What impact will the soaring costs of materials have on the life sciences industry?
Gardiner & Theobald, a consultancy, reported in its 3 May Market Analysis that the “greatest impact to UK construction has come from higher oil and gas prices”. Steel is a prime example of the issues the industry is facing.
The manufacture of steel products is highly energy intensive, so it is no surprise that it is among those materials being worst hit by inflation. Linesight, a consultancy, last week predicted price rises of 23.8% for steel rebar and 25.4% in steel-flat products by the end of 2022. Linesight went on to say that life sciences and data centres specifically will feel the impact of these increases.
Steel costs are soaring at the same time as steel output is sliding – the latest figures from the World Steel Association show a drop of 6.8% in the first quarter of 2022 against the same period in 2021. The lockdown of the largest steel producing city in China, China itself being the largest steel producer in the world by volume, has had a significant impact. What about the Russian invasion of Ukraine? Ukraine and Russia are two major exporters of steel to Europe, but only 1.25% of construction products for UK projects come from Ukraine, Russia and Belarus. The bigger issue lies with the component parts – for example, the iron ore used in steel manufacture.
Unsurprisingly, Gardiner & Theobald and Linesight are both forecasting higher tender price inflation. What impact will these rising costs have? We may well see more project viability studies. It could also be an opportunity to innovate with design solutions to reduce exposure to certain materials and their costs. Contractors are also increasingly seeking to share at least some of the inflationary costs with developers. Undoubtedly, the period a contractor’s tender price is available will be shorter than in less inflationary times. Clearly, the approach to procuring materials will be the subject of much further discussion.
The Russia-Ukraine conflict and the ensuing roll-out of sanctions and retaliatory measures have ushered in a new era of economic difficulties and inflation. The swings in commodity prices have been dramatic and the record rises in fuel and energy prices alarming. War brings significant volatility, and this is set to be a feature of the economic outlook for the foreseeable future.