Soaring commodity prices are struggling to make ends meet in Australian trading firms as thousands of businesses risk going bust.
Supply chain problems and lack of stocks from domestic and international sources led to an increase in demand and prices for materials, with trade bearing the brunt.
The costs of metal ores, plastics and wood have been rising steadily for years, but especially due to the pandemic, which has forced factories to close for extended periods.
The trickle-down effect of these rising costs means Australian workers are being forced to make up the difference as the country stands on the brink of a major crisis.
“I don’t think many companies are taking cost increases seriously. It’s a perfect storm,” said Matthew Mackey, executive director of engineering firm Arcadis.
“Smaller companies don’t have the cash flow, they don’t have the same safety net. You will feel the pain much sooner and much harder.’
Soaring commodity prices have left Australian traders struggling to make ends meet, while thousands of businesses risk going bust
Materials, including steel and wood, are experiencing the greatest price increases due to international demand and lack of supply. Electrical products, PVC and roofing materials are also becoming more expensive.
As large companies manage large orders, small and medium-sized businesses struggle – with longer wait times for materials impacting jobs.
The margins are also falling significantly, the construction industry usually only generates profits of between two and four percent.
Mr Mackey said contractors felt the need after locking themselves into agreements months before the cost of materials soared, leaving them bearing the weight of the difference and reaping razor thin profits, if not total losses.
“Some people blame the pandemic, others blame the rise in material costs, but there’s a bigger problem, and it’s going to affect the larger companies as much as it will the smaller companies,” Mackey said.
Material prices have risen steadily since the pandemic began, but exploded in April and May last year (Average Commodity Prices – Arcardis Stats)
“The market is trying to react to the volatility. It is now less about the ability to deliver, but energy costs are exploding, raw material prices continue to rise, material costs continue to rise.
“Contractors, especially craftsmen, will have problems. If they have already signed a contract that does not allow material fluctuations, they will stick to these prices.
“If the costs have increased in six months, they have to bear those costs and that’s the problem.”
Mr Mackey said the rising cost of structural steel was having a far-reaching impact on the market and meant inflation was seeping through to Australian trade.
“When iron ore goes up, it has a direct impact on steel costs. That gets passed on to the person providing the materials and that gets passed on to the contractor,” he said.
The Arcadis director also said the ongoing effects of the Suez Canal blockade, which left the 400m-long Ever Given container holding 20,000 containers stuck for six days, was still affecting the market.
“You wouldn’t believe that a ship blocking a river would cause such a shortage. That affects transport costs,” he told Daily Mail Australia.
While large companies make do with bulk orders, small and medium-sized businesses are really struggling – with longer wait times for materials impacting jobs
Rising costs are also believed to have fueled the collapse of major construction firm ProBuild, as the company owed workers $14 million on its doomed 443 Queen Street project in Brisbane.
The chief executive of South African parent company Wilson Bayly Holmes-Ovcon, which owns Probuild, said there were “red flags” years ago.
Wolfgang Neff said at a presentation of interim results last week that operations in Australia would have been canceled much earlier in hindsight.
“If we knew everything we know today, we would have pulled the plug years ago,” he said Herald Sun.
“The reality has been that commitments to the guarantee facility over the last 18 months have constrained that decision. The risk/reward ratio became unsustainable.’
Earlier this week, it was revealed that ProBuild owes $14 million to 786 employees across 19 projects, and even more to its 2,300 creditors.
The owners of major builder ProBuild have admitted the ailing firm should have closed years ago (pictured builders in Darling Harbour).
WBHO this week told the Johannesburg Stock Exchange that it could no longer build viable housing complexes.
As a result, administrators were assigned to Probuild after the parent company refused to throw any more money at the failed builder.
The bomb decision will endanger 18 civil engineering projects across Australia and the livelihoods of nearly 800 workers.
The group’s Brisbane project of 264 high-end housing units has resulted in up to $223 million in material losses.
Victoria is the state hardest hit by rising material prices, with the average cost of building a new home rising faster than anywhere else in the country.
Rebecca Casson, chief executive of Master Builders Victoria, underscored Mr Mackey’s concerns for trade, telling Daily Mail Australia she feared it would send several companies into bankruptcy.
Earlier this week, it was revealed that ProBuild owed $14 million to 786 employees across 19 projects, and even more to its 2,300 creditors (pictured a construction site in Darling Harbour).
“Because construction contract prices were fixed, the large and unexpected price increases of many construction items such as timber and steel products meant that some builders found the cost of completing the work to be higher than expected. In many cases, this can result in projects making losses,” she said.
‘MBV has stated that the labor shortage will also impact Victorian housing defaults in the coming months.’
Australia Trade Union Council Secretary Sally McManus said rising costs would in turn mean workers’ wages “go backwards” and pointed the finger at Prime Minister Scott Morrison for failing to address the growing crisis.
“The Morrison government has been nowhere to be seen in terms of locking in wage growth and that inaction is now a major weakness for the economy as a whole,” she told Daily Mail Australia.
The pandemic is not to blame. As the cost of living rose and wages went nowhere, a worker who made $68,000 last year received an $832 pay cut.
“As one of the country’s largest employers, the Prime Minister could take immediate action by sending a signal to other employers and giving his own workers a raise, but handing them a real wage cut instead,” Ms McManus said.