~Eng1neenng
. . Praet'1ce
The CE Plant Cost Index: An Update
Changes inthe availability of source data for the CfPiant Cost Index periodically
necessitate updates to howthe index is calculated
Scott Jenkins
Chemical Engineering magazine
T:
e Chemical Engineering
Plant Cost Index (CEPCI) is
a widely used tool for com-
paring plant construction
costs in the chemical process in-
dustries (CPI) between different time
periods since 1963. Over its history,
the underlying details of the index
have been revised and adjusted sev-
eral times. For a discussion of these
changes, readers are directed to
Chern. Eng., January 2002, pp. 62-
69. This article aims to explain the
most recent change that has been
made to the CEPCI.
TheCEPCI
The CE Plant Cost Index is actually a
composite that consists of four sub-
indices: Equipment; Construction
Labor; Buildings; and Engineering
and Supervision (see Table 1). The
Equipment subindex is itself a com-
posite of seven other indices, each
focusing on a particular category of
process equipment. The component
indexes are compiled, and weight-
ing factors are applied to make up
the Equipment subindex. The three
other subindexes are compiled in-
dependently from appropriate in-
puts. Information on these four in-
dexes has been reported running
back to 1947.
After weighting and normalizing
the values, the four sub-indexes are
combined to constitute the CEPCI.
For each year in the past, an annual
value for the CEPCI is calculated
based on the arithmetic mean of
12 monthly values for a given year.
CEPCI data from previous years can
be found and downloaded at www.
chemengonline.com/pci.
BLSdata
As many users of the index know,
the CEPCI uses specifically selected
producer price index (PPI) data and
76
120
115
110
105
100
95
90
85
80
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FIGURE 1. The AOIM dala series (orange) has more closely tracked the now-discontinued CMMEP series
(yellow) over the period from 2007 until2015, than has the broader MSIM data series (shown in green)
other data from the U.S. Bureau of
Labor Statistics (BLS; Washington,
D.C.; www.bls.gov), which is a part
of the U.S. Department of Labor.
Relevant PPI information reported
by the BLS is collected by Chemi-
cal Engineering editors and used
to calculate the monthly changes
to the CEPCI. BLS says it is the
"principal Federal agency respon-
sible for measuring labor market
activity, working conditions, and
price changes in the economy." It
collects and analyzes many types
of economic information to assist
TABLE 1. CE PLANT COST INDEX
COMPONENTS
Equipment
• Heal exchangers & tanks
• Process machinery
• Pipe, valves & fittings
• Process instruments
• Pumps & compressors
• Electrical equipment
• Structural supports &misc.
Construction labor
Buildings
Engineering & supervision
CH EMICAL EN GINEERING
NNNN~MMM~~~~~~~~~~~~ ~ ~~
decision-maki1g in the public and
private sectors.
A portion of the input data for the
CEPCI is derived from the BLS's PPI
data. As the BLS defines them, pro-
ducer price indexes "track the aver-
age change in net transaction prices
that domestic producers in the min-
ing, manufacturing, agriculture and
forestry sectors, as well as certain
service industries, receive for the
products they make and sell." BLS
economists and analysts review a
statistically chosen representative
sample of price quotations in busi-
ness transactions to build its set
of PPls. Overall, There are around
13,000 PPis covering more than
600 industries.
A carefully selected group of 41
PPls is used as raw input to the
CEPCI. The set represents a diverse
set of materials and components
that go into the construction of a CPI
facility, including steel plates, con-
crete pipe, tanks, fans, piping and
many others. In addition, the CEPCI
uses 12 labor-cost indexes, which
are also compiled by BLS.
WWW.CHEMENGONLINE.COM APRIL 2018
Making a change
Periodically, the BLS makes changes
to the data that they collect and re-
port, some of which necessitate
changes in how the CEPCI is cal-
culated. The Chemical Engineering
editorial team wanted to make CE
readers aware of one such change
that is reflected in this month's
CEPCI on p. 88.
Since the advent of the CEPCI in
1963, one of the inputs has been a
PPI data series entitled "Chemical
Manufacturing Machinery, Equip-
ment and Parts." For the purpose of
brevity in this article, we will call this
data series "CMMEP."
In autumn of 2015, BLS ceased
reporting data for that series, be-
cause the information that could
be collected did not meet the re-
quirements BLS has established
for reporting a data series, includ-
ing the requirement for a mini-
mum number of reporting units.
In some cases, a given PPI may
not be reported for several months
because the information available
does not meet BLS guidelines for
reporting, only to return later once
available information again meets
the reporting criteria. So the ab-
sence of data for a particular PPI
in a given month is not necessar-
ily a reason to change anything in
how the CEPCI is calculated.
