by Iain McIlwee | Jul 27, 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 | Jul 14, 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 | Jul 8, 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.
by Clair Mooney | Jun 29, 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
In general, product availability is improving. Some products, including bricks, aircrete blocks, some roof tiles and semi-conductors, which are extensively used in building services products and gas boilers, remain on allocation or subject to longer lead times. Otherwise manufacturers are mostly keeping up with demand and, as stated in our last report, the market has become adept at managing supply with planned delivery times.
Generally, demand is expected to remain positive into the second half of 2022, though some sectors such as private housing RM&I appear to be coming off their highest levels for certain products. Market participants suggest that a slight slowdown in demand may in fact serve to allow stocks to be rebuilt and improve availability.
Average inflation for products and materials so far this year has been around 23%; with more significant price increases in energy intensive products such as insulation, cement, concrete and many steel products. Further price increases for those products are anticipated in the second half of the year owing to rising energy prices and input costs, and some have already been telegraphed to customers.
Concerns have arisen that volatile inflation has led to the failure of relevant indices to reflect market reality. Some contractors are engaging in dialogue to use prime cost, provisional sums and target price-based contract mechanisms to mitigate the risks.
Timber prices, however, have largely stabilised from the highs of last summer. This is largely due to easing demand and strong stocks of structural timber on the ground in the UK making supplies readily available for contractors and merchants. The price of structural timber in Europe and America remains firm to strong and, as a consequence, UK imports of structural timber are reducing. Some panel products have even seen reductions since the first quarter but structural Plywood prices remain firm. Birch Plywood and it potential substitutes have seen little or no availability due to Russian sanctions causing significant upwards price pressure for these products.
Recruitment, retention and related wage inflation continue to present serious concerns across UK construction and may supplant product availability issues in 2023 among the key risks facing the industry. For example, there is clear evidence from the PAG’s participants that skills shortages are making some SME builders reluctant to take on projects, as they don’t have the trades to complete the work.
The UK Government made a major announcement regarding the transition to the UK marking ahead of the ending of recognition of CE marking on 31 December 2022. The change will allow manufacturers with existing type tests from EU notified bodies under AVCP System 3, where the product was tested by 31 December 2022, to affix the UK mark to their products, and to continue to supply them to the GB market without needing to be retested. Further government guidance is here.
The announcement has been welcomed by industry, as it helps alleviate some concerns amongst manufacturers about the ability to place their products on the UK market in 2023. That said, there are many questions and risks still outstanding and industry is awaiting further details from Government. The PAG points out that the Construction Leadership Council is studying the announcement and guidance closely, with the aim of highlighting any outstanding areas of concern and the potential impact on product availability.
Members may also be interested in this Commodities Flash Report of May 2022
by Clair Mooney | Jun 23, 2022 | Main News Feed, Market data, Material Shortages
With the industry facing inflationary pressures not seen in the UK for 40 years, cost escalation is a key issue for members across the supply chain. Last week, the Bank of England raised interest rates for the fourth time this year to 1.25% and reported that “construction output growth weakened modestly as rising materials costs and labour shortages caused projects to be delayed or cancelled”.
Against this backdrop, companies need to find ways to manage the risk of cost inflation during a project and Build UK has worked with Wedlake Bell LLP to publish guidance, which is available to FIS members. Managing Price Inflation includes practical advice on fluctuations clauses, negotiating new and existing contracts to take inflation into account, and how to mitigate its impact on projects. As with COVID‐19, all parties are advised to collaborate in finding solutions, as more time spent planning ahead and thinking strategically about procurement is likely to be the first step towards successful cost management.
For further information on prices and inflation and work FIS is doing to support members in this area, click here.
by Clair Mooney | Jun 6, 2022 | Labour, Main News Feed, 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
Price inflation and a diminishing labour supply are now of greater concern than product availability in most construction sectors.
In terms of availability, little has changed since our last report, with a good supply of most products and materials. Ongoing challenges continue to affect bricks, aircrete blocks, roof tiles, chipboard flooring, gas boilers and other products requiring semi-conductors within sub-components, all of which will be subject to longer lead times throughout the year.
The market is becoming more adept at managing supply of these critical products, and the long-term nature of some of the underlying issues. Although there are reports of delays in supply of boilers leading to extended completion times in new housing, new semi-conductor capacity is coming on stream in late 2023/2024, and expansion in existing capacity will feed into the market over the same timescale.
Demand remains strong in all areas, and this is set to continue into the autumn, although some product forecasts now anticipate a slight slowdown in housing starts towards the end of the year, stemming from rising prices and concerns about affordability. Home improvement work will depend on levels of consumer confidence as costs of living rise.
Members of the group raised concerns regarding the threatened rail strike. This will affect aggregate and concrete deliveries to major infrastructure products, highlighting the need for government to prioritise transport of construction materials should the strike go ahead.
There is, however, some good news from parts of China. With Shanghai gradually removing covid restrictions, production should normalise in that major industrial region by mid-June. Shipping analysts warn, however, that this may exacerbate the current bottlenecks in deliveries to the West.
Across the board, managing price volatility and labour are now the biggest issues.
Although labour shortages are affecting manufacturers, the greatest concern is expressed by housebuilders and SME builders, as it takes at least three years to train a skilled tradesperson.
The cost of energy and fuel are major drivers for price volatility. Initial results of the Group’s horizon scanning exercise suggest energy hedges are short term and very significant increases are expected to come through quite quickly. This will particularly affect energy-intensive products including steel, glass, plasterboard, cement, ceramics and porcelain.
Although steel prices have come down slightly, since initial disruption following the outbreak of war in Ukraine, energy prices remain a major issue and price volatility will continue. Market prices will also be affected by the Indian Government’s unexpected increase to export duties on iron ore and steel, effective from 22 May.
The CLC group will continue to actively engage with energy intensive manufacturers over the coming months, and closely monitor market conditions and the impact of any further price increases and volatility.
