The Rising Cost of Raw Materials
While the rising cost of raw materials has generated a lot of headlines in recent months it’s now becoming increasingly apparent just how widespread this problem really is. Research carried out in April 2022 has established that an overwhelming majority of businesses supplying construction raw materials are now being affected by spiralling costs. In fact, while we were all prepared for an imminent increase, prices have been higher than expected – and are likely to continue to rise.
What are the costs involved?
The Construction Products Association recently polled manufacturers and found that all of them had experienced a cost increase during the first quarter of the year. These are some of the specific costs where there has been a noticeable shift:
- Energy costs have risen for many since this time last year.
- Fuel prices have gone up across the board.
- Raw materials have increased in cost since 2021.
- Many employers are now paying higher wages.
- Tax and exchange rates are also having an impact.
What about raw materials specifically?
There’s no doubt that recent market conditions have meant that the cost of raw materials has increased significantly, including the tightening of supply due to international instability. In particular, steel, cement and glass prices have all gone up by more than 10% since the start of the year. Every manufacturing that the Construction Products Association spoke to for their poll reported that the cost of raw materials had risen for them this year. This was affecting not just the raw materials required for construction but also other products, such as windows and doors.
What is causing the hikes in prices?
The Russia-Ukraine conflict has affected energy prices across the board and had an impact on some materials. Inflationary pressure is also a key factor, as well as poor political management of the various crises that have affected the UK in recent years, from Brexit to the supply chain crisis. There is a particular risk for smaller businesses in the construction sector, which tend to be less insulated against this kind of economic change.
Is there any good news?
Yes, despite the challenging circumstances, construction demand remains strong and forecasts for growth are positive over the coming months. In the first quarter of 2022, construction product sales rose and manufacturers of both heavy and light-side products anticipate a rise in sales throughout the rest of 2022. Near-term demand is strong and this is going to be a key lifeline for surviving the current price rises for many construction enterprises. However, being able to sustain activity in the industry is going to depend, to a certain extent, on what happens with shortages – and how, and when, prices continue to rise.
The rising cost of raw materials is affecting every business in construction today and creating some serious challenges. The rest of this year will be crucial in terms of the outlook for 2023, and beyond, and whether the construction sector has the support to rise to the most positive forecasts for it.