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Challenges remain for construction sector as Ukraine war and lockdowns in China push costs up

Challenges remain for construction sector as Ukraine war and lockdowns in China push costs up

Source: Straits Times
Article Date: 19 Apr 2022
Author: Kok Yufeng

Cost pressures have continued to rise off the back of the war in Ukraine and lockdowns in China; Higher labour costs are another issue as wages remain elevated.

The lifting of Covid-19 border restrictions and safe management measures may have thrown a lifeline to the beleaguered construction sector, but it is still not out of the woods as cost pressures have continued to rise off the back of the war in Ukraine and lockdowns in China.

High energy prices have also pushed the prices of raw materials such as steel rebars, aluminium and copper up by 20 per cent in recent months, Singapore Contractors Association (Scal) president Ng Yek Meng told The Straits Times on Monday (April 18) at a groundbreaking ceremony for Scal's new Construction Hub.

This was after materials costs had already risen sharply over the past two years.

Factories in China have experienced a lot of disruption, Mr Ng said, especially due to the recent Covid-19 lockdowns, which have led supply chain snarls and shipping containers piling up Chinese ports.

Speaking to ST on the sidelines of the ceremony, Minister for National Development Desmond Lee said the Government does not see any direct impact from the Ukraine war on the construction sector at this time, but the authorities remain vigilant.

Construction material costs have gone up, but Mr Lee noted that many government projects here have fluctuation clauses that allow contract prices to be adjusted.

"We continue to study what more needs to be done to better support our contractors," he said.

Asked about the fresh delays to several Build-to-Order projects just months before they were due to be completed, Mr Lee sought the understanding of home buyers, adding that most projects, both private and public, have been affected by Covid-19.

"We know that the delays have significantly affected many people's life plans and we are working very closely with our partners, contractors and consultants to ensure projects remain on track," Mr Lee said.

To prevent more delays, help is being given to firms to cope with supply chain issues and financial challenges, while some adjustments can be made for certain projects, such as extending construction work beyond regular hours, he added.

"Of course, at the end of the day, we want to make sure that the safety and quality of the projects are not affected. I think that is critical and many home buyers would expect no less," he added.

Mr Michael Murphy, a director at multinational consultancy Linesight, said the conflict in Ukraine has led to a resurgence in volatility for core construction commodities, such as steel, copper and diesel, and he expects prices to remain high for a large portion of 2022. Given oil's role in steel production, the volatility in oil prices since the start of the conflict has also had a further impact on steel prices, he said.

"The ongoing lockdowns across China due to new waves of Covid-19 will also disrupt production and export in the coming months," Mr Murphy added.

Straits Construction executive director Kenneth Loo said the price of steel bars in Singapore was about $700 a tonne at the end of the circuit breaker in June 2020, before it shot up to about $1,100 a tonne at that start of 2021.

After stabilising for a while, steel bar prices have spiked again to about $1,300 a tonne now.

Scal's Mr Ng said one solution could be to diversify the sources of construction raw materials. He added: "Materials costs are intertwined with energy costs, so when the energy costs come down, we hope that the materials costs will follow suit."

Higher labour costs are another issue as wages remain elevated.

The good news, according to Mr Lee, is that the manpower crunch has been significantly alleviated thanks to an industry-led pre-departure preparatory programme, which involves pre-arrival testing and isolation at a worker's home country.

The programme, which began as a pilot scheme in July 2021, has helped to bring in more than 15,000 construction, marine and process workers as at March 6.

From May 1, it will become the main route for such workers to enter Singapore.

Mr Loo said the flow of workers into the Republic is less of a concern now as compared to before, but the manpower situation across his subcontractors is uneven, with some back to pre-pandemic strength, while others are still short of workers.

The bigger issue is a shortage of skilled workers, such as plasterers and tilers, he said. This is something that other industry players are also concerned about as the sector moves towards more complex and high-tech methods.

Mr Ng said labour costs have also gone up as safe management measures at construction sites reduced productivity. These measures have now been lifted.

The poaching of workers by rival firms, which pushed wages up, has also largely stopped after borders reopened, Mr Ng said.

He added that Scal's new Construction Hub in Tannery Lane will help to raise the professionalism and skills of the construction sector workforce.

Construction of the seven-storey building - which will house all of Scal's subsidiaries, including the Scal Academy and the Singapore Construction Mediation Centre - was delayed by the pandemic.

It is now expected to be completed in 20 to 22 months' time.

Said Mr Lee: "With construction output close to pre-Covid-19 levels, work is progressing steadily. But we are under no illusions that we are out of the woods yet.

"Even as we navigate the current situation, it is equally important, if not more important, that we accelerate the transformation together, and bring about longer term resilience to the industry."

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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