Steely resolve

The building boom that has swept through China over the last couple of years has been phenomenal – and not just for that country’s own citizens. The impact has been felt worldwide as a considerable amount of raw materials is exported to China to meet the incessant demand of this vociferous eastern construction industry.

In an effort to cool its red-hot economy, and, possibly also, to alleviate the risk of an implosive situation, the Chinese Government imposed a restriction on bank lending earlier this year that tempered its high domestic prices of copper and steel. Despite this, the demand for the import of these materials by the Chinese remains constant, as internal demand continues to run high. As a result, industry experts are predicting that UK prices will carry on rising for the foreseeable future with no sign of a let-up in sight.

Naturally, this has a knock-on effect for those who deal and work with these products in the UK – as it does elsewhere across the globe – and, to a certain extent, how this price rise is managed has to be down to the individual contractor and their careful planning.

Smaller contractors and subcontractors stand to be the hardest hit in the mix. They don’t share the same spending power as the big boys, so they can’t pre-order in bulk and are in more danger of being caught out by sudden increases between tender and work commencement. If there is a long period between the tender and the start date, as most often witnessed in the public sector, then the situation becomes most crucial as price increases have been known to be both sudden and acute.

It’s also worth noting that, as there are various types of subcontractors assigned to each project, for some, the amount of copper and steel they will be required to order is negligible when placed against the scope of the work itself.

If the amount of copper and steel needed is a mere fraction of the bulk of materials used on a job, then the impact on an individual subcontractor’s profit margin is going to amount to hundreds rather than thousands. This sets these companies far apart from other players who may require far greater quantities of copper and steel and, therefore, need to pay out much more. In some instances, for the companies who have not prudently planned, this can spell financial ruin.

The rising costs of copper and steel is an issue which is being used by some manufacturers as a smoke-screen to cover all sins

So how significant is the role of the manufacturer in the face of these rising costs? It’s expected that products which contain copper or steel are subject to price increases – after a two-year onslaught, everyone in the industry is forewarned if not forearmed. However, what of the signs of discrepancies between the rise in costs of the materials and the rise in costs of the manufactured product? This surely has to be the leading issue in any discussion on this topic.

If materials costs rise 20-30%, should the manufacturing costs rise in direct proportion? As the overall costs allow for more than just the materials, for example, added value costs and so on, the answer should be no. However, this is often not the case and the final quote frequently belies that it is not just the costs of the raw materials that are receiving a large hike.

The rising costs of copper and steel is an issue that is being used by some manufacturers as a smokescreen to cover all ‘sins’. It’s an easy peg to hang price hikes on, regardless of the amount of materials involved, and contractors and subcontractors are at the mercy of some manufacturers who are clearly taking advantage.

It’s a situation that many of us have to ride out. A competent and experienced subcontractor, who is dealing with minimal amounts of copper and steel, should be able to swallow the price increases in their profit margins if they have priced the job correctly in advance and not let the manufacturer pull the proverbial rug from under them. Those, on the other hand, who are dealing with larger amounts need to assess the situation carefully, keep the client in the picture and quote realistically. It will be tight management and careful budgeting that keeps them afloat, rather than the economic policies playing out on far eastern shores.