Building material prices finally began their descent in the third quarter of last year. Falling demand globally should keep them that way for most of 2009 While 2008 has ended with building materials prices moderating, during the course of the year prices were volatile and difficult to predict. Oil-based materials or materials requiring heavy manufacture and transport were worst affected due to the significant increase in fuel and energy costs during the year. |
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| A quarterly analysis however throws up a somewhat more volatile picture of the year past. First quarter prices showed a 3.9% annual increase overall, with bituminous emulsions showing a 23.8% increase. Stone, sand and gravel increased by 10.8%. Half year prices reflected a 4.3% annual increase overall, with reinforcing metal increasing by 26.9%, bituminous emulsions by 23.1% and structural steel by 18.8%. The third quarter showed an annual increase in overall prices of 4.5% with bituminous emulsions increasing by 29.3%, reinforcing metal by 27.8% and structural steel by 20.2%. However, from September to November of this year, bituminous emulsions decreased consistently by -0.5% in September, -4.8% in October and -12.6% in November. Stone, sand and gravel remained reasonably constant through the year, with first quarter showing a 10.8% increase, half year dropped to 8.9% increase and in November it returned to 10.8%. Cement remained at a constant increase of 5.9% throughout the year. Readymix mortar and concrete stayed reasonably constant at 4%, dropping slightly to 2.9% at half year. Concrete blocks and bricks decreased by between -1.4 and -0.8%, while other concrete products saw the most consistent decrease of -4.2%, returning to -2.1% in November. Rough timber decreased by -2.3% in the first quarter and in November showed a drop of -4.1%, whereas other timber, including joinery, had increased by 7.2% in the first quarter but dropped back to a 2.2% annual increase in November |
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| In terms of attempting to rationalise the past year with a view to anticipating what the year ahead holds, there is no doubt, as previously noted, that oil and energy prices had a dramatic affect on the price of building materials. However there were also other factors. The global economic downturn may well impact on prices over the coming year as was experienced this year in the worldwide steel business, a sector which possibly illustrates best the volatility in material prices during 2008. ArcelorMittal, the world’s largest steelmaker reported higher than anticipated profits during the early part of 2008. While the company experienced a decline in its European business, it had up to mid year, better than expected performance in Asia, Africa and the former Soviet Union. Global prices for hot-rolled steel coil, a benchmark product used in manufacturing and construction, increased by 66% up to the middle of the year. ArcelorMittal made acquisitions in Africa, Russia and the US in the past year in a bid to increase self-sufficiency in coal to more than 15% as prices of coking coal and iron ore, both essential ingredients in steel manufacturing, rose to a record high on booming demand from emerging economies such as China. Growth was expected to continue from newly industrialising economies such as Brazil, Russia, China and Eastern Europe. However, against expectations steel prices have declined steadily during the second half of 2008. Indeed it could be said that in the latter half of the year world steel production slumped. Figures released by the World Steel Association International show that world crude steel production for the 67 countries reporting stood at an estimated 89.0 million tonnes in November 2008 — 19.0% lower than for the same month of 2007, and most dramatic, 10.3% lower than the previous month, October 2008. Furthermore, China imported 32.52 million tons of iron ores in November, down 7.9 percent on year, according to the latest data released by China General Administration of Customs. In the latter part of 2008, in Europe unprecedented steel market conditions were witnessed, with mill order books collapsing. In Germany, France and Italy, the decline has been very fast and very aggressive with up to 35% reduction in output from mills. Prices are still being marked down, with many purchasers cancelling steel orders. Distributors may have plenty of material, possibly enough to fill their orders for 2009, no doubt contributing to global steel price falls of 15% in November. This could all lead to a continued decline in steel prices into 2009. In terms of the domestic market in Ireland, building and construction material prices are likely to decline in 2009. The CSO reported that third quarter output in building and construction was down by 24.4% from the same period in 2007. The drop off in building output in Ireland is by far the largest over the Eurozone where the average reduction in annual output is 2.8%. The reduction of value and volume indices of production in residential building in Ireland dropped by 49% from the same period last year and a staggering 67% from the record high of third quarter 2005. This would suggest that demand for domestic building and construction materials will remain low in 2009 and accordingly prices should decline. Should oil prices remain at the current low, then oil-based materials, like plastics, macadam, etc will have consistently low input costs which will see their prices fall. Equally, the impact on energy and transport costs for heavily manufactured materials should see a fall in cement and concrete-based products, timber and timber-based products. However, as credit tightens and demand reduces one cannot rule out the prospect of mergers and acquisitions in builder’s merchants and wholesalers. Should such an occurrence happen, it might lead to a reduction in competition which could result in a consolidation of pricing. n This article was written by Micheál O'Connor of McInerney Homes/Contracting Ltd, vice-chairman of the QS (Quantity Surveying) Division, The Society of Chartered Surveyors |
