Phil Slinger, chief executive at the Council for Aluminium in Building (CAB), gives his analysis of CAB’s latest State of Trade survey
The UK construction market continues its bumpy ride through 2021 with labour shortages, material shortages and escalating material prices. Despite these setbacks, the sector remains relatively buoyant for the present.
The Autumn Economic Forecast from the CPA is suggesting that rising costs and contracts on labour and materials will be with us for the foreseeable six to nine months. Consequently, the CPA construction output forecast for 2022 has been revised down from 6.3% to 4.8%. Whilst a lower figure, this still represents a significant growth in 2022 given the current market challenges.
Historic sales volumes for CAB members have increased on last quarter with 71% of members on balance confirming increased sales in this quarter compared to the last quarter which stood at 60%. This increase is ahead of the wider construction industry for the quarter but slightly below trend when looking at the previous year sales.
Expected sales volumes are well down this quarter with just 29% on balance of members expecting an increase in sales in the next quarter, compared to 90% on balance expected in the second quarter. The outlook for the year ahead is also more subdued with 59% of members on balance expecting increased sales volumes. Whilst a subdued forecast compared to the last quarter it must be remembered that the forecast is still positive for growth. The CAB members expectations closely follow that of the wider construction industry.
Actual sales volumes, year on year, indicate that 71% of members see an increase in sales of over 5%. This is balanced with just 6% of members seeing a reduction in sales down by over 5%. This is to be expected as we come out of the Covid crisis, but with 53% of members seeing an increase in sales of over 5% compared to the last quarter, this could further indicate a slowing down in sales.
As would be expected, members see that historic unit costs have risen and expected unit costs are anticipated to rise even further. It is interesting to see that 87% on balance of the wider construction industry are having the same issues suggesting that not all construction sectors are affected.
Reviewing the cost factors, we see that raw material costs continue to be an influencing factor as they have been year to date, but this is now matched by increases in fuel costs, wages and salaries, closely followed by energy costs. Inevitably these rises in costs will have to be passed down through the supply chain.
Likely constraints on activity over the next 12 months is dominated by the concerns over demand and materials supply. Whilst demand has been a concern throughout the year, materials supply concerns have dominated both the second quarter and this reported quarter.
In the third quarter we see for the first time that both historic capacity utilisation and expected capacity utilisation lags behind that of the wider construction market. This suggests that the market problems are becoming worse for aluminium fenestration, facade and building envelope products, this could be due in part to the rising costs of aluminium and its shortage of supply.
The historic labour force demand has changed since the quarter one report, which was 15% negative to a 41% on next balance for the last quarter. It is reported that labour costs have risen and are expected to rise further in the coming year. Again, the CAB membership experiences slightly higher demands than the wider construction sector on net balance.
Exports have held up well for CAB members in 2021 and this quarter report suggest that members see further growth in exports for the year ahead. Interestingly, the wider construction sector has seen a historic drop on net balance for the past year with 30% on net balance suggesting that sales have reduced in the last year.
Capital investment has seen a fall during the year for CAB members and whilst members are optimistic about further investment in the year ahead, the dominant investment is seen to be in plant and equipment. This investment is likely to ensure that processes remain as efficient as possible and reduce wastage.