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Rising raw materials costs hit industry

10 February 2017

The construction sector is being hampered by the rising cost of raw materials and the growing skills crisis which has seen the demand for carpenters and plasterers reach a nine-year high, the latest industry survey reveals.

According to the Construction Products Association (CPA) trade survey for Q4 2016, while an increase in sales, output and workloads were all reported during the final quarter of the year, firms across the industry are bracing themselves for further cost pressures after reporting a hike in material prices.

The survey showed that overall costs increased by 75% for main contractors, 78% for heavy side manufacturers and 88% for both civil engineering contractors and light side manufacturers.

Among the issues reported in the survey covered were:

Output

38% of contractors reported that construction output rose in Q4 compared with a year earlier. For specialist contractors, output increased according to 14% of respondents, on balance. This increased slightly from a balance of 7% in Q3, but was down markedly from 38% in 2016 Q1.

Costs
Materials and labour costs remained the key drivers of cost rises for main building contractors during the fourth quarter of 2016. A balance of 75% of contracting firms reported that materials costs rose in Q4, with 56% of firms, on balance, also reporting labour costs were higher over the quarter.

Employment
Overall, 13% of contractors reported difficulties recruiting general onsite trades in Q4. The supply of carpenters and plasterers was the largest concern in the quarter, with 71% of main contractors reporting difficulties with recruitment of carpenters and 67% of firms reporting recruitment difficulties for plasterers. 40% of main contractors cited difficulties in recruiting bricklayers in the fourth quarter.

Expectations
Contractors’ order books were reported to be lower in four sectors in Q4 compared to the previous quarter. Order books were lower in private housing and industrial (balances of 18% and 20% respectively), 13% reported lower orders in public housing and 10% in private commercial. Order books were reported to be higher for 25% of main contractors in non-housing R&M and for 9% in public non-housing.

Commenting on the survey, Rebecca Larkin, senior economist at the CPA, said: “The construction industry closed 2016 on a strong note, with activity improving for firms throughout the supply chain. However, order books and enquiries were lower for contractors and signal a weaker outlook for 2017.

“Cost pressures continued to rise, particularly for imported raw materials, and compound the risks that activity will be unable to grow at current rates over the next 12 months. The construction products manufacturing industry is responsible for directly employing 280,000 people and whilst government has a role to play in providing certainty for projects, industry will need to find ways to navigate rising costs.”

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