Building Material Production Costs: Navigating the Complex Dynamics of Energy Prices and Supply Constraints
Aa
Share
Other input prices shot up
As energy prices decreased, the costs of other materials, such as sand, stone and clay, rose significantly. Although these materials are abundant, environmental regulations can make quarrying difficult, for instance, which squeezes supply. The cost of these materials has increased by nearly 25% in the past two years. These price hikes are smaller than the energy price fluctuations, but they more or less offset the energy price reductions in the last year for building material production.
Clay and sand are more essential components for the production than energy. We estimate that they account for two-and-a-half times more than energy costs
Sharp price increases of stone, sand and clay
Price development: quarrying of stone, sand and clay (Index May 2020=100)
Concrete, cement and bricks' prices are less vulnerable than timber and steel
Timber and steel prices react relatively quickly to changes in the market. If stocks of suppliers and wooden building materials increase, we can see price declines within just one to two months. The (global) market for these products is very competitive, so changing purchase prices are quickly passed on.
Building materials such as concrete and cement are heavy and voluminous. That's why they're often traded on relatively small local markets, resulting in less competition. This gives the suppliers of these products more market power, which usually results in both higher prices and lower price volatility. They do not have to pass on price reductions of raw materials or energy costs directly because of the relatively limited competition. As a result, the output prices of these products rise - and fall - at a slower rate compared to building materials such as wood, which are traded in more competitive markets
Small price decreases expected for concrete, cement and bricks
Balance of manufactures in European Union which expects to increase/decrease output prices (over next 3 months)
Few producers expect price declines
It looks like the strong price movements in building materials has come to an end. Only a small majority of steel, concrete, cement and brick suppliers expect to lower their sales prices. However, for metals shipped in containers, the Red Sea conflict poses an upside risk. The price fluctuations for timber also seem to be over. On balance, less than 1% of EU timber companies planned to increase their prices in December 2023
