The last 18 months has seen a whirlwind of price increases and material shortages for the construction industry, the pandemic has caused increases in steel prices due to the steel furnaces being shut down during Lockdown 2.0 and rises in inflation. Cement and aggregates were added to the short supply list and became the latest materials to see huge price increases earlier in the year – again, due to the pandemic. We are now experiencing price hikes in timber, will it ever end?
What is happening with the timber supply and why have prices skyrocketed to an all-time high?
This time we cannot blame the pandemic entirely. We have to look at ourselves, climate change is playing a huge part in the short supply of timber due to an age-old beetle infestation, Dendroctonus ponderosae in Canada, which is affecting imported wood supply. The beetle has been in Canadian forests for decades and is usually kept at bay by cold winters, but due to changes in the climate and years of warmer winters, the beetles are living longer and reproducing quicker – according to scientists.
British Columbia used to provide 15-17% of all the lumber going into the United States markets, making up half of Canada’s lumber exports across the border. Since the rise of the infection, these numbers have now dropped to below 10%, a significant drop hitting the market hard.
We must also address the impact COVID-19 has had on the effects of the timber industry – many experts anticipated a crash in demand as sawmills ground to a halt, like so many other businesses in 2020, but the crash never came and what we saw was a huge rise in demand as people decided to invest in property renovations and new house builds. As interest rates were low and still remain to be, the last 18 months has been a great time to finance and construct new houses and industrial units.
According to the Department for Business, Energy and Industrial Strategy (BEIS) and statistics provided by the Forestry Commission, timber prices, which have been rising steadily since May 2020. This May were up again! Sawn or planed wood increased by 3% between April and May, with imported plywood prices rising 4% after leaping more than 12% the prior month. Imported plywood was 29.8% more expensive in May than it was a year ago. The Construction Leadership Council (CLC) warned last month that prices of materials such as timber and steel could keep rising throughout 2021.
What does this mean for the construction industry? It is important for construction businesses to be working closely with their supply chain and communicate requirements early with suppliers, distributors and builders merchants. As always, communication is key.
For businesses already engaged in long-term fixed-price contracts, the recent circumstances are likely to be very different from the prevailing conditions at the time when the contract was entered into. Customers want to see projects finished on time and on budget and will not want to see already strained supply chains placed under further financial pressure which have caused so many insolvencies throughout the industry already.
For businesses negotiating new contracts and running tender processes ensuring potential price increases and potential delays in obtaining materials are priced into business cases and incorporated into new contracts.
Now is the time for businesses to be checking contract provisions carefully and to understand who bears the risk associated with increased costs and delays.
Materials currently being affected by manufacturing, supply and price increases in the construction industry;
- Timber
- Steel
- Roof tiles
- Cement
- Electrical components
- Paints and sealants
- Plaster and plasterboard
- Concrete
- PIR insulation
- Bricks and blocks
- Aggregates
- PE and PP plastics
- Screws
- Fixing
- Plumbing items
- Sanitaryware
- Shower enclosures
In conclusion, it is vital for businesses to keep up communications throughout their chain – no one likes a last-minute price hike and no one likes a hold up to their project. Keeping your chain in the loop early on means negotiations and discussions can take place quickly and efficiently, giving each party the chance to deliver effectively.