Hanson Cement Comment: Q1 2021

Andrew Simpson, Packed Products Director Hanson Cement is BMBI’s Expert for Cement & Aggregates.

The construction industry is experiencing a unique period in its history. Demand across many product sectors, particularly relating to housebuilding, RMI and infrastructure, has skyrocketed. While some would say it’s a nice problem to have, the sudden surge is relentless, adding complexity to many businesses and the supply chain.

January and February were as expected but sales took off at the beginning of March and have continued in April and May. This high level of demand is partly due to projects being delayed during lockdown periods, but mainly due to growth in RMI and major infrastructure projects.

Will the surge in RMI continue? Our merchant customers are not expecting a slowdown, and we don’t envisage any short or medium-term let up, because homeowners have come to appreciate their homes more and living habits have changed.

Managing high levels of demand is incredibly challenging for businesses, their staff and supply partners. Shortages in packaging and pallets, and the availability of hauliers, add to logistical pressures. Similar demand in Europe is impacting on imports too as they hold onto product for their domestic market.

A recent article in the FT highlighted the threat of strong demand against the Government’s strict emission targets, which are impacting the price of carbon credits on the UK Emissions Trading Scheme (ETS). The UK ETS is designed to raise the cost of polluting over time, and is seen as a key pillar of the UK’s plans to tackle climate change. Under the new rules, the Government must consider measures to reduce the cost of allowances that companies have to buy to offset their emissions if they consistently trade at more than double their average price of the previous two years. Because there is no domestic carbon price, the government has used the established EU emissions trading scheme to set the trigger price for intervention. Carbon traders and analysts said UK prices were likely to rise sharply to close to or above that of the EU market. CO2 prices hit a record of €55 a tonne in May, rising from €30 a tonne at the start of the year.

While the Government’s lead on green issues is commendable, this latest development adds cost pressures to an already challenging environment. Manufacturers have tried to absorb these costs, but as they continue to spiral, it’s inevitable that they will now be passed down the supply chain and to the end-user.

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