How Rising Material Costs Could Affect the Construction Industry

Construction materials

A record number of construction material firms have reported price hikes due to the shortages of material in the industry. The disruption in the supply chain, the lack of shipping containers available and the reduction of staff at ports has led to this shortage of materials expected over the next 12 months. The Construction Products Association (CPA) is the latest to sound the alarm about this situation as it could negatively affect the construction industry and all contractors tied into fixed price contracts In the future.

According to the CPA’s latest State of Trade survey, about 97% of firms in the industry that deal with heavy side products like timber, concrete and steel expect the prices to remain high over the next year. This has been at its highest since the survey was initiated in 2011.

The same survey also revealed that 92% of companies dealing with light side products like insulation, fit- out material and glass expect the prices to increase over the next year. Almost 90% of the companies participating in the survey claimed that the cost of raw materials had increased over the past year and manufacturers expected the overall costs to stay high in the coming year.

Of light side manufacturers, 82% and 77% of heavy side manufacturers agreed that prices rose higher in the first quarter of 2021 compared with 61% and 64% respectively in the last quarter of 2020. These numbers show a decline in the picture for global material costs.

The global oil market, that was down in 2020, is recovering and this too has led to a rise in costs for the construction industry. Some 73% of heavy side firms and 51% of light side firms agreed that the recovery of the global oil prices had led to a rise in energy prices. Additionally, 50% of heavy side firms and 48% of light side firms reported a rise in salaries and wages in the first quarter of 2021.

Rebecca Larkin, the chief economist at CPA said that there was a risk of bottlenecks in the global supply chain. She added that almost all manufacturers expected the inflationary pressure to persist over the next year.

The CPA’s survey found that the shortages of raw materials were also a result of logistics issues. These led to a major constraint on sales growth by 40% of light side manufacturers and nearly 33% of heavy side manufacturers. These figures are the highest recorded proportions in the survey’s history so far.

In the past months, the cost of iron ore has nearly doubled, the cost of sawn wood is up by 30%, copper by 49%, aluminium by 23% and gravel, clays and sand by 20%. These figures highlight the issue of escalating material costs that, along with supply issues could hit the construction sector in the post- lockdown rebound.

A survey by IHS/CIPS found that the waiting time for delivery of raw materials in the industry had risen, with 41% reporting longer delivery times from suppliers in March. The CLC warns that these shortages are likely to get worse in the coming months and advise firms to plan for longer delays. Core Five warns contractors to prepare for a ‘perfect storm’ with post-Brexit trading rules, covid-related logistical issues and global rising prices of oil leading to disruptions and price hikes in the industry in the upcoming months.