Rising Material Costs Exacerbate Industry Problems

A sharp increases in material prices during the final quarter of 2010 exacerbated the construction industry’s problem of falling workload, according to the latest Construction Trade Survey.

Furthermore, with no expectation that material price inflation will fall near term, product manufacturers and contractors anticipate that sales and workloads will decline in 2011 due to economic uncertainty and falls in public spending.

The quarterly survey is produced by the Construction Products Association (CPA), with input from members of the Civil Engineers Contractors Association (CECA), the National Federation of Builders (NFB), and UK Contactors Group (UKCG. The information is compiled from a survey of members from across all sectors of the industry.

CPA economics director Noble Francis said:  ‘The Construction Trade Survey for 2010 Q4 highlights the effect of the poor weather in November and December, which combined with falling demand across the industry and sharprises in costs during 2010, such as the 46% price increase in copper and 80% in iron ore, are exacerbating problems for the industry. Although January will see a slight upturn due to a degree of  catch-up™ work lost during the poor weather in Q4, this is likely to be shortlived and firms across the whole industry are pessimistic looking forward.  We have not yet seen the full impact of the public sector spending cuts and without a considerable improvement in private sector construction, a recovery in the industry as a whole will be delayed; as construction accounts for around 9% of GDP, this will inevitably hinder growth for the economy during 2011.

‘With 70% of light side manufacturers and 56% of heavy side manufacturers experiencing a fall in sales in Q4 compared to a year ago along with 22% of building contractors also reporting a fall, there is great uncertainty regarding economic activity during the coming year.’

UKCG director Stephen Ratcliffe said: ‘While most UKCG members are reporting good order books for 2011, there is real uncertainty about the future especially in relation to public sector investment.  For example we are still awaiting the conclusions of the James review of school building and many other public sector forward lines of investment remain unclear.  UKCG has called on the government to clarify infrastructure investment opportunities as a top priority in its growth strategy

NFB chief executive Julia Evans added: Given that the full extent of the governments spending cuts has yet to work its way through the system, the combination of less work, rising material prices, lower margins, continued lending restrictions and a rise in VAT could not have come at a worse time. Companies can only battle these conditions for so long. With the rate of construction insolvencies exceeding that of other industries, the impact on our skills base will be devastating.

Key survey findings are:

Fewer than 10% of building contractors reported problems recruiting on-site labour in 2010 Q4

90% of light side firms and 53% of heavy side firms stated that employment fell in the fourth quarter of 2010

Only 46% of building contractors reported that they were operating at between 90% and full capacity in 2010 Q4

47% of light side manufacturers and 61% of heavy side manufacturers reported that rising raw materials costs had led to a rise in manufacturing costs in the fourth quarter of 2010

Only 4% of specialist contractors reported being paid within 30 days but 3% of specialists paid in over 90 days during 2010 Q4

81% of light side manufacturers reported a rise in investment in product improvement and 64% reported a rise in investment in plant and equipment in the fourth quarter of 2010

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