Timber, steel prices climb to unexpected highs
ABS Producer Price Index stats reveal how high costs have grown
It's simply not normal to see something like 60% price index increases quarter-on-corresponding-quarter for building supplies. Yet that is what the Australian market is currently experiencing. While interest rate increases may be set to slow the actual housing market itself, it's difficult to imagine the house construction market being able to survive if the current rate of increases continues.
Fri Jul 29 2022
The Australian Bureau of Statistics (ABS) has released its stats for the Producer Price Index, including for the category of inputs into the house construction industry. These are very useful stats for obtaining a better understanding of price rises for the building materials used in house construction.
In this overview and analysis, HNN is providing an overview of the main categories in these stats for Sydney, Melbourne and Brisbane.
It's often difficult to know exactly how to present these kinds of stats so that they are easy to understand, and unlikely to provide confusing indications. In this case we've chosen to present them in a year-by-year format. The years we are providing are the four quarters to the June quarter, which corresponds with Australia's financial year (FY), which is how we will refer to these periods.
Generally, this format is most useful where you have seasonal elements. While there is seasonality in some of these stats, we've adopted it here is because the most recent period, FY2021/22, is quite unusual in most of these stats, and this format serves to highlight that.
That said, one of the real difficulties with this format is that there is a visual discontinuity between the periods. It's helpful to track the stats from FY2021/22 (the dark red line) by seeing that it begins where FY2020/21 (the light blue line) ends. That's important because in many categories the climb in prices begins with June quarter 2021.
The prices are provided by the ABS as index numbers, and we've taken the percentage change for quarter on corresponding quarter - so March quarter 2021 is compared with March quarter 2020.
One other element to call out is that it's simply not possible to effectively use a single scale for the quantitative Y-axis as the data varies substantially, so it's a good idea to look beyond the slope of the graph lines, and to check the scale used for the index number and the percentage.
Sydney
In the overview of the basic components of construction, most categories show strong price increases for FY2021/22, with the exception of concrete products.
The steepest rise is for steel products, with a 36.0% increase in prices for June quarter 2022. Timber also increased sharply, up by 18.6% in March quarter 2022, while ceramic products (which includes bricks) and other metal products increased by over 12%.
For more complex products the rises were somewhat mixed, showing some sharp increases for FY2021/22, but a history of price volatility.
This was true for both electrical equipment and plumbing. Gas and electric appliances did show price index rises above the norm for FY2021/22, and other materials escalated prices substantially.
Melbourne
While steel products for Melbourne reached the price index of close to 160, equalling Sydney, the rise was from a lower base, resulting in a quarter-on-quarter increase of 45.0%.
With other metal products, however, the Melbourne price index was higher at around 150, with an increase of 25.0%. Timber rose especially steeply reaching a price index of 166 for June quarter 2022, with a quarter-on-quarter increase of 28.7%. Ceramic products also had a higher index than Sydney, and a percentage increase of over 15%.
In more complex products, gas and electric appliances showed a steep increase in FY2020/21, which was maintained in FY2021/22. Plumbing, electrical equipment and other materials also rose to new highs in the price index.
Brisbane
The price index for steel products increased by 58.8% for March quarter 2022 as compared to March quarter 2021, with the price index itself closing out FY2021/22 at 175.
The timber price index increased by 30.6% for the June quarter 2022, ending at 172. Ceramic products, however, dropped their price index for the first two quarters of FY2021/22, before equaling the price index for September quarter 2021.
For more complex products, while both electrical equipment and gas and electric appliances found new highs in the price index, they have a background of considerable volatility in Brisbane.
Plumbing and other materials, however, both found new highs in results broadly divergent from past stats.
Timber
While the ABS does not break down timber categories on the same basis, they do provide a weighted average across the capital cities.
As these charts clearly indicate, timber products have shown highly unusual patterns of growth in price indices.
Analysis
While most hardware retailers and builders have grown somewhat accustomed to see steep price rises since mid-2020, these charts make it emphatically clear just how steep and unexpected the rises in the current market have become.
The difficulty is that the current situation has increased in fragility. Current shortages are made up of the initial impact of COVID-19, followed by ongoing shutdowns in supplier sources such as China due to the Omicron variant of COVID-19, complicated by Russia's invasion of the Ukraine pushing up transportation costs still further.
The concern is, of course, that these rises will simply continue until the industry reaches a point of market failure. This also places further doubts over whether the industry can confidently expect the backlog of building projects to be completed over the next 18 months. With interest rates set to gain another full percentage point (100 basis points) this year, it's possibly many prospective homeowners will just decide to give up for another couple of years.
