Construction cost inflation reaches new heights


0

Busy, Busy, Busy The latest monthly Construction Purchasing Managers’ Survey confirms that the UK construction sector remained on a strong recovery path in May 2021, with production growth hitting its strongest level since September 2014. Moreover, new order volumes increased at the fastest pace since it began The survey is more than 24 years old. Input cost inflation also hit a record high during May, due to increased demand for building materials that suppliers are increasingly struggling to meet. At 64.2 in May, up from 61.6 in April, IHS Markit/CIPS UK’s seasonally adjusted construction PMI was above 50.0 unchanged for the fourth consecutive month and indicated the strongest production growth rate in nearly seven years. Home construction, which scored 66.3, was the best performing category for construction activity in May, followed by business with 64.4. The latest increase in work was on the steepest commercial projects since August 2007, reflecting strong demand conditions after the reopening of customer-facing areas of the British economy following the recent Covid-19 shutdown. Civil engineering activity (at 61.3) also increased sharply during May, although the pace of expansion was slightly slower than in April. The latest survey indicated a rapid recovery in new business across the construction sector. About 47% of the survey panel members reported a high volume of new business, while only 11% indicated a decrease. The survey authors said that builders attributed the increase in order books to strong demand for residential building work and high levels of confidence about the near-term economic outlook. The start-up of the new project and the sustained recovery in construction loads led to another significant increase in staff numbers during the month of May. The rate of job creation was the fastest since July 2014. Moreover, the use of subcontractor has increased at a pace not seen in this century. Reversing the trend in the order books, the latest data pointed to a sharp rise in buying activity across the construction sector. Some companies also indicated that the procurement of inputs was boosted by efforts to build stocks in response to supply shortages. Supplier delivery times increased sharply in May, with vendor performance declining the second largest since the survey began (exceeded only by that seen in April 2020). Extended supply chains and sharp rises in raw material prices have contributed to a rapid increase in average cost burdens. About 61% of survey panel members expect a rise in business activity, while only 8% expect a decline. The positive sentiment is mostly attributed to increased customer demand, combined with optimism about the UK’s economic outlook after the vaccine was introduced. Click images to enlarge Tim Moore, director of economics at IHS Markit, which compiles the study, said: “UK construction companies reported another month of rapid growth in production amid an increase in residential work and the fastest rise in commercial buildings since August 2007. Total new orders increased At the strongest rate since the survey began more than two decades ago, but supply chains again struggled to keep pace with rebounding demand.” There were widespread reports of building materials shortages and significantly longer waiting times from suppliers in comparison to those seen during April. The imbalance in supply and demand has led to record increases in purchase prices and rates charged to subcontractors. “Despite the severe challenges with the availability of materials, construction companies remain very optimistic about their near-term growth prospects. Nearly two-thirds of the survey panel members expected an increase in production over the next year, while one in thirteen expected a decline. Duncan Brooke, Group Director at the Chartered Institute of Procurement and Supply, said: “The construction sector continued its expansion program with a massive acceleration in growth and the strongest for seven years as new orders were fulfilled at the fastest rate in nearly a quarter of a century.” Busy purchasing managers were under pressure to continue buying. At the fastest rate since April 1997, changing supply strategies to find depleted basic materials and warehousing just as supply chain problems continued to increase along with prices. With inflation in goods and raw materials at its highest level in 24 years, companies will worry that much-needed profits will fade as construction projects take shape and could be delayed on some of the longest delivery times on record.” commented Brian Perry, chief executive of the Master Builders Association. : “Rising material prices continue to limit the ability of local builders to rebuild better from the pandemic. It is very disturbing to hear that the overall rate of input price inflation has been the highest ever. This is consistent with FMB State of Trade data showing that 93% of builders reported material price increases in the first quarter of this year. Against the backdrop of high levels of inquiries related to construction work, it is essential that small businesses have the same access to materials as large companies during these challenging times.” Fraser Jones, Baird Building Contractor’s Chief Financial Officer, said: “The key numbers tell a fascinating story about the construction sector’s recovery. , indicating a rapid rise in business and new orders at the highest level since 1997.” Talk about the prospects and see trends going in the right direction, but there needs to be a reality check as the ongoing crisis in material shortages threatens to undermine the rapid recovery we are seeing.” Supply is stretched like never before as the drop in factory production across Europe due to the coronavirus is really upsetting delivery times, along with ongoing difficulties at our ports due to Brexit. “Trust is back in the economy and customers are going ahead with the plans that have been put on hold, and our business chief is reflecting the recovery of the market in that sense. But in order to keep trust high, contractors must work smart and have a collaborative approach with suppliers and customers, to mitigate long waiting times. Relationships will be Strong relationships with suppliers along the way is crucial to get through what is likely to be a difficult second half of the year on the matter of materials.” Brendan Sharkey, head of construction and real estate at MHA MacIntyre Hudson, expressed concern that the construction sector may be in a bubble, with strong but temporary demand, looming price hikes and the imminent end of some government support. He said, “Today’s PMI shows that demand in the construction sector is still strong and everyone has a lot to do. However, in truth, many developers prefer a more steady and slower recovery. This frenetic market is coupled with the specter of the upcoming crash to end the boom.” Bust Migraines are far from a foregone conclusion, but it’s a risk to watch out for. Hopefully the sector will see a softer fall and we’ll see the housing market pull back, perhaps by September, rather than crash and burn. “One potential pitfall comes from demand. With the current Stamp Tax (SDLT) holiday lowering at the end of June, and with some of the current interest in moving house potentially fading as the country reopens, demand could start to falter. Another potential problem is inflation and rising materials costs. Construction, such as timber, cement and gypsum board.Some companies may not price this in their current contracts and could collapse.They may think that they have done a lot of work only to find that it is actually not profitable, which is an easy mistake to make in an industry that usually operates with meager margins at the best of times Larger companies are likely to get around this much better than smaller contractors, because they usually have better contracts and greater influence with suppliers.Land scarcity is also a related problem.Obtaining viable land at the right price for smaller construction projects has become a more problematic, and may act as a Another pitfall for small developers. In general, we’re in strange times and it’s copious periods of expansion like this that are testing the industry as much as it is testing periods of contraction.” Do you have a story? Email [email protected]


Like it? Share with your friends!

0

What's Your Reaction?

hate hate
0
hate
confused confused
0
confused
fail fail
0
fail
fun fun
0
fun
geeky geeky
0
geeky
love love
0
love
lol lol
0
lol
omg omg
0
omg
win win
0
win
Joseph

0 Comments

Your email address will not be published. Required fields are marked *