Sunday, December 10, 2023

Belgian construction sector faces a difficult year

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Price pressure remains historically high

While some construction materials like wood and metal ores have become cheaper than they were last summer, their prices are still relatively high. Other materials, such as copper and steel, have rebounded after a period of cooling, and with the Chinese economy showing signs of improvement, there is a chance that global demand for building materials could increase, leading to new price hikes.

Despite falling energy prices, energy-intensive materials like concrete, cement, and bricks have yet to show any signs of price drops. We should not expect price drops in the near future, as many suppliers are still planning to increase their selling prices. This is partly because concrete, cement and brick are very heavy and bulky materials, making them more expensive to transport. Therefore, these materials are often produced locally, which means there is less competition, giving suppliers more pricing power and making them less likely to reduce prices in response to falling energy costs.

We expect prices of concrete, cement and brick to fall only when suppliers’ inventories increase sharply, which would indicate much weaker demand. Although stocks have already increased, they are still below their historical average, so we should not expect an immediate price drop for these materials. Moreover, Belgium’s resilient economy means that demand is holding up better than expected, making it easier for producers of these materials to pass on new cost increases or be less quick to cut prices.

According to a monthly survey by the European Commission, many construction companies plan to continue passing on higher input costs to their customers in the coming months. Although the number of firms planning to raise prices has decreased since the summer, the number still remains historically high. Besides more expensive construction materials, Belgian companies are also facing stronger wage increases than in neighbouring countries. Labour costs have increased by about 10% over the past year, due to automatic wage indexation.

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