Could material and steel price rises hamper the construction industry’s upward trajectory for 2022?
The construction industry continues to move at pace even in the face of ongoing challenges, the latest analysis shows.
Reviewing planning approvals, contract awards and project starts for the first few months of 2022, construction industry commentators from Glenigan and Barbour ABI say the year is shaping up strongly.
But sharp steel price rises and other cost increases coupled with global events could quickly have an impact, they warn.
“Positive outlook” – Glenigan’s review
In its most recent Construction Review, Glenigan reported how modest increases in activity point to a steady year ahead for activity. However, its analysts added that rising material costs are likely to have an impact on output.
While detailed planning approvals and main contract awards picked up in February, after a slow start in January, project starts remained low. The value of underlying work commencing in the three months to February fell far short of the same time period a year earlier, 30% lower, and also behind the preceding three months, at 12% behind. Ongoing supply chain challenges were to blame, the analysts said.
Overall, though, construction output was higher in the three months to January 2022 compared to the same period in 2021, albeit at more modest levels of growth. The Industrial and Infrastructure sectors led the way for this, as both sectors saw activity increase by more than 30% compared to 2020/21 figures.
Performance across individual sectors continued to be a mixed bag, according to the Glenigan Index – which reports on new projects valued below £100m. While Residential, Health and Education output fell in the last reporting period, Retail, and Hotel & Leisure enjoyed a better few months.
“Stratospheric” figures – Barbour ABI’s analysis
Barbour ABI highlighted a “stratospheric” period as a raft of new renewable generation projects contributed to £12.4bn for planning approvals in February.
Similarly, it reported on a “record streak” for contract awards, with £7bn awarded in February. This continues the trend for contract awards topping £6.5bn each month since March 2021 – 50% higher than average monthly awards in the 12 months from March 2020. Almost all sectors showed increased activity, not least Hotel & Leisure, which saw contract awards top £1bn for the first time in 12 months.
Even in sectors with seemingly lower output, activity is higher than historical standards. While Infrastructure fell back by 33% its £1.2bn contract awards continue average levels, for example.
Infrastructure led the way for planning approvals though, as the go ahead for a £2.3bn offshore wind farm contributed to that £12.4bn total planning approvals for February.
Both Glenigan and Barbour ABI’s analysis reflect the continued optimistic outlook for the year ahead. However, all activity will be dictated by the construction industry being able to withstand ongoing market challenges around the availability and accessibility of materials and the feasibility of managing price rises.
Steel price rises
Of course, the most significant development of the last quarter was the record steel price rise. Large steel sections rose to more than £1,000 per tonne in March as huge increases in energy prices impacted production costs.
While some commentators fear this could prompt a slowdown across the construction industry there’s also a view that businesses are now better equipped to navigate market volatility. The lessons learned around strategic procurement and early contractor involvement, for example, throughout the last two years will position many to manage further challenges.
Contractors and clients alike must remain agile and alert to market pressures. Working with trusted suppliers continues to be key in navigating these challenging times.
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