Summer 2022 UK Market Report
Materials
As the world emerged from the COVID-19 pandemic, 2021 saw significant price escalation. Issues such as increased demand reduced production during lockdowns and raised raw material costs caused price surges.
By the end of the year, it appeared that material prices were starting to settle. However, significant cost escalation has been seen as a consequence of Russia’s invasion of Ukraine.
There has been a 12.1% increase in the ‘All Work’ Construction Materials Price Index between February and May 2022.
Only 32% of survey respondents thought that material price increases are starting to settle. However, there is some evidence of increases slowing down.
As indicated earlier in the report, many commodities are stabilising or reducing in price.
Iron ore, a key steel ingredient, has also stabilised after the highs seen in 2021. While it increased again in 1Q 2022, it appears to be levelling again and hasn’t reached the heights seen in 2Q 2021.
Timber has also seen cost escalation following strong demand coming out of the COVID-19 pandemic. However, prices are starting to stabilise after increasing again in response to the Russia-Ukraine war.
Suppliers are expecting slow sales due to falling investor confidence. The Construction Product Association’s latest survey indicates that heavyside producers expect sales to fall in the third quarter, with half of firms expecting sales to fall by 5% after an eighth consecutive quarter of sales growth.
Energy has stabilised, albeit at a higher level, curtailing some increases.
However, due to pre-purchasing and forward contracts, the impact of rising costs displays at different times and some price increases are still notified and planned by suppliers.
Whilst softening demand is alleviating the pressure on price increases, there is a risk of raised energy prices later in the year if Russia constrains the supply of natural gas to Europe.
This would likely delay price reductions or cause further price escalation for energy-intensive materials and products.
Due to the investment needed for the transition to net zero carbon, costs are not expected to return to pre-pandemic levels.
Recently, discussions have been conducted between Tata and the government over subsidies to help the Port Talbot steelworks transition to greener energy by converting two blast furnaces into electric arc furnaces, which produce much lower carbon emissions.
The government funding requirement for the transition was originally thought to be around £500 million. However, the Financial Times reports that Tata is seeking as much as half of the £3 billion cost of the conversion and decommissioning process.
As well as cost escalation, there have been issues with the availability and delivery of materials and products.
Nearly 50% of survey respondents feel that the situation is improving. Generally, respondents felt that the situation was essentially unchanged — there are still extended lead-in times and some availability issues, but now the problems are better established, workarounds are being found.
Collaboration in the form of early engagement with suppliers and early orders is still recommended.