However, in the case being dis-
cussed in this article, it became
clear over the next several months
that the CMMEP series would be
discontinued permanently, and the
series would be subsumed by a
broader PPI data series known as
"Miscellaneous Special Industry Ma-
chinery" (MSIM).
Once the CMMEP was discon-
tinued permanently, the CE editorial
team began conversations with BLS
economists to inform the magazine's
efforts to determine whether or not
the MSIM should be included in the
CEPCI as a substitute for the now-
discontinued CMMEP. During this
time of evaluation, we continued to
use the last available data for the
now discontinued series to continue
to calculate the CEPCI.
CE editorial staff observed the
trends in the broader MSIM data
series over the past 10 years and
compared it to that of the discon-
tinued CMMEP series over the
CHEMICAL ENGINEERING WWW.CHEMENGONLINE.COM
same time period. Unfortunately,
the MSIM series did not closely
follow the same trends observed
in the narrower CMMEP series
over the period between 2005 and
2015, indicating that the MSIM
would not necessarily be a suitable
direct replacement as an input to
the CEPCI.
After further consultation* with
BLS staff economists and exami-
nation of the scope of the MSIM, it
was noted that part of the reason
for the lack of similarity between
the two data series seemed to be
that the MSIM included equipment
and processes for the semicon-
ductor manufacturing industry.
The ways in which specialized
equipment has changed for the
semiconductor industry sector
have been different from how spe-
cialized equipment has changed
in the CPI over the past 20 years,
leading to situation where the data
from two series have decoupled
and diverged.
The CE editorial team then worked
with BLS economists to identify
an alternate data series that more
closely tracked the data from the
discontinued CMMEP series. One
series that emerged as a possibly
good candidate for replacing the
discontinued data series is a PPI
Industry series known as "All Other
Industrial Machinery" (AOIM).
Replacement series
The AOIM data series differs slightly
from the other inputs to the CEPCI,
in that it is an industry-based PPI,
rather than a commodity-based
PPI, as the other CEPCI inputs are.
However, economists generally
agree that it is possible for the two
types of data series to be used to-
gether in an aggregate index, such
as the CEPCI.
Over the past 12 years, the AOIM
data series has tracked much
more closely to the discontinued
CMMEP series. The similarities can
be observed by plotting the values
of two data series over time (see
Figure 1).
Starting with the March 2018 edi-
tion of CEPCI, we began using the
monthly changes observed in the
AOIM PPI index to adjust the his-
torical data from the discontinued
PPI data series. This entails track-
APRIL 2018
ing the AOIM and observing the
month-to-month changes in that
index. These changes, expressed
as a percentage, will be applied
to the last available value from the
discontinued series to derive a new
value to input to the CEPCI. This
new value will be used to calculate
the monthly CEPCI.
In this way, the continuity of the
CEPCI can be preserved, while tak-
ing into account changes to relevant
special industry equipment that are
being observed in the PPis.
Over time, this process will im-
prove the accuracy and timeliness
of the CEPCI's Equipment subindex
as well as the overall CEPCI. We will
continue to monitor the input data
from the BLS in case further changes
are necessary.
The CE editors thank the users of
the CEPCI for their continued sup-
port and at1ention.
Acknowledgements
The author would like to thank two
individuals who provided their time
and expertise in support of this ar-
ticle. Jayson Pollack is a supervisory
economist at BLS who graciously
spent time on several phone calls
to explain how BLS produces the
PPI and to identify information that
could be used for the CEPCI. John
Hollmann is a cost engineering con-
sultant and member of Chemical
Engineering's advisory board who
assisted in outlining a strategy to
address the discontinued data se-
ries. Thank you both very much for
your help. •
*Editor's note. C<Jrmrsations be~YOOO CE staff and BLS
economists explored backg-oof);l information on llle PPf
oota senes. BLS ~i~ no1 <M;I in an a(fviSQry e<~l)<lCity.
Author
Scott Jenkins is senior edi·
lor al Chemical Engineering
magazine (40 Wall Slreel,
501h floor, New Yoll<, NY
10005: Phone: 917 ·370·
3073; Email: sjenkins@
Chemengonline.oom). Be·
fore joining the staff of
Cl1emical Engineering in
2009, Jenkins worked in
several communications-re·
laled posilions in !he bio·
leehnology and researCh
policy sectors. He has also worked in research and de·
velopment in the biomedical and chemical fields. Jen·
kins holds a bachelor's degree from Colgate University
and a masler's degree in organic Chemistl)l from the
UnivetSity of North Carolina at Challel Hill.
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