Construction industry executives across Europe have warned that “dangerous” price hikes and shortages of many building materials threaten to undermine the European Union’s leading 800 billion euro economic stimulus programme.
The EU’s construction sector generates nearly 10 per cent of the bloc’s economic output and massive infrastructure projects make up a large proportion of the Brussels Recovery Fund, which will distribute grants and loans to Rebuilding the economies of the member states After the Covid-19 pandemic.
But prices for building materials from steel and wood to concrete and copper have begun to rise sharply in recent weeks as economic recovery in both Europe and elsewhere – including the United States and China – has led to a construction boom.
According to the European Building Industry Confederation (FIEC), bitumen prices are up 15 percent in just three months, cement prices are up 10 percent in one month, and wood prices are up more than 20 percent.
Public infrastructure projects usually penalize builders for delays, while contractors often have to bear the cost of unexpected price increases.
Domenico Campograndi, director general of the FIEC, warned that price hikes and additional delays could dampen the impact of EU funds.
“The danger is that we have the big recovery plan in the European Union, but if 30-40 percent of that money is absorbed into additional financial instruments to cover the higher prices, it would be real nonsense because it will not get into the real economy,” he said.
at modern speech The European Commission has voiced “alarm” to the European Commission over price hikes and material shortages, including more than double the Italian price of steel rods used to make reinforced concrete in the four months to March.
“This phenomenon threatens the contribution of the construction sector to the economic recovery and the potential impact of European recovery programmes,” she said.
In Italy – the biggest beneficiary of monetary stimulus money from Brussels – the government plans to spend more than €100 billion of its EU funding on building new infrastructure over the next five years. But the construction sector has warned officials that it will struggle to rise to the challenge without major reforms.
“We are facing shortages of many basic building materials and this is very serious as Italy is being hit harder than the rest of Europe,” said Flavio Monocilio, Director of Research at the Italian Construction Companies Consortium, ANCE. “This crisis is at the heart of the EU’s new recovery plan.”
Construction managers blame several factors for the bottlenecks, including a sharp recovery in demand that has overtaken Material supply In many countries, as well as pandemic-related disruptions to supply chains and ongoing trade tensions.
Some materials have had additional problems such as a bark beetle infestation affecting wood production, and delays in the redistribution of unused steel.
Thomas Bertel, chief executive of Austrian construction group Strabag, said the price increases had “significantly increased in the past two weeks” and the company had to “report delays at individual construction sites because materials are simply no longer available”.
Strabag, which built the Copenhagen Metro in Denmark and the Limerick Tunnel in Ireland, operates its own concrete and asphalt plants, but Birtel said: “Construction is a small business and it is not even possible to control the supply chains of all building materials.”
In Germany, 44 percent of builders surveyed by the Ifo Institute in May reported problems procuring materials on time, up from less than 6 percent in March.
“We haven’t seen a bottleneck like this since 1991,” said Felix Les of Ifo. “This obviously caused construction activity to slow down in April, at least temporarily.”
Production in the German construction industry fell 4.3 per cent in April from the previous month, although companies in the sector reported a record backlog of €62 billion in March.
“Many producers are not able to supply materials before the end of the year and this is a real problem,” said Stefan Rabe of the German Construction Industry Association. “A lot of money is being spent on public and private sector construction projects in the US and China and this consumes a lot of materials. The wood is produced in Germany and exported to the US, so there is a short supply here.”
Some German politicians have called on Berlin to seek temporary restrictions on EU exports to timber and other materials.
“It will take time to get back to normal – at least the end of the year,” Campogrande said.
Some countries, such as France and Germany, have responded by relaxing rules on some public sector construction contracts, waiving late fees and compensating contractors for unexpected price increases.
Monocilio said Rome had yet to provide any relief to the sector, which has been hit by a decade-long slump in public infrastructure investment, lack of funding from banks and long delays in project approvals and payments.
Italian Prime Minister Mario Draghi said that the “fate of the country” depends on the success of a Package worth 248 billion euros of investments and reforms mostly financed through the EU Recovery and Resilience Scheme. It includes investment in high-speed rail lines, renewable energy facilities, smart electricity grids, and energy-efficient buildings.
EU countries have a poor track record of distributing funds; In the six years to 2020, they spent, on average, just over half of the money that Brussels allotted to them.
Without reforms to address the Italian construction sector’s problems, Monocilio said, similar problems could spoil the EU’s recovery spending efforts.
“The Draghi government certainly wants to improve the situation,” he said. “[But] It is the sword of Damocles hanging over the whole European project. ”