Material Prices Plummet As Building Stalls

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UK construction companies indicated a decline in business for the third consecutive month in November, led by another sharp fall in residential building. This has caused material prices to plummet.

This is the headline news from the S&P Global/CIPS UK Construction Purchasing Managers’ Index.

Elevated borrowing costs and subdued demand for new housing projects were widely cited as factors holding back construction activity.

 

Materials lowest for 14 years

The latest survey data pointed to the steepest reduction in purchasing costs across the construction sector for more than 14 years. This was linked to lower raw material prices, alongside greater competition among suppliers in response to falling demand for construction inputs.

S&P Global/CIPS UK Construction Purchasing Managers’ Index (PMI) is a seasonally adjusted index tracking changes in total industry activity. The latest reading was the second-lowest since May 2020 and signalled a marked reduction in total industry activity.

 

Commercial projects

Commercial building showed some resilience but activity in this category has now decreased for three months in a row. Construction firms noted that lacklustre domestic economic conditions and delayed decision-making by clients on major investment spending had been factors limiting demand.

 

Pipeline being turned off

November data suggested a continued lack of new work to replace completed projects. Total new orders decreased for the fourth month running, albeit at the slowest pace since August. Customer hesitancy and greater borrowing costs were often reported as weighing on sales volumes, especially in the housing category.

Input buying has now decreased in five of the past six months, largely reflecting reduced workloads and a lack of new project starts. Some firms also commented on destocking efforts in response to improved supply conditions, which led to lower input buying in November.

 

Lead times

Average lead times among vendors shortened for the ninth successive month in November. That said, the rate of improvement has eased considerably since the summer. Survey respondents reported spare capacity among suppliers and weaker demand for construction inputs, although some commented on transportation delays. A combination of greater price competition among suppliers and falling raw material costs contributed to another decrease in input prices across the construction sector. The overall rate of decline was the steepest since July 2009, with survey respondents reporting falling prices paid for a range of materials.

 

A long shadow

Tim Moore, the economics director at S&P Global Market Intelligence, which compiles the survey says: "A slump in house building has cast a long shadow over the UK construction sector and there were signs of weakness spreading to civil engineering and commercial work during November. Residential construction activity has now decreased in each of the past 12 months and the latest reduction was still among the fastest seen since the global financial crisis in 2009.

“Elevated mortgage costs and unfavourable market conditions were widely cited as leading to cutbacks on house building projects."

Dr John Glen, the chief economist at the Chartered Institute of Procurement & Supply (CIPS), says: “There is no doubt that 2023 has been a difficult year for the UK construction sector. Inflated borrowing costs and falling demand have conspired to further slow new building this month.

“Despite this, the sector has finally emerged from a period of intense supply chain pressure and prices are now falling across the board.”

 

Picture: The headline news from the S&P Global/CIPS UK Construction Purchasing Managers’ Index is not good for those that rely on house building.

 

Article written by Cathryn Ellis
11th December 2023

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