Will Rising Energy Prices Continue to Affect Material Costs in 2023?
It has been a challenging year for the construction industry, following Brexit and the impact of global lockdowns. Materials and labour shortages have been synonymous with the construction industry. Plus, on top of this, the war in Ukraine has resulted in sanctions, restrictions and rising energy prices, which plagued the supply chain with further disruption and uncertainty.
Material availability challenges have stabilised, but the price fluctuations will continue to affect the sector in 2023. Analysts say that the price predictability issues may worsen with UK-specific pressures such as rising inflation, the weakening of the pound, striking workforces and the looming forecast of a long recession.
Glenigan announce change in their predictions for 2023
In November 2022, Glenigan announced their prediction of a 2% drop in most types of project starts next year. This is a huge change from their 8% growth prediction for 2023, which was only announced in July 2022.
Glenigan November construction review states that there was a 17% decline in underlying project-starts against the preceding three months – but the fall in project starts has continued to slow during the three months to October.
The economic uncertainty caused by the government’s ‘mini budget’ and the continuing increases in energy and materials, has further impacted confidence to move projects to site. However, the good news is that the development pipeline started looking healthier at the end of October. The overall planning approvals were up 29% against the preceding three months and 22% higher than 2021 levels.
The industry has proved its resilience – but we still need to mitigate risks in contracts
While the steel construction industry has proved its resilience during this incredibly challenging year, it is important to remain focused on mitigating future risks. The price hikes have stabilised but material costs are forecast to increase due to the rising energy prices. Mitigating the risks associated with this is not easy.
Mitigating risks associated with supply chain disruption
When entering into new contracts, or where there is opportunity to revisit existing contracts, it is paramount that firms ensure that they are protecting themselves.
Ensuring contracts have robust escalator clauses, or inflation clauses, will allow for prices to be adjusted relative to annual or periodic inflation – particularly pertinent as inflation is now at a ten-year high.
Navigate the uncertainty ahead with early contractor involvement
Good contractor engagement and communication is also key, including early contractor involvement. Having the right people offering expert guidance and the most up-to-date activities for their sub-sector remains essential.
While no one can predict the future – particularly in such challenging, even volatile, market conditions as this – we can plan with the reality of uncertainty in mind. The above steps can at least begin to mitigate challenges and begin to bring some stability and long-lasting confidence to the industry.
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