Building Materials – Rising Costs & Supply Shortages in 2021.
The easing of lockdown restrictions has given the UK economy a much-needed boost. Businesses are slowly returning to normal operations and people are returning to work.
What does this mean for the UK construction and building industry? Our industry is now facing two additional challenges for at least the rest of 2021.
These are :
- The increasing cost of building materials.
- A shortage of supply for these materials.
The above is reflected in construction worldwide and not just in the UK.
So how did we arrive at this point?
What factors have influenced both increased costs of raw materials and supply shortages?
What Factors Have Caused This?
- There is increased demand for housing in the UK.
- Large infrastructure projects have now been re-booted such as the HS2 link.
- The lockdown period has resulted in an unprecedented demand from home improvers, DIY enthusiasts, self-builders and renovators, and small building firms.
- The UK imports much of the raw materials needed to meet construction demands. This has meant increased paperwork and documentation for imported materials due to Brexit.
- This has been compounded by increased shipping costs, a shortage of shipping containers, and increased pressure on the haulage industry.
- This situation is made worse by increased oil prices(below).
Crude Oil Price Increases
- Reuters reported crude oil at $72 per barrel for the first time since 2019.
- After uncertainty worldwide concerning the vaccine rollout, demand is now increasing. The knock-on effect of this is reflected in increased shipping costs and road haulage.
Planned Maintenance at Factories producing raw materials
- Many plants worldwide that produce cement, aggregates and other building raw materials have been closed to overdue planned maintenance which was missed during the lengthy lockdown periods.
- This is widely seen as a temporary problem which should ease towards the end of the summer.
- Meaning the UK has to compete for supply along with huge consumers such as the US, China, and the rest of Europe.
What materials have increased in price or are in short supply?
There is a huge demand for timber and timber products right now.
Timber is also seen as the ‘go-to’ material to ensure projects are sustainable. The demand for sustainable building development will become greater.
Some experts state it is simply the huge demand that is causing the problem as stated in the comment below:
TTF chief executive David Hopkins
“In our view, the market position should be phrased as a DEMAND rather than as a supply situation. Timber is still being imported and produced at high volumes.”
Due to short supply, lead times for concrete tiles have tripled to three months, according to the National Federation of Roofing Contractors.
Coatings & Paint Products
Supplies to the UK are restricted due to a global shortage and the cost of shipping containers.
This affects both industrial and decorative coatings. This shortage appears to be both acute and far-reaching as illustrated by Tom Bowtell CEO of BCF (British Coatings Federation) below:
“About 85% of our raw materials have been greatly affected: resin, monomers, pigments, and additives. There are not any raw materials that are not affected.”
There has been a shortage of insulation products for some time particularly PIR and wool fibre products, but this situation appears to be easing.
As demand increases, prices are rising for raw steel throughout the EU.
This has created a backlog in production and shortage of supply.
In addition, the steelmaking industry is under pressure to reduce its Carbon emissions and has come in for heavy criticism from supporters of climate change.
Cement shortages are being experienced across the board.
This applies to both bagged cement and the bulk cement market which accounts for roughly 80% of total cement production.
Again many production facilities were closed during the pandemic and routine maintenance procedures were postponed.
This coincided with increased worldwide demand.
Mitigation – Consequences – Future Market Prices
Travis Perkins has reported the following price increases:
- Bagged cement will rise by 15%.
- Chipboard by 10%.
- Paint by 5%.
A Travis Perkins spokesperson commented:
“In instances where we have seen some challenges posed by global demand for raw materials or inflationary pressures, we continue to work closely with our suppliers and partners to minimise price increases where possible, whilst also ensuring healthy stock availability for all of our customers.”
It seems the hardest hits will be to small building firms and DIY enthusiasts.
Larger construction companies can place orders months in advance which should be unaffected.
This is borne out in the following statement by John Newcomb, CEO of the Builders Merchants Federation, and Peter Caplehorn, CEO of the Construction Products Association, co-chairs of the Construction Leadership Council’s Product Availability working group:
“There is evidence that those who can buy in advance and large quantities are having fewer problems at present than SME builders who are used to buying the products they need that day from their local merchant.”
Nevertheless, the shortage and demand-supply in the market could cause project delays and increased costs. This is worth bearing in mind when looking at contract terms and framework agreements.
In summary, as always in these situations, someone has to pay.
Accurate information for forward pricing for future projects and tender applications is now more crucial than ever.
We are monitoring the price–demand situation closely and will report back on this topic in a coming newsletter.