Record-high commodity prices in construction sector to persist: Linesight

/ EdgeProp Singapore |

February 18, 2022 12:11 PM SGT

Real construction output in Singapore was about US$15.9 billion last year as projects resumed after lockdowns ended. (Picture: Samuel Isaac Chua/The Edge Singapore)

SINGAPORE (EDGEPROP) - Record-high commodity prices in Singapore are expected to persist for the rest of the year as the construction sector continues to grapple with rising price inflation, high material costs, and a shortage of skilled labour.

See also: Covid-19 catalyses digitalisation in construction

According to the latest commodity report by global construction consultancy firm Linesight, real construction output in Singapore will surpass pre-pandemic levels by the end of this year.

Real construction output in Singapore was US$15.9 billion ($21.4 billion) last year compared to US$13.2 billion in 2020, a yearly increase of 20.3%. Real output is forecast to reach US$18.4 billion this year and could increase to US$19.4 billion in 2023, says Linesight.

The construction sector here faced a particularly tough year in 2020 due to material and labour supply chain disruptions and strict safe distancing measures at work-sites.

However, the sector picked up pace last year as growth resumed and productivity increased. According to the report, the industry grew by about 20.3% in real terms compared to the year before.

While the construction sector has moved out of the red, relatively high material prices and supply chain instability threaten continued recovery. The report highlights the labour market as being particularly influential in supporting the recovery and growth of the construction industry.

“Building material prices have soared in 2021 and they will stay at high levels in 2022. It will take at least another year, which is until early 2023, before we see prices of building materials stabilising to pre-Covid levels,” says Michael Murphy, director at Linesight Singapore.

It will take another year before prices of building materials stabilise to pre-Covid levels, says Linesight. (Picture: Samuel Isaac Chua/The Edge Singapore)

He adds that the shortage of labour continues to be a challenge across the industry. Although the government has started to ease measures, there are still restrictions on incoming labour. “The construction industry is working closely with the government to review potential options on how this can be expedited,” says Murphy.

Prices of global metals, which include raw materials such as copper, steel rebar, and flat steel, are expected to ease this quarter. According to the report, skyrocketing metal prices contributed to a sharp rise in overall construction costs in Singapore last year.

Prices of steel rebar jumped 46.9% last year while steel flat products climbed by 55.8%. This was due to a combination of factors such as supply disruption, higher input costs, and improving demand from steel-consuming industries.

As a result of higher prices in 2021, construction companies working on HDB projects have been given more support in the form of protected prices for steel. (Find HDB flats for rent or sale with our Singapore HDB directory)

“The government has shown over the course of the last two years they are willing to work with the industry and extend various measures when it makes sense,” says Murphy. “Support measures have assisted the contractors, especially for the costs for non-staff preliminaries (for example, equipment on rental) during the circuit breaker period,” he says.

Linesight expects a gradual improvement in the global supply-demand balance for metals that will support a steady easing of prices this year.

Lumber prices in Singapore continued to increase in 4Q2021, and for the whole of 2021, global lumber prices increased by 6.6% on an annual average basis. The ongoing recovery in residential construction here is expected to keep lumber prices relatively high over the next few quarters.

On the other hand, cement and concrete prices were facing upward price pressures last year as construction works restarted. But Singapore has been able to meet most of its demand for concrete and cement through domestic production, and price inflation last year was relatively muted compared to other construction material prices. Cement prices increased by 8.1% y-o-y last year, while concrete prices were up 8.8% over the same period.

Singapore meets most of its demand for concrete and cement through domestic production, and price inflation last year was relatively muted compared to other materials. (Picture: Samuel Isaac Chua/ The Edge Singapore)

Demand for concrete is expected to be driven by public-sector investment in infrastructure projects such as new MRT lines and stations as well as integrated transport hubs. Raw material imports for concrete are also expected to remain healthy to support the construction industry’s requirements.

However, Linesight expects concrete and cement prices to remain relatively high this year due to increasing raw material and conveyance costs.

As a result of these price movements, the construction costs of new development and renovation projects, such as commercial or residential developments, will remain higher than those before 2020, says Murphy. (Find Singapore commercial properties with our commercial directory)

“A big reason building materials cost more these days is that supply chains were disrupted during the pandemic. Those supply chains now need to catch up with demand and we are seeing concerted effort by stakeholders — material producers, port operators, transporters, and government agencies — to clear the backlog of supplies. Once that happens, the cost of building materials could start to decline,” he says.

He adds that the construction industry in Singapore has had some time to try to plan around the implications, but it does not mean that the sector will not continue to be affected. “For example, construction durations have been reviewed, planned construction sequences may have been altered, methodology of construction reviewed, in order to counteract material availability,” says Murphy.

A more rapid adoption of prefabrication construction techniques has been a positive outcome of the pandemic’s disruption. It has helped to reduce schedule time and offset a portion of the reduced on-site labour availability, he says.

Real estate developers and construction companies will likely place additional focus on the design stage of a project. Their design works will see more decisions influenced by material availability, potentials for pre-fabrication strategies, localised materials, says Murphy.

“I believe developers and construction companies need to continue maintaining the relationships they have spent years building to ensure the group is working as a team to overcome what will no doubt be some obstacles,” he says.

Tags:

Follow our channels to receive property news updates 24/7 round the clock.

Subscribe to our newsletter