by Clair Mooney | 29 Jun, 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 | 23 Jun, 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 | 6 Jun, 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.
by Clair Mooney | 12 May, 2022 | 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
With the Product Availability Group having met only three weeks ago, there has been little change in respect of overall product supply since our last report, although the conflict in Ukraine is likely to affect some timber supplies later in the year. There is a good supply of most products and materials but, as previously reported, ongoing challenges continue to affect bricks, aircrete blocks, concrete products, PIR insulation products and gas boilers all of which are on long lead times.
Most wood products, including structural timber, are fully stocked. While structural softwood will remain fully available, the availability of some other product groups, whose use is concentrated in the joinery, shopfitting and finishing sectors rather than housing, is less certain given their greater reliance on raw material supplies from Russia and Belarus. The most critical is Birch plywood, which will become increasing scarce as summer progresses as outside of Russia there is only limited production from Europe, principally Finland. If the UK market is offered Birch Plywood for later in the year from the Far East, it will be based on Russian Birch logs and will be illegal to import.
Although Siberian Larch cladding will disappear from the market eventually, there are plenty of alternative cladding sources. Similarly, there are alternatives to Russian redwood and whitewood used principally in joinery and shopfitting, although these are generally more expensive.
Some PAG members reported initial signs of a slowing market. These reports are corroborated by recent published data from Glenigan, pointing to a slowdown in starts on site during the three months to April 2022. These data points suggest that inflationary pressures are starting to influence client decisions in some sectors, continuing the trend seen with softening retail sales over the last few months.
Most regions are still reporting strong demand on the trade side, particularly from larger housebuilders and for infrastructure projects including road building. SME contractors, however, are concerned that local authorities may delay regeneration projects until they can achieve more price certainty through the procurement process. We have also heard of delayed start dates for specialist trades at the end of the product building cycle, that may indicate projects continuing at a slower pace, which may impact both productivity and cash flow.
Price inflation remains a critical issue. We have previously reported the impact of rising energy, fuel and raw material costs on product price, and the latest data published by BEIS shows that annual material price inflation increased to over 24% in March for a basket of materials. With further restrictions on Russian gas and oil imports across Europe we expect that energy price movements will continue to be unpredictable. Some merchants and producers have also reported impacts on the availability of products caused by the outbreak of Covid in China and the restrictions imposed in response to this, which is affecting manufacturing and shipping from Shanghai. Wage inflation is a further concern within the supply chain, with pay rises necessary to secure labour.
Those pay raises have helped to somewhat ameliorate the shortage of HGV drivers, with reports of a record number of HGV drivers taking their tests and estimates that the driver shortfall has reduced from 100,000 at its peak to 65,000.
Despite this, the high costs and risks around haulage and shipping persist; we note reports that some European lorry manufacturers are not taking orders either because backlogs were problematic or pricing of input materials for new vehicles was proving too uncertain. This may put greater pressure on companies to maximise the efficiency of their fleet and keep vehicles for longer than anticipated. Construction product manufacturers and distributors are amongst the largest users of the UK’s road network.
In regards to global shipping, the price of moving a container from the Far East to Europe has dropped as much as 25% from its high at the start of the year, but many forecasters believe that the elevated costs and volatile delivery schedules caused by the container crisis will nonetheless carry on to mid-2023.
The conflict in Ukraine continues to affect certain product areas, as detailed in our last two reports (21 April and 28 March). We are undertaking a horizon scanning exercise to determine the likely extent of disruption particularly in relation to clay, ceramics, electrical products, and raw materials for steel and other production, as well as impact on energy costs.
by Iain McIlwee | 21 Apr, 2022 | 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
There has been little change in respect of overall product availability since our last report with a good supply of most products and materials across the UK. That said, previously reported challenges remain for bricks, aircrete blocks, some roofing products, some sanitaryware imported from Asia and gas boilers, all of which are experiencing longer lead times.
The impact of the war in Ukraine is only beginning to be felt by UK construction. There are reports of nickel prices doubling since the conflict began (Russia was a major supplier before sanctions hit), which affects the price of stainless steel. The prices of copper, steel, and aluminium have increased. Taken together with a shortage of supply from major neon producers in Odessa and Mariupol and existing Covid-related bottlenecks for microchips and semiconductors from Asia, the electrotechnical sector is now experiencing inflation on products above 20% as well as price rises between 10-20%. Recent increases in the price of oil will likely affect both fuel and plastics. Although there are no issues expected for structural timber, birch plywood (widely used as a finishing product) and Russian redwood (a predominant source for mouldings) will be affected.
Otherwise, the biggest concern is the rate at which increased energy and raw material costs are driving up prices, particularly for steel, cement, glass and other energy-intensive products. The last three months have seen price inflation of 10-15%, on top of price increases introduced at the end of last year.
While this is challenging for UK construction firms, the impact is greatest for small and medium sized enterprises (SME), which account for most of the industry’s businesses and nearly all of the builders and contractors. While the first quarter was busy for those completing existing projects, there were signs of a dip in demand in home improvement work in March compared to a considerable uplift at the same time last year.
Without price continuity, it is harder for trades to quote for projects on fixed price contracts, and then seek to pass onto their customers any price increases for materials that would otherwise erode their profit margin. Furthermore, as manufacturers reprice materials and SME contractors continue to be required to sign up to fixed price contracts in advance of project delivery periods, considerable pressure is mounting on SMEs at delivery level.
Discussions are taking place within CLC to identify ways and means to manage and mitigate price inflation. We will only achieve a solution that works for industry and clients if everyone collaborates and shares responsibility.
Read the latest FIS statement and resources produced by FIS to support members working at a time of high inflation
by Iain McIlwee | 21 Apr, 2022 | Main News Feed, Material Shortages
Off the back of the latest wave of inflation and the most recent statement by the Construction Leadership Council, FIS has produced two new resources to support contractor members.
The first, is a new factsheet that includes recommendations on standard terms to include on quotations that better protect contractors. The factsheet also provides some basic advice around managing and reviewing contracts in a time of high inflation.
The second resource is a template letter that can be used as a guide for members who find themselves stuck in a fixed price contract and price changes are now impacting on the viability of the project, the two resources can be downloaded by members below and have been added to the growing array of resources available in the FIS Contractual and Legal Toolkit.
Commenting on the production of the new resources FIS CEO, Iain McIlwee stated:
“These really are unprecedented times and, whilst there is little we can do to stem the tide of price rises, we can ensure that we do all we can to ensure members that have access to the best advice available. These resources will be discussed at our up and coming webinar on how to review a contract on the 4th May.”
You can read the latest FIS and CLC Statements on Inflation here
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