Rising building materials prices threaten profitability of construction companies
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The sharp acceleration in the growth dynamics of building material prices, which started nearly a year ago, unfortunately, continues. The construction industry is facing many challenges caused primarily by the COVID-19 pandemic, which resulted in unstable raw material prices and general uncertainty in the market. Currently, the entire construction industry is operating under a moderate investment slowdown and the difficult situation in the raw material market is negatively affecting the profitability of manufacturing companies.
The difficult situation of the industry is partly related to the decrease in economic activity during the pandemic, but currently the situation is changing most dynamically in terms of the barrier of material costs. At the beginning of this year, only about one-third of companies reported it, while in November the percentage had already reached 64%, according to the Central Statistical Office (GUS) economic situation survey. While still in January their rates went up at the average y/y rate of 1.8%, in November this parameter went up to nearly 23%, which means another spectacular record and a sign of sustaining the upward trend in the approaching new year.
Credit Agricol, on the other hand, points out that the second half of 2020 and the first half of 2021 saw a significant increase in the number of insolvencies among construction companies. They estimate that some construction companies signed contracts for capital projects (often lasting several years) assuming much lower material prices than those currently observed. With no possibility of renegotiating the price, this leads to a significant decrease in the profitability of these companies.
“The situation is quite difficult, and there are few available tenders. Those that have been announced have received a lot of interest. Tenders are scarce, especially in the public procurement sector. As a result, we are holding out because there is no indication that material prices will fall next year,” – according to Piotr Kledzik, PORR CEO, quoted by bp.pl.
The value of the order portfolio of Budimex, Strabag and PORR – the largest construction companies in the country – amounts to nearly PLN 30bn. However, the information proceedings may be hindered by low profitability, resulting among others from disproportion in market investments in particular segments. A big help, especially in the rail sector, would be the unfreezing of EU funds, but there are concerns that the existing deficit of tenders in this sector will exacerbate the country’s already strong price competitiveness.
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More on the subject:
- Prices of construction, home and garden materials still rising
- Building materials’ prices rise again: polystyrene foam up by 120%
- Construction of houses up to 70m2 by notification – a chance for family construction companies ?
- Poles are eager to renovate their homes, despite materials prices going up
More information in PMR reports:
