by Iain McIlwee | 2 Oct, 2022 | Material Shortages
It is still clearly early days into the chaos in the financial markets following the Chancellor’s ‘Mini Budget’. The CPA Summer forecasts certainly didn’t have banks stopping lending for mortgages (40% of all mortgage products had been withdrawn as of Thursday morning) or the Bank of England having to do £65 billion of Quantitative Easing otherwise all pension providers becoming insolvent on our list of key risks. However, there are some impacts for UK construction that we can identify.
The depreciation in Sterling will lead to further increases in construction materials inflation. It’s worth keeping in mind that construction materials prices in July 2022 were already 24% higher than a year earlier and 46% higher than in January 2020, pre-pandemic. Sterling has depreciated 12% against the Dollar since the end of July. This will exacerbate cost inflation as depreciations in Sterling increase the price of imports.
FIS Members can read the full report CPA – Impacts of Recent Market Chaos on UK Housing and Construction here
by Iain McIlwee | 14 Sep, 2022 | Material Shortages
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
A slight slowing of the market over the summer holiday months has resulted in product availability broadly improving. Some issues remain, with extended lead times continuing for aircrete blocks, bricks, gas boilers and various items containing semi-conductors and other electronics.
Price inflation remains the biggest issue for the entire industry and further significant increases in inflation are anticipated due to energy, raw material and labour cost rises.
We also note that although the UK Government’s recent announcement of a six-month energy price cap for business users will help manufacturers here to some degree, the risks around supply and cost of energy threaten manufacturing throughout the EU. While EU policy-makers wrestle with their own solutions, the possibility of factory shutdowns on the continent may lead to shortages of products, materials and components exported to the UK.
The root cause of the problem affecting smart meters, electrics, white goods and gas boilers is set to continue into 2023 as sub-component manufacturers struggle to secure supplies of semi-conductors and electronic components in a highly competitive market. Electrical component shortages are similarly affecting manufacturers in the wider electrical sector, likely to lead to reduced availability and increased prices.
Lead times for most roof tiles are improving. Separately, we are concerned to hear increasing reports of ungraded and poor battens being stamped as standard. Contractors are warned to ensure that correct battens are being used.
High demand for bricks, particularly for new housing, continued over the summer and led to reduced stock levels. This pattern is expected to continue in September, but manufacturers are delivering to agreed schedules with customers. Energy price hikes present a further challenge to both domestic and imported bricks, although Government support may ameliorate this issue for UK manufacturers. Aircrete supply has been compounded by a production issue at one of a major manufacturer’s sites, which meant deliveries were reduced in August.
Uncertainty around energy supply in Europe could also impact raw materials for paints and coatings, which are already affected by raw material shortages. Medium-term, there is a need to amend the UK REACH registration process to ensure chemical registration is not made so difficult and expensive that UK manufacturing loses access to key substances for products.
Overall steel supply has improved, but the EU has completely filled their quotas from non-EU countries, including the UK. Heavy sections cannot be transported from the UK mainland to Northern Ireland without incurring tariffs.
Rising energy costs are likely to affect timber prices as we move into Q4 and Q1 2023. There are good stocks on the ground of both structural softwood and wood based panels, but stocks at ports are much lower and buyers will need to consider forward purchases to ensure the specifications they require are available through to year end and into 2023. Price pressure eased considerably over the summer but log prices remain firm as demand for pulp and paper, pallets and fuel wood is currently very strong throughout Europe. With energy costs rising, forward replacement prices for structural softwood are unlikely to be at current UK levels.
The effect of high inflation and softening demand has seen shipping output and punctuality improve, and costs for some key UK routes down by a third since the beginning of the year. It is too early to gauge the impact on the construction sector of industrial action at Felixstowe, but we know that some businesses are suffering logistical headaches and added costs owing to re-directed deliveries. This Group will also monitor the two-week strike planned for 19 September at Liverpool’s port, Britain’s fourth largest.
Finally, we are saddened to note that the year to June recorded the highest annual level of insolvencies amongst UK construction firms since the financial crisis over 10 years ago, despite strong demand throughout the first half of the year. The key risk going forward, given the substantive rise in insolvencies, is to what extent sharp cost rises and slowing demand over the next six months will exacerbate the rise in insolvencies.
For all the work FIS is doing around inflation and availability, including recommended contractual terms click here
by Iain McIlwee | 28 Jul, 2022 | Market data, Material Shortages
The market has remained bouyant in Q2 2022 with 54% of respondents reporting growth – this is a similar number to reporting same in Q1 2022, but with the vast majority now seeing sales growth in excess of 5%. This is positive, but there has also been an upturn in the number of companies reporting declines of over 5%, up from 15 to 21%, underpinning that the market remains volitile.
