Construction Product Availability: 21 December 2022

Statement from 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.

Overall product availability is good and returning to pre-Covid levels, while some bricks, blocks, plasterboard and roofing products are occasionally still subject to disruption or allocation. Despite this, lead times for these products are now far lower than earlier in the year.

The availability of gas boilers and other products containing semi-conductors and electrical components remains the most problematic in terms of supply, as sub-component manufacturers operating in a highly competitive global market continue to experience restricted supply. In addition, the electro-technical sector has highlighted a new area of concern regarding the supply of solar and environmental products, with difficulty identifying those coming from Chinese manufacturers with the proper accreditation. This is a growing product area with increasing demand, so the UK construction industry is challenged to ensure such products are of the proper standard and quality.

Timber availability is good with further reductions in prices due to the large amount of stock already in the UK and reduced shipping costs. The one issue for timber centres on birch plywood which, due to sanctions, cannot be legally sourced from Russia. With limited supplies available from Latvia and Finland, we advise speaking to plywood suppliers regarding alternatives.

Shipping lead times from the Far East are improving, though China is now experiencing rising Covid rates following the relaxation of their lockdown regulations which may lead to more bottlenecks. However, with a surplus of containers in China and container rates generally down by 80% from their peak, this is a great improvement.

Price inflation for products has slightly moderated across the board this month, but looking ahead, rising energy and wage costs are expected to put significant upward pressure on prices in the New Year. In particular, manufacturers of energy-intensive products (such as bricks, cement, glass, insulation and plasterboard) warn that although many have been able to hedge energy costs through Q1 of 2023, energy prices in Q2 and Q3 are expected to be considerably above historical (pre-Ukraine war) levels without further Government support. Several plaster, plasterboard and insulation manufacturers have notified there will be double-digit inflationary increases in the New Year.

Against this, a gradual slowing of demand for construction products across most sub-sectors over the last three months of 2022 has helped ease the pressures on product supply. Most industry forecasts project further declines in demand in 2023 although some sub-sectors will fare better than others. With less strain on the supply chain, general product availability should have an opportunity to recover further.

For all the work FIS is doing around inflation and availability, including recommended contractual terms click here

Construction Product Availability: 23 November 2022

Statement from 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

Product supply continues to improve, with the availability of building materials and products overall now at its best since pre-pandemic levels last seen at the end of 2019.

The restricted supply of semi-conductors, however, continues to challenge manufacturers of electro-technical products and gas boilers, though stock volumes are recovering. With current demand in the UK still outstripping supply, coupled with ongoing capacity and logistics issues in Asia, extended delivery times are likely to remain until the middle of 2023 and inflationary pressures will persist for these products.

There is a plentiful supply of timber in the UK and prices have reduced for popular groups such as CLS; however, log prices in Europe and North America are still strong and production is being reduced to reflect demand in the UK and Europe This could lead to gaps in the supply chain if demand rises suddenly but should not be a major issue if demand continues at current levels.

As mentioned in previous statements, birch plywood – currently a sanctioned good from Russia – is in short supply and some sectors will need to look at alternatives. Birch plywood can be legally sourced from Finland and Latvia but users should request full due diligence. Any imports of birch or birch furniture products from China and Vietnam will be manufactured from wood from Russia, which cannot be legally sold in the UK.

Inflationary pressures rather than availability present the main challenges for energy intensive products such as glass, concrete, cement, PIR, plasterboard and bricks. A warm autumn has helped reduce demand for gas but going into colder winter months prices may rise again. It is also unclear what financial relief from government will be available to energy intensive manufacturers in the spring when the current scheme is due to finish.

In his Autumn Statement, the Chancellor of the Exchequer announced a package of tax rises and spending cuts intended to stabilise the economy and lay the foundation for growth. Nonetheless, the near-term outlook will be challenging. While large-scale infrastructure projects will continue and larger housebuilders are currently maintaining volumes, we are already seeing a slight decline in starts by smaller housebuilders and a steady erosion of work in the home improvement sector as homebuyers and customers feel the pressure of rising living costs and interest rates.

We are also seeing a sustained, high level of construction firm insolvencies, particularly amongst SME builders and specialist contractors. This is in part the result of firms that became vulnerable during the pandemic now being wound up due to pandemic support being withdrawn. Other insolvencies are linked to economic uncertainty and the difficulty of reconciling fixed priced contracts with price inflation and reduced cash flow. Collaborative risk sharing will be key to preserving industry resilience and capacity moving forward.

For all the work FIS is doing around inflation and availability, including recommended contractual terms click here