Are you considering a renovation or a new construction? Here’s the outlook for soaring steel and timber prices

It is a difficult time to build or renovate a house in Australia. Prices are rising, well above inflation. Finding materials and getting them in time is a challenge. Builders are struggling with too much work and stress (with some setbacks as costs are rising too quickly). Customers are confronted with tempting price offers.

And as any potential builder or renovator knows, the price of wood or steel is crucial.

So what exactly is going on here, and what are the prospects?

Read more: HomeBuilder might be the most complex, less than fair construction jobs program ever

Wood: huge demand, not enough supply

According to a 2021 report from the Australian Bureau of Agricultural and Resource Economics and Science (ABARES):

the average annual availability of hardwood logs is expected to be 1 million cubic meters (9%) lower in 2020-24 compared to 2015-19 […] availability of softwood sawlogs is expected to be 10% lower over the 2020-24 period than expected in 2015.

The same report shows that few new plantations have been established in recent years.

Creation of new plantings – the majority of new plantings in Australia since 1998-99 have been hardwood species, with minimal new plantings since 2012.

During the 2019-2020 bushfires, 130,000 hectares of forest plantations were burned. Recent flooding hasn’t helped.

Indigenous logging is also declining; it will be banned in Western Australia by 2024. Victoria will phase out the industry by 2030.

A timber shortage was expected as early as 2020, but the onset of the COVID pandemic – when the housing market momentarily froze – brought some respite, with house building and timber prices initially falling.

Then came HomeBuilder, which encouraged consumers to make purchases or renovations to revive the homebuilding market.

The number of housing starts increased by more than 60%, from around 41,000 in September 2019 to 67,000 in June 2021.

The housing stock under construction has grown from around 180,000 in 2020 to over 240,000 today.

If you build a lot more houses, you need more building materials. A slight deficit projected for 2020 has now turned into a black hole.

With less lumber available, the industry sees a shortfall of at least 250,000 wooden house frames in the next 15 years. Scarcity is the new norm.

The result is rising domestic prices as timber processors struggle to meet their contractual obligations.

Logs cannot be crafted. They grow, and it takes about 20 years. The only way to overcome current shortages is to import or substitute wood.

Importing wood is not cheap. Australia has very low growing and harvesting costs, less than half of the world’s leading exporters. Additionally, international shipping rates have increased over the past two years.

These act as barriers to imports, which have decreased significantly over the past decade.

Steel: supply chain problems and the war against Ukraine

Steel is the typical substitute for wood. But builders and renovators won’t find good news either. Steel prices have also skyrocketed by more than 42% in the year ending March 2022, according to the Australian Bureau of Statistics.

Struggling supply chains cut supply at a time when demand was surprisingly high, and investment has been scarce in recent years.

As a recovery loomed on the horizon, the war hit shipments of key stocks from Ukraine and Russia.

With few players left, homebuilders in Australia say they are at the mercy of a de facto monopoly by BlueScope Steel in the light steel framing market.

Earlier this year, BlueScope customers faced a 38% price increase on steel fabrication products.

A decision by the federal government in 2021 to impose anti-dumping duties of up to 20.9% on steel imports from Korea and Vietnam did little to depress prices.

In February 2022, BlueScope posted its biggest ever half-year profit.

According to its managing director, Mark Vassella, current trends are here to stay. The company intends to make the most of current market conditions and increase capacity, with plans to relight a deactivated blast furnace in 2011.

What happens next?

The price outlook is bleak.

Master Builders Queensland managing director Paul Bidwell believes the rise in material prices may not yet have peaked.

There is no indication that timber prices will fall again, as they did in 2020. As for steel, 2013 was the last time there was a significant reduction in prices.

The Australian Bureau of Statistics (ABS/HIA) recorded in June this year an increase of around 40% in the prices of reinforced steel, timber and steel beams.

Thanks to the housing construction boom, construction projects are now facing delays, further driving up construction costs.

Several manufacturers have gone bankrupt. People on fixed-price contracts who factored low material prices into their quotes now face the harsh reality of working for little or no profit, or even at a loss.

Will construction prices go down? We can only hope – but it’s unlikely to happen anytime soon.

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