Soaring gas and electricity costs are adding to pressures on construction companies as energy intensive industries including steel, concrete and cement pass on the impact of higher prices.

British Steel, the UK’s second-largest producer, is among several companies to have increased prices in recent months, blaming the impact of wholesale energy costs. A number of building materials groups, including Tarmac, have recently advertised online energy surcharges on select materials. Tarmac declined to comment.

The wholesale forward contract cost of gas rose by 80 per cent between May and November 2021, according to Ofgem, the UK energy regulator. At the same time, building demand returned to pre-Covid-19 levels by November, according to trade body the Construction Products Association, which expects activity to rise by 4.3 per cent this year.

The industry is concerned that sustained high energy costs will add to pressures at a time when it is grappling with a shortage of workers and raised prices for materials such as cement, timber and steel as a result of strong demand, port blockages and high shipping rates over the past year.

Construction insolvencies have risen sharply over the course of the past year and in November 2021 were 22 per cent higher than before Covid.

Noble Francis, economics director of the CPA, which represents more than 24,000 manufacturers, said that rising gas prices were affecting energy-intensive heavy construction products such as bricks, cement, copper and aluminium, where energy accounts for about one-third of costs.

“Clearly, manufacturers will not be able to absorb all the costs themselves, so they will be passed on to contractors that are already suffering from sharp price increases despite the high demand,” he said.

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Last Thursday, the chancellor Rishi Sunak announced help for consumers facing a 50 per cent jump in electricity and gas bills from April but there was no aid given to energy-intensive manufacturers.

Construction sites use a significant amount of electricity, with the main contractor usually picking up the cost. Construction plant will also be more expensive to operate after April when the sector’s “red diesel” duty exemption, worth 47p a litre is removed. In addition, about 20 to 25 per cent of the cost of most building projects comes from materials so any increase in prices related to energy costs can have a “seriously inflationary effect”, said Simon Rawlinson, partner at Arcadis, a consultancy.

Fabricated structural steel prices rose 66 per cent in the 12 months to November, while the cost of doors and windows rose by 12.9 per cent, and particle board rose by 64.3 per cent, according to business department data.

Suzannah Nichol, chief executive of trade body Build UK, warned that “some companies will not be able to bear these increased costs during a project and may fold — and other projects in the pipeline will simply become unviable”.

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“This is yet another cost increase and will hit employers and businesses at the same time as a National Insurance hike, the removal of the rebate on red diesel along with the existing rises in costs of materials which are also in short supply,” she said.

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British Steel, which owns the Scunthorpe plant in north-east England, last month blamed sustained high manufacturing costs for a £50 a tonne increase on structural sections for all new orders. The company confirmed the price rise but declined to comment further.

ArcelorMittal, Europe’s biggest steel producer, told customers just before Christmas that it was increasing prices for long products used in construction by at least €100 a tonne.

Europe’s steelmakers have come under strain over the past year as a combination of high energy costs and supply chain disruptions have offset what was one of the strongest years for the industry because of soaring commodity prices.

UK Steel, the industry trade body, said companies had “done their best” to absorb most of the increases from higher input costs, notably energy, coal and carbon, but that many “have had to implement temporary surcharges to recover some of this”.

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