these countries also makes good deal of profit as the fuel prices are mostly less. In case it incurs any loss, it has to do with factors other than the fuel price. Low fuel price has come as a boon to many small construction companies who have just started their business few years ago. They are now able to spend less on fuel and can utilize the money to attain business accomplishments.

By having lower diesel prices, are you making a bigger profit in your construction business.

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The rise or fall in the price of fuel does have a big impact in the profitability of a construction business. A construction company tends to make good profit when the price of the fuel is down and it has to shell more money on fuel when its prices are high. For the last many years, we have seen that the diesel price was on an increasing trend. It has only been in the last few months that the diesel price has started to fall and things seem to be a bit better for the industry. Other than this, heavy equipment manufacturing companies find it easy to sell machines that run on diesel. The logic to this is quite simple.

The machines that move on diesel involves less cost to production which means that they can sell them off at a lower price than machines that are more environment friendly. However, giving due consideration to the current environmental condition, they are also producing machines that runs on diesel but release less toxic. This may not be at par to any environmental friendly construction equipment but it also does its bit in bringing down the level of pollution.

Construction companies want diesel prices to be down:-

You make good money when the price of the commodity that is mainly required in manufacturing the end product goes down. This is quite evident t happen and does not require any big thinkers to research on it. It is exactly the same way you tend to make good profits when the price of the diesel goes down. Fuel is one of a commodity that is required a lot in a construction project. Your require diesel to run the heavy equipment.

These heavy equipment do not consume fuel like your car does. They simply eat up all the entire fuel that is there in the tank in few hours. If you keep the engine running throughout the day, you need to make sure that you have enough diesels for the machine. Now, you run many such machines in case you have a big project to work on. So all the equipment need diesel to function and if the price of the fuel is high, you are obviously shelling out a chunk of money just for paying the fuel price.

Now, let us imagine the price of diesel goes down. This means that you will be paying less and still be using the same quantity of fuel. This leaves you with surplus funds which can be utilized in taking care of other business expenses. You can even invest this money into buying much needed heavy equipment that are more technologically advanced and perhaps is just the need of the hour. So a fall in the price of diesel can win you so many things which are apparently not possible with the prices being high. It is therefore the wish of every construction company to see the price of diesel falling down which will in turn give them more gains than ever.

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