A Historical Price Surge for Building Materials

08 July 2021

 

by Claudiu Bisnel, CEO, Brisk Group

The pandemic plunged the world into the most revolutionary hybrid work experiment - which proved to be a success.  It really shifted companies’ mentality, placing employees’ health and wellbeing at the heart of the labor market,  a premise that could lead to an interesting diversification of the workforce.

Entrepreneurs, including construction companies, are accustomed to adapting quickly and implementing various continuity strategies. This ability to adjust has positioned constructors well during the pandemic and emphasized the crucial role it plays in society, making the industry more accessible and attractive for a greater pool of potential employees. In general, companies that are willing to take on present challenges, and react by developing and adopting new processes and capabilities to protect their workers, minimizing future project disruptions, have an edge in today’s current business climate. By complying with government regulations and restrictions, while correctly  managing customers and suppliers, they will inevitably become stronger.

Diversification will become increasingly important for the construction industry, and contractors will be more willing to explore how they can work in different industry sub-sectors, especially after the slowdown of the office sectors in the immediate future, and the hard hit taken by retail, leisure and hospitality. Digitalization will also continue to be a strategic pillar for most entrepreneurs, in a quest for higher productivity. Many companies have initiated new working groups to understand the impact of COVID-19 on their business, and have implemented new ways of working.

Construction Materials - Price Surges

In the first months of the pandemic, many entrepreneurs were unable to obtain basic materials - sand, cement or bricks, for instance - while also suffering from labor shortages. Prices for construction materials increased by historical highs. According to market information, we are witnessing a  94% rise in the price of copper, a whopping 250% for timber, over 50% for aluminium, 120% for steel, 15% in the case of cement, 20-25 % for brick, about 30% for iron and 10% for paints. The increases are spectacular for at least two reasons: as the pandemic unraveled, production capacities were scaled down, but things picked back up much faster than expected meaning that producers could not keep up anymore.

Romania has been particularly affected because most materials come from imports. Therefore, the wave caused by the pandemic is only now reaching the construction sector, and everyone must brace for tough times ahead, cost wise. Volatility between the RON-EUR or RON-USD exchange rates can further contribute to higher prices for imported materials. Moreover, the increase in the minimum wage has led to a 25-30% increase in labor costs.

All these elements combined will likely further lead to a rise in construction prices. Analysts point out that price increases, fueled by government spending meant to salvage economies from a new economic crisis and encourage a back-to-normal demand, will put added pressure on supply chains. 

For many entrepreneurs, early payment to suppliers has proven essential to keep things going and is likely to remain a post-pandemic priority. Smaller subcontractors are often less able to take risks, so paying them in advance can help ease the challenges of cash flow in a changing environment where the ability to mobilize quickly is vital. Practices such as "reverse factoring" - where large companies make arrangements with third-party financiers to pay their suppliers' bills in advance for a fee - may be re-evaluated in the future.




This article was originally published in Real Estate in Romania & Poland 2021 report, available in full here.

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