The annualised picture also shows that, in terms of volume, the market has been pretty strong, with just 7% of businesses indicating that workload has actually decreased by over 5%. Again anticipated sales are, on the whole, optimistic, with a 67% (down from 75% in the last survey) anticipating growth in sales and 59% reporting an increase in workload in the year ahead (down from 62%).
The key risks to the sector are identified as:
- A prolonged war in Ukraine leads to material availability issues and continued inflation
- Inflation impacts viability of planned and future projects
- Inflation drives aggressive tendering – squeezes margin and impacts viability of businesses, particularly where fixed term prices are imposed unsympathetically.
- Inward Investment becomes less attractive as companies consider the impact of potential future sanctions in the UK.
- More ethical scrutiny of investors starts to impact sources of inward investment.
- Prolongued Labour Shortages constrain growth
- Retrospective elements of the Building Safety Bill create a blame culture that in turn leads to higher business failure rates and availability of insurance
FIS State of Trade Survey Q2 2022
by Iain McIlwee | 27 Jul, 2022 | Market data, Material Shortages
Against the backdrop of ongoing volatility, we today received the latest update from the CLC Product Availability Committee. From an availability perspective the overall tone is positive. The specific challenges in Northern Ireland aside and despite ongoing reports of chaos at the Ports, the decision to delay the latest round of post-Brexit customs checks means that general product availability continues to improve across virtually all categories.
The Statement also identifies that inflation associated primarily with the ongoing conflict in Ukraine appears to have stabilised, with softening demand, particularly in the retail end of the market contributing. The underlying conditions remain concerning, however, with many UK manufacturers purchase energy on forward contracts to help manage risk. The current extreme price volatility means that some firms are experiencing electricity cost fluctuating by up to 300% on a day-to-day basis, which may affect the financial viability of some energy-intensive manufacturing particularly during the winter months.
One area for FIS Members to be wary is glass. There are fresh concerns over the availability and cost of imported glass later in the year, with European plants anticipating reduced production stemming from uneconomic energy costs.
You can read the full statement here.
For all the work FIS is doing around inflation and availability click here
by Clair Mooney | 14 Jul, 2022 | Main News Feed, Material Shortages
A statement from Build UK Chair Paul Cossell
As an industry, we are currently facing inflationary pressures not seen in the UK for 40 years. The latest update from the CLC Product Availability Group confirmed that average inflation for products and materials this year has been around 23%, with further increases expected, particularly for energy intensive products.
We know that cost escalation, closely followed by a lack of skilled labour and material shortages, is now the key issue for businesses across the supply chain. As we did during COVID‐19, Build UK is bringing its members together to coordinate a collective response. With the support of Wedlake Bell LLP, we have published comprehensive guidance on Managing Price Inflation, which includes advice on fluctuations clauses, negotiating new and existing contracts to take inflation into account, and how to mitigate its impact on projects. Most forms of contract have standard provisions for sharing the risks associated with price volatility, which should be used appropriately and fairly and in a spirit of collaboration.
With businesses across the industry under pressure, we all need to play our part. We often talk about the better industry we want to see, where risk is allocated fairly and projects are delivered more efficiently. How each of us responds to the current challenges will determine how quickly we can realise this vision.
An enduring commitment to prompt payment must remain a priority, and a number of Build UK Client and Contractor members are reducing their payment terms to support the cash flow of their suppliers. The Welsh Government has provided advice to its public sector bodies on how to manage the unprecedented pressures on materials, and Build UK will be meeting with key Government departments to discuss a collaborative approach to managing inflation to the benefit of all parties.
We learned the value of collaboration during the pandemic and showed that we perform better as an industry when we work together. Where businesses, programmes or projects are struggling due to materials shortages and price inflation, we need to discuss the issues openly and find creative and innovative ways to mitigate these risks in the interests of our clients and the supply chain.
I firmly believe that by doing the right thing over the coming weeks and months, we can achieve our shared ambition of being a productive and profitable sector.
by Clair Mooney | 8 Jul, 2022 | Material Shortages
The latest statement from the CLC Product Availability Group confirms that average inflation for products and materials so far this year has been around 23% with further increases to come, particularly for energy intensive products. Cost escalation is now the key issue facing Build UK members across the supply chain. To help address this, Build UK has piblished comprehensive guidance on Managing Price Inflation with the support of Wedlake Bell LLP, which covers fluctuations clauses, negotiating new and existing contracts to take inflation into account, and how to mitigate its impact on projects. All members are encouraged to find ways to work together to manage the current pressures in the interests of projects and the supply chain.
The changes within Government this week have included the resignation of Construction Minister and CLC Co‐Chair Lee Rowley and the sacking of Michael Gove, Secretary of State for Levelling Up, Housing and Communities, who had oversight of building safety and the response to the Grenfell Tower fire. Following the appointment of new Chancellor Nadhim Zahawi, it remains to be seen what actions will now be taken by the Government to tackle rising inflation.
