UK Construction Market Report 1Q 2024
Materials
Key statistics:
Materials
of survey respondents expect raw material prices to rise due to supply risks from conflicts in Ukraine and Gaza.
Steel prices
increase to fabricated steel pricing index since February 2020 (pre-pandemic).
Concrete prices
increase in the price of ready-mixed concrete was observed between January and December 2023.
The ‘All work’ Construction Materials Price Index from the Department for Business & Trade continues to stabilise, with slight decreases seen towards the end of 2023.
Prices remain significantly elevated compared to pre-pandemic levels, with the Department for Business & Trade ‘All work’ Construction Materials Price Index showing a 38.0% increase between February 2020 and December 2023.
The index peaked in July 2022. Figure 42, which uses data from the Department for Business & Trade and the ONS, shows that while significant reductions occurred between July 2022 and December 2023 for materials, including fabricated structural steel, concrete reinforcing bars and timber, other products saw increases.
Increases are generally more predictable and less volatile and availability is good for most products and materials. Lead-in times have also improved, with only a few specialised materials still subject to long wait times.
Over half of survey respondents thought raw materials prices would rise due to supply risks from conflicts in Ukraine and Gaza. There are also concerns that the attacks on shipping vessels by Houthi rebels in Yemen could affect construction deliveries.
Approximately 30% of international container traffic passes through the Red Sea and Suez Canal — the Houthi group controls the southern entrance to the shipping lane. Prices for 40ft containers from the Far East to northern Europe increased from circa $1,170 at the beginning of December to more than $5,000 in January. Nine out of ten container ships are now rerouted around the Cape of Good Hope, the southern tip of Africa, adding up to 20 days to their journey to Rotterdam, the leading European port.
Although approximately three-quarters of UK construction products are manufactured in the UK or Europe, many components and materials are internationally sourced, particularly from China. Key construction imports from the Middle East include steel and sanitaryware.
There are also concerns that the unrest could lead to a spike in energy prices, as since Russia’s invasion of Ukraine, the EU has increased its imports of oil and liquified natural gas from the Middle East via the Suez Canal.
The situation is less severe than the issues encountered following the pandemic, particularly as supply chains are well versed in navigating disruption, but one to watch out for. If shipping costs increase and supply chain disruptions heighten, UK construction could start to feel the impacts.
Concrete
The price for ready-mixed concrete rose by 12.6% between January and December 2023, according to ONS/Department for Business & Trade data. There are also pricing pressures for green alternatives to cement, such as Ground Granulated Blast-furnace Slag.
Steel
According to Department for Business & Trade data, fabricated steel pricing peaked in May 2022 at 134.2% higher than in February 2020 (pre-pandemic). Since then, there have been reductions, but pricing remains elevated — the index for December 2023 was 40.9% higher than pre-pandemic.
Recent analysis from MEPS International indicated that activities in the Red Sea unsettle the steel sector. Some Asian steelmakers withdrew from the European market following additional shipping costs and time around the Cape of Good Hope.
Embedded carbon emissions reporting recently started under the new EU Carbon Border Adjustment Mechanism (CBAM) regulations — severely reducing the appeal and availability of imports. Overall, this may consolidate the higher prices offered by European mills during January, as elevated raw materials and energy costs were among the factors that prompted steelmakers to increase their offers, supported by reduced domestic steel production and limited import offers.
To support the drive for decarbonisation, the UK will implement a carbon pricing mechanism similar to the EU CBAM regulations by 2027. Imports of iron, steel, aluminium, ceramics, and cement from overseas will face a comparable carbon price to those goods produced in the UK.
The new rules aim to address 'carbon leakage,' minimising the possibility of production and related emissions relocating to other nations with lower or no carbon pricing as this activity threatens the country's decarbonisation initiatives during the global shift towards achieving net zero emissions. Various steelmakers have recently announced plans to transition to greener production. While the industry must become more sustainable to reduce emissions, concerns about the impact on local communities due to job losses exist. The locations affected are heavily reliant on the industry.
Tata Steel announced its plans to close both blast furnaces at Port Talbot in Wales as it transitions the steelworks to an electric arc furnace. The new steelmaking method will require fewer workers, resulting in approximately 3,000 job losses. In November, British Steel announced it would replace its blast furnaces in Scunthorpe with two electric arc furnaces, one at Scunthorpe and another at Teeside. Estimates indicate that 1,500-2,000 jobs would be lost as a result.
Steelmakers elsewhere make similar moves. France and ArcelorMittal recently announced a 1.8 billion-euro investment to finance electric furnaces and direct reduction plant. The move will cut French carbon emissions from the industrial sector by nearly 6%.
Turkish steelmaker Erdemir will invest $3.2 billion to cut emissions by 25% by 2030. The mill will reduce coal consumption using biomass and natural gas while the company builds new electric arc furnaces.
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