As is to be expected, persisting and rising inflation, coupled with the commodity spikes after the Russian invasion of Ukraine, a new wave of material price increases are incoming.
Unlike 2020 and 2021, where the industry was going through a boom period, these latest increases set to hit are against a rapidly changing economic picture.
Resumption of rises
2022 began quite calmly. Supply chains were beginning to ease and the frequency of price increases slowed. We even saw a gradual reduction in some costs such as the glass energy surcharge.
However, it quickly became apparent that the trading environment was rapidly changing and was not the free-flowing spending type of economy that we had enjoyed in the previous two years. Then, Russia invaded Ukraine at the end of February which added fuel to the fire of an inflation problem we already had before the war started.
I have been having a number of conversations with key people at the manufacturing level and it appears we’re about to see a wave of painful price increases across a number of key materials.
The first is resin. The price of resin has risen somewhat in recent weeks, although in comparison to other commodities it has been relatively stable. The reason being given for estimated double-digit price increases coming on resin is due to much higher energy costs, rather than the material itself. We know energy costs are high, specifically gas. Although they have come down from their highs, which spiked as the war in Ukraine began, they remain historically high when you look back at previous years. I am expecting more concrete numbers on the increases that are coming soon.
Next is glass. I have seen comments from those with knowledge of the matter that the base price of glass is to go up shortly, and reviews of the energy surcharge are being made. I wrote recently that the drop in the glass energy surcharge price may only be temporary as the rises in commodity prices resume. I expect the surcharge price to stop its decline and start to edge upwards again. So that would be two price increases on one material there.
Then there is aluminium. As the war began the price of aluminium rose beyond $4000 per ton. This, by the way, was the year-end target given by Goldman Sachs at the start of the year. At the time of writing the price is $3340 per ton, which again historically is still very high, and close to previous all-time-high records. The long term price outlook for aluminium remains above the $3000 level for a sustained period, so it appears there won’t be much relief on that front.
Steel is also looking very painful at the moment. At the time of writing steel rebar is at $900. This is down slightly from a high of $952, but when you consider it was at the $380 mark in June 2020, we are wildly higher. For a shorter-term context, the price of rebar was at $648 on January 1st. We touched $952 last week, and the long term predictions are for that price to climb higher still.
Now, if you take a look at the wider commodity market, it will show that prices have come down from their highs. This is where wider context matters. Price inflation was a problem BEFORE Russia invaded Ukraine. In the swirl of media coverage, it will be easy to forget that we had been combatting inflation long before the war broke out. When the invasion happened, it put boosters on inflation and caused a ton of uncertainty and volatility in markets, which caused the spikes we have seen. Those spikes have since eased, but remain elevated and above levels seen at the start of the year.
The result of the above is that further major price increases across the various materials used in the UK fenestration supply chain are imminent.
Increases in a very different market
In private conversations, I am told that the price increases that are coming are going to be steep. I have noticed a distinct change in the tone at the supplier level as well. The bullish attitude has gone and there is much more concern being voiced about prospects for this year and next.
As an industry, we knew that the trading conditions of 2020 and 2021 wouldn’t last forever, and at some point, there had to be a pause or drop in business activity. What is becoming clear is that the pace of the decline and rapidly changing economic circumstances has taken many by surprise. The raft of new price increases that are coming is happening at a very uncomfortable time.
2020 and 2021 were years where inflation and the cost of living weren’t an issue. The Government was funding millions through furlough payments, business grants and loans etc. The UK suffered the worst recession on record, but many didn’t feel it due to the support packages put in place. Instead, a lot of money was put in a lot of pockets, which fueled spending on things like home improvements. Fast-forward to now, and we have inflation that looks set to exceed 10%, a likely recession by the end of the year and a cost of living crisis that is restricting spending from the middle-income demographic. These new price increases are only going to add further pressure to what is already a very messy picture.
I will give the usual advice to all companies, and that is to pass on whatever increases you have to the end-user, as it is impossible for our companies to absorb it all. But I am calling on companies at the top of the supply chains to begin to push back on these new increases. There is the argument that these increases are out of their control, which is true, but it is also possible for our lead suppliers to begin to challenge the logic and intent of these increases. The timing of these could not be worse, and will further compound already serious problems.
I am seeing predictions of a 20% reduction in sales this year across the sector. That would be a significant hit after two years of absolutely booming growth. I urge those at the very top of our sector to start pushing back at these increases, else risk that 20% becoming something bigger.
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