The Airports Company South Africa has spoken out about the “challenges” presented by the construction industry. In its annual report, presented to Parliament, the company complained about the construction skills shortage, long lead times for material supplies, rapidly escalating costs because of capacity constraints and a tender environment that favours contractors. The company budgeted capital expenditure of R1,56-billion for the present financial year and spent R1,3-billion last year on airport infrastructure.
Commercial building cost inflation was up 29% in the second quarter of this year, from 16% in the first quarter, according to First National Bank’s Commercial Property Finance Property Building Cost Index. To gain a better understanding, the Mail & Guardian spoke to key players in four sectors supplying materials to the construction industry: bricks, steel, timber and cement.
Chris Dickinson, sales director at Corobrik, said the company had anticiÂpated the building boom four years ago and boosted its clay face and plaster brick capacity by 190-million units. It delivers four-million bricks a day to customers and markets more than one-billion bricks a year. He said the company held about 100-million bricks in reserve to help meet its commitments should delivery lead times be “temporarily protracted”.
But despite the boom, prices have remained stable. “From a supply demand perspective there has been little effect on our list prices,” Dickinson said. Corobrik reviewed prices twice a year and escalations were driven by increases in producer price inflation. Inflationary pressures included export parity pricing in fuel — a major cost driver for clay brick manufacture — and demands from labour. But the company had been able to counter these with improvements in productivity, he said.
Paul Davies, of Block SA, which produces about 1,35-million cement products, including bricks, said his firm was coping with present demand. Growth in townhouse developments had eased off because of infrastructural constraints, such as power and water, he said, and this had compounded the effect of recent interest rate hikes.
John Sheath, marketing manager of the Cement and Concrete Institute, said his industry had experienced growth in demand of about 10% since last September and that 2007 growth was expected to be around this level. The institute’s member companies have imported about one million tons of cement so far this year, making up about 8,7% of total sales. However, this doesn’t take account of cement imported by independent traders.
Steel prices have risen sharply in the past 15 months, said Spencer Erling of the SA Institute of Steel Construction. For the preceding year and a half prices had remained “pretty static”. But since June 2006 the average retail price of steel items has increased 18,1%. Prices of steel beams and columns, important components for the industry, have risen 28,9% since then, with angles up 20% and hot rolled plates 36,9%.
Average prices have risen by only 4,6% since January this year, he said, across the entire range of steel products the institute tracks. However, the prices of top sellers increased by more than this. The price of beams and columns has risen 17,3% so far this year, the price of angles by 8,1% and hot rolled plates by 6,1%.
The timber industry, however, is in a very different state. According to Lance Cooper of York Timber prices have been climbing for the past three years and there is a substantial timber shortage. “The hectares planted have not kept pace with economic growth and this has been exacerbated with the building boom,” he said. Timber is a 25-year crop and South Africa’s water scarcity has restricted the number of new areas that can be planted. For the next 30 years the timber shortage is expected to be between 32% and 55%.
This shortfall can either be supplemented by other industries, such as steel, or timber can be imported. While steel is not a preferred subsitute because of the noise, Cooper said South Africa had not yet begun importing timber, which would probably come from South America.
The country would probably begin importing around April next year, he said, as by this time the gap between local and imported prices, currently at 12%, would have closed. Komatiland Forests, the biggest seller of timber in the country, has increased its timber price by 54% this year already, and a further 25% increase is expected in December or April. Since logs account for half of the cost of timber this increase would be sufficient to close the gap. Once import parity was reached, Cooper said, prices would stabilise and be governed mainly by the exchange rate.