Rise in cost of building materials and tight supply put construction on the back foot

The snow that literally froze Texas and Louisiana in February has unexpectedly turned up the heat on Irish builders returning after a sustained Covid-19 lockdown. In recent weeks, suppliers have been warning the industry that materials prices are firmly on the way up.

"It's been across the board," says Martin Mackey, chief executive of the Hardware Association of Ireland, whose members supply builders and householders. Those businesses' own suppliers have been writing to them warning of hikes ranging from 5 per cent to more than 20 per cent for widely-used materials.

Prices for plastics, man-made polymers and resins, used in everything from piping to insulation have been rising rapidly over the past few months. Most of these materials are derived from oil. The bad weather in the southern US, a big source of oil itself and the various products derived from it, hit their manufacture earlier this year, creating a squeeze on supplies, aggravating a problem that dates back to early 2020.

The owner of one hardware business, based close to the Border, says he has received letters from the main suppliers of these products in both the Republic and the North saying that they will have to increase prices, and warning in some cases that they may have difficulty meeting orders.

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Brett Martin, maker of pipes for plumbing and drainage, plastic sheets and skylights, wrote to this business recently saying it would increase prices for most products by an average of 12 per cent from May 1st, but it added that "pipe products will increase with immediate effect by 23 per cent".

Sent to customers earlier this month, Brett Martin's letter blames significant disruption in the supply of raw materials. "This is due to a combination of global factors including unprecedented demand, multiple force majeures and the inevitable interruption of supply chains caused by the Covid-19 pandemic and the severe weather in the southern United States of America," it says.

The cold weather along the US Gulf of Mexico coast halted or disrupted manufacturing. Total Petrochemicals & Refining, whose products provide the raw material for plastics and polystyrenes used across construction, declared a force majeure (unforeseen circumstances beyond its control) when the weather hit its operations at La Porte in Texas.

The company, part of energy and oil major Total, worked to get its main production lines back through March. By the end of that month, reports said that it had told customers that it had all lines back up and running well, adding that it hoped it would be “business as usual” by June.

Total declared its force majeure on February 17th. Other big producers, including Dow Chemicals, Flint Resources and Formosa Plastics, did the same within days. All the announcements covered various raw materials used to make plastics and other substances that eventually end up in our homes and buildings.

Global supplies

This fed into the global supply network, at one end of which lies Irish construction, whose costs are rising as a result. The problem is reverberating through the industry. As Total was wrestling with bringing its Texas factory back on line in March, Longford-based Mannok EPS Insulation told customers that it would have to increase prices by 15 per cent from this month. It cited a "force majeure" called by a leading worldwide supplier of a key component and accelerating world-wide costs.

Wavin, which supplies pipes, wrote to buyers saying it would have to increase prices for drainage and heating products by between 5 per cent and 12 per cent. That followed a similar letter from the company in January saying it would boost charges by 8 per cent from March. Wavin followed that communication with a warning in March that the raw material issue could result in supply problems, so products may have to be provided on allocation. Cork Plastics, which sells pipes, PVC products and windows, announced a 10 per cent hike on all orders it receives from Friday, April 30th.

Another Cork-based business, Pipelife, told much the same story, pointing out that it would have to increase its charges by 2.5 per cent to 12 per cent. The company noted that the entire plastics industry was facing unprecedented problems with the availability and price of raw materials. The bottom line, it said, was that “prices have risen considerably over the last number of months with no signs of abating”.

Laydex, a Dublin-based supplier of roofing, flooring and fire proofing, blamed Covid-19's "destabilising" effect on supply and prices when it informed customers that charges for a wide range of products would go up by between 5 per cent and 20 per cent for felt roofing, and between 5 per cent to 15 per cent for silicones, glues and chemicals. Dublin-quoted Kingspan said it would increase the cost of its Therma and Greenguard range of insulation products by 12 per cent to 15 per cent.

Kick in

Those letters were just the latest round. They began arriving at hardware and construction goods suppliers through March and April. Many of the increases of which they warn are beginning to kick in now. At the same time, most Irish builders are emerging from enforced lockdowns, with the last of them due to return to work next week.

One hardware supplier says it is “impossible” not to see this feeding through to construction costs, further hitting an industry that has lost more than a quarter of this year. He predicts that builders working on contracts for prices agreed before these hikes in charges materialised could find themselves in trouble as they find costs increasing unexpectedly.

Nevertheless, Mackey argues that the impact of this on house building costs should be marginal. “If you look at a three-bed semi-detached home, which sells for about €300,000 or €350,000, construction materials costs are 13 per cent of that,” he says. “That means that materials costs will go from 13 per cent to about 14 per cent.”

According to Mackey, the crunch for the industry is obtaining the materials in the first place. “Getting supply is the issue at the moment,” he says. The impact of severe winter weather on the US is one factor, but another development across the Atlantic is also hitting Irish builders, President Joe Biden’s $2 trillion recovery package.

Building and infrastructure redevelopment form a big part of this, putting further pressure on both supply and prices, Mackey says. “They are paying top dollar for everything,” he points out. One of those things is timber, needed for the 35,000 homes or so that the Republic must build every year if it is to tackle its housing crisis.

Timber

Under normal circumstances, this should not be an issue, as the Republic produces more than enough timber for its own needs, so is an actual exporter. However, delays in processing licences, needed for tree felling and planting, have created bottlenecks here that prompted sawmills to begin importing the commodity last year simply to meet orders.

The Department of Agriculture, Food and the Marine has hired more staff to aid in processing licence applications, while legislation passed last autumn should streamline the appeals system, which was part of the problem. However, State forestry company Coillte and the broader industry still believe it will take the rest of 2021 before normality is restored.

Meanwhile, global demand, and thus prices, will continue rising. This limits the scope for importing wood to make up any shortfall here, while also hitting the Irish forestry industry's ability to cash in on potentially lucrative export opportunities. Two-thirds of builders who took part in a recent Construction Industry Federation (CIF) survey said they were seeing timber prices increase, while 30 per cent were having problems sourcing it in the first place.

Irish timber supplier Balcas recently warned customers that it would have to increase prices. At another level, one British business told an Irish customer that it could not supply oriented strand board (OSB), used virtually everywhere in construction, saying it could not source the raw material (wood) to make it in the first place.

The picture is much the same with steel. CIF members report price increases of 10 and 20 per cent for this material, used in commercial and industrial buildings, while one in five of those companies was having problems obtaining enough of it in the first place. Cement aggregates, one of the most basic building products of them all, are going up in price by 6 to 10 per cent, federation members say.

Feeding into all this is a Covid effect of another kind. After more than a year of lockdowns, people are doing up or extending their houses, creating further demand for building materials. Planning applications for extensions in the Republic rose 45 per cent in the last quarter of 2020 over the same period in 2019. In the North, they were up 49 per cent.

“You only need planning permission for an extension where you are doing substantial work,” Mackey points out, adding that those figures are not likely to reflect the true extent of home improvements under way across the country, which will pile more pressure on supplies. That is extending down to demand for garden furniture and decking as people prepare for another “holiday” at home.

One hardware supplier observes that “barbecues simply cannot be had anywhere”. The families snapping them up may be hoping for a long, hot summer, the kind you are more likely to get in Louisiana than here. Meanwhile, the heat is already on the construction industry.