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16th Dec 2022
Flavio Macau, Associate Professor, School of Business and Law, Edith Cowan University
Demand for building materials like timber and steel is skyrocketing while supply is dwindling. Australia is about to reach the lowest point in log availability in decades according to the Australian plantation statistics and log availability report 2021 by the Department of Agriculture, Water and the Environment.
The Australia Bureau of Statistics reports that the prices of reinforced steel, structural timber, and steel beam increased by about 40% in 2022.
Timber has a 73% market share in Australia, while lightweight steel beams feature in 14% of home construction projects (source: Forest and Wood Products Australia). Average costs have been comparable, and the choice was more often about technicalities than price.
But the answer to the timber shortage isn’t a switch to steel because the steel industry is also going through a sharp increase in prices fuelled by low investment, troubled supply chains, high energy prices, and the war in Ukraine.
Before the pandemic, the ABS’ Construction Cost Changes report estimated almost half of new residential dwellings would cost more to build than they were approved for, and now that number is close to 100%.
Demand for house construction will keep its momentum, with the federal budget targeting one million new homes from 2024 to 2028.
Supply-side budget measures (measures that the government takes to increase the availability or affordability of goods and services) are:
Project management is central to these initiatives if the construction industry is to make good use of the money.
Steel supply will increase: BlueScope plans to reline its No.6 Blast Furnace at Port Kembla. They are developing scope, cost, and timing with an indicative investment of over $700m. They are also working on innovative, sustainable alternatives.
A recent decision to cancel tariffs on steel pipes from China and South Korea opens the door for revisions of anti-dumping measures that can re-establish the flow of other steel imports.
With no silver bullet on the horizon, project optimisation could be the key to mitigating the immediate problem.
While the future looks brighter, supply will continue to be constricted and prices will not ease in the short term. Building projects, which are taking an additional 10-12 weeks to be completed, will continue to face delays.
If you liked this article, you can see more by reading the latest edition of the Australian Institute of Project Management’s digital magazine.
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