Lockdown’s impact on building supplies not so bad, experts say

This is directly linked to the shortages of materials as suppliers had to cope with reduced capacity and longer lead times to obtain raw materials that are imported due to lockdown regulations, says David Metelerkamp, senior economist at Industry Insight.

He ascribes the shortage to an array of factors, while it is material specific in many cases. “Broadly speaking, it is a combination of Covid lockdown-related disruptions to the manufacturing process of these materials, as well as distribution related issues, combined with better than expected consumer demand especially on the retail side of the market, with a surge of home improvement and do-it-yourself projects.”

Companies such as PPC and Sephaku reported unexpected double digit growth in cement sales in the third quarter of 2020, in excess of 20%. As this caught many suppliers by surprise, capacity could not be ramped up to sufficient levels, leading to short term supply issues, Metelerkamp says.

“A ripple effect between materials has also been observed as there is also a shortage in certain input materials used in the production of certain materials like cement, which also leads to delays. It must also be considered that it is not always possible to stockpile supplies and in the case of cement, for example, there is a limited shelf life of around 3 months.”

Industry Insight initially identified shortages mainly limited to bricks and cement when lockdown was lifted to level 3, but shortages has since increased to include various materials, including metal roof sheeting, aluminium, steel products, rebar and timber, as further easing of lockdown restrictions allowed contractors to return to site.

Shortages or longer delivery times of imported materials, such as certain types of timber door frames and rolled coil used for metal roof sheeting, as well as items such as floor tiles, were also reported due to global lockdown regulations. Strike action in the transport sector also contributed to delays in material supplies, Metelerkamp says.

Result of shortages

Metelerkamp says companies may now have to resort to using more expensive imported materials where local supplies are limited, which will have cost implications for the industry. “Where raw materials are imported to substitute shortages locally, cost of production for normally locally produced materials will increase and these costs will be passed on to the consumer.”

He says several local suppliers have also increased prices, but he points out that this must be seen in context, with limited price adjustments over the last decade or so, as lack of demand has constrained suppliers’ and manufacturers’ ability to adjust pricing although input costs have increased more dramatically, particularly in terms of energy prices, not to mention greater levels of competition in some materials.”

While the shortage it is not as critical as in 2007/08 when the country prepared for the Soccer World Cup, Metelerkamp says it certainly does put additional pressure on the industry at a time it can ill afford this.

“The local construction sector has shown mediocre growth at best over the past decade and shortages (albeit limited and short lived) are not an ideal situation and may open the market to higher levels of imports. Imports of cement reached a near record high in September with close to 183 000 tons imported from Vietnam and Pakistan, while import of clinker (a raw material in the production of cement) reached a record high of 61 000 tons.”

Impact on government’s Infrastructure Plan

Metelerkamp says the real question is how long shortages will impact the market and how quickly suppliers can restore to full operational capacity. “Demand may have shown a spike post-lockdown, but the industry is nowhere near running at full capacity after the decade long stalemate. Private sector demand for construction is at the lowest level in history, while investment by government has, as yet, not shown any meaningful increase.”

He says while infrastructure is certainly seen as the catalyst in South African economic recovery plan, full implementation of these multibillion-rand projects will take time and is not a quick fix for the ailing economy. Therefore no significant impact is expected on the infrastructure plan in the medium to long term.

Bryan Perrie, MD of the Concrete Institute, says it is important to note that the current increase in building material use is consumer expenditure driven and not driven by formal investment. “This is a global phenomenon where consumers are spending more money on home repairs and extensions post Covid-19 lockdown. Consumers’ priorities shifted from travel and leisure to home repairs due to the fact they the new norm is to spend more time at home.”

How did companies get it so wrong?

“The South African construction sector has been experiencing negative growth for the previous eight consecutive quarters. During this period cement producers had to drastically reduce costs in order to survive the downturn. Some of these cost savings included mothballing of production facilities and staff reductions. Nobody expected the drastic increase in demand and it is very difficult to predict how long the current consumer driven demand will continue, and when expenditure will shift back to historical patterns like travel and leisure,” Perrie says.

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