Price surges could stop German construction

The continuous increase in prices and shortages of steel are paralysing large parts of the construction industry in Germany and Austria, and threatening to bring a halt to the local boom of recent years.

According to the most recent figures from German construction association Hauptverband der Deutschen Bauindustrie, order intake in April was 7% higher than in April 2020, a month much affected by the first Covid-19 wave. In the same time span, however, costs for materials like rebar, bitumen and wood have risen by 50%, the association points out.

According to Kallanish’s price series, delivered prices for rebar from mill to distributor in April 2020 were around €500/tonne ($592), and in April 2021 at €680. At present, they are peaking at €850. “The risk of the cost increases is all with the construction companies, unless they have included escalator clauses in their contracts,” the association notes.

But escalator clauses are just what construction companies normally do not like, according to an Austrian rebar bender’s manager. “They do not want to include them, and suppliers usually have to accept that if we want to secure an order,” he tells Kallanish.

The consequence is now that construction firms have to take much more drastic measures to save the day. According to a stockholder of plate in Germany, many contractors are returning orders from building developers. “I know of one in the Hanover region who offers its customers up to €20,000 if they step back from an existing contract,” he observes. He furthermore tells of cases where public construction plans were postponed because of Covid-19 and are still sitting on the calculation basis of September last year.

In May, 40% of Germany’s construction companies reported delays in performance due to material shortage, after 19% in April. “As a consequence, expectations for business in the next six months have turned negative,” Hauptverband says.

Christian Koehl Germany