Soaring gas and electricity costs are adding pressure on construction companies as energy-intensive industries, including steel, concrete and cement, pass on the impact of rising price.
British Steel, the UK’s second-biggest producer, is among several companies to raise prices in recent months, blaming the impact of wholesale energy costs. A number of building materials groups, including Tarmac, have recently announced online energy surcharges on some materials. Tarmac declined to comment.
The cost of the wholesale gas futures contract increased by 80% between May and November 2021, according to Ofgem, the UK energy regulator. Meanwhile, construction demand has returned to pre-Covid-19 levels in November, according to trade body Construction Products Association, which expects activity to rise 4.3% this year.
The industry fears that sustained high energy costs will add to pressures at a time when it is grappling with a shortage of workers and rising prices for materials such as cement, wood and steel due to high demand, port blockages and high shipping rates. over the past year.
Construction insolvencies have risen sharply over the past year and in November 2021 were 22% higher than pre-Covid.
Noble Francis, chief economics officer of the CPA, which represents more than 24,000 manufacturers, said rising gas prices were affecting heavy, energy-intensive building products such as bricks, cement, copper and aluminium, where energy accounts for about a third of the costs.
“Obviously, manufacturers won’t be able to absorb all the costs themselves, so they will be passed on to contractors who are already suffering from steep price increases despite high demand,” he said.
Last Thursday, Chancellor Rishi Sunak announced help for consumers facing a 50% rise in their electricity and gas bills from April, but no help was given to energy-guzzling manufacturers.
Construction sites consume a significant amount of electricity, with the main contractor usually bearing the cost. Construction plants will also be more expensive to operate after April, when the duty exemption on the industry’s ‘red diesel’, worth 47p a litre, is scrapped. In addition, around 20-25% of the cost of most construction projects comes from materials, so any price increases related to energy costs can have a “seriously inflationary effect”, said Simon Rawlinson, partner at Arcadis, a consulting firm.
Prices for fabricated structural steel rose 66% in the 12 months to November, while the cost of doors and windows rose 12.9% and that of particleboard rose 64%. .3%, according to data from the sales department.
Suzannah Nichol, chief executive of trade body Build UK, warned that ‘some companies will not be able to sustain these increased costs during a project and may fold – and other ongoing projects will simply become unviable’ .
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“This is a further cost increase and will hit employers and businesses alongside a National Insurance hike, the removal of the red diesel rebate as well as existing material cost increases. which are also rare,” she said. .
British Steel, which owns the Scunthorpe plant in north-east England, last month blamed sustained high manufacturing costs for a £50-a-tonne rise on structural sections for all new orders . The company confirmed the price hike but declined to comment further.
ArcelorMittal, Europe’s largest steel producer, announced to customers just before Christmas that it was raising prices for long products used in construction by at least €100 a tonne.
European steelmakers have been strained over the past year as a combination of high energy costs and supply chain disruptions offset what has been one of the strongest years for the industry due to soaring commodity prices.
UK Steel, the industry trade body, said companies had “done their best” to absorb most of the increases due to rising input costs including power, coal and carbon, but that many “had to put in place temporary surcharges to recover some of it”. .