What factors influence product price in the construction industry?

The recent demise of construction services company, Carillion, proves that no company should take the success of their business for granted. Despite creating some of the world’s best engineering art, in the form of the Queensferry Crossing, The Shard and Aberdeen Western Peripheral Route, the construction industry traditionally toils in the doldrums of high risk and low return.

Major contractors aren’t the only ones vulnerable to the perils of the industry. Construction is the third largest sector in Scotland and contributes a staggering £90 billion to the UK economy every year. There are over eighteen thousand construction businesses active in Scotland, accounting for over nine percent of all businesses and a huge volume of these are SMEs.

SMEs often have different challenges to face. In a time where economic prosperity in the North East of Scotland is proving a workload challenge, the rising costs of materials influenced by worldwide issues such as natural disasters are creating a difficult time for tradesmen.

GPH pride themselves in negotiating the best price for their customers

As a merchant of materials related to every aspect of a building project, GPH Builders Merchants work tirelessly to reduce the economic impact, where possible, on our customers. It’s important that we communicate regularly with customers to keep them apprised of the movement in the materials market so increasing costs can be factored into future bids.

There are lots of external factors to consider – most of which you have no control over

In October 2016, a fire in a chemical factory in Germany initiated the 2017 shortage of Methylene Diphenyl Diisocyanate (MDI) – the key component in polyisocyanurate (PIR) Insulation. Further production issues in the remaining production factories exacerbated the problem throughout the year. These shortages and production problems resulted in the value of MDI rocketing, resulting in a 40+% increase in cost during the year.

Unfortunately, the impact of MDI shortages didn’t stop there, building chemicals such as silicones and sealants have been impacted also by large increases impacting the sector.

Another area of construction which has been and is still being hit hard by increases is timber and sheet materials. The deadly hurricanes which hit North America and the Caribbean in 2017 alongside growing economies in Asia and the Far East are impacting the cost and availability of sheet materials. The huge rebuilding job required in the Caribbean will impact the UK market. Despite the introduction of new production lines for OSB in Scotland coming on stream, the bulk of this product is likely to be exported to foreign shores where the strength of the Euro/Dollar to the Pound makes this more lucrative for manufacturers.

The effect of a Trump presidency is also being felt in the UK, with record US timber prices impacting the UK imports and homegrown prices. A 23% duty on timbers imported to the USA through Canada has increased the demand for Swedish and other European timber. This has driven the value of UK logs up and therefore the price of homegrown carcassing timber. This is expected to continue throughout 2018.

The current cost and availability of facing bricks in the UK is a major challenge due to the demand for brick, predominantly in England. Lead times for quantities of some brick types can be several months.

Gyproc products have also seen a considerable rise in early 2018 with standard plasterboard sheets being subject to a 7% rise, while specialist boards such as insulated thermal board are much greater.

Throughout 2017, contractors purchasing concrete roof tiles will have experienced lead times of up to 16 weeks for certain tiles. We understand the situation to be easing with further improvements in lead times anticipated through 2018.

GPH are committed to doing the right thing

Managing Director, Grant Shewan explained: ‘Managing what and where we buy a product from is an ever increasingly difficult task. To ensure we offer our customers the most cost-effective quality products available, we must watch the market movements closely.

In 2017, GPH created the role of Trading Manager to ensure we had a single focus on this every day. Our Trading Manager, Isabelle Campbell, works closely with our supply chain of over 500 suppliers to mitigate these industry increases where possible. Working alongside Isabelle, is Morag, our Buying Administrator who keeps on top of suppliers pricing.

Product increases are often unavoidable due to some of the issues highlighted, however, to alleviate the impact on customers we pride ourselves in being as transparent as possible – communicating with customers on a regular basis to notify them of the market movements’.