Not so long ago the latest Palmer Market Research report hit the industry and was surprisingly negative. We have all been trading in an industry that has been pretty brisk the past few years. In fact right now many businesses in the UK window market are having one of their best years every. Yet, there are signs in this country, and around the world, that the wheels might be starting to come off again. Maybe it’s time to look at that PMR report again.
Steel crisis and slowing construction
It’s been difficult to avoid the news about the crisis that has struck the UK steel industry over the past few weeks. SSI has closed a plant in Redcar. Tata Steel has cut jobs in Scotland and England this week. Right now the whole steel industry looks very shaky.
There are a combination of reasons for the current steel problems. There has been a slowdown in construction and manufacturing. But one of the biggest and most talked about reasons is China. As global construction output has fallen, China has dumped mega amounts of the stuff on the world’s markets to lower the price to try and give the sector a boost. This is bad news for the UK, which makes better quality steel, but steel that is quite a bit more expensive than Chinese steel. If you’re in construction right now, you’re going to pick the cheaper option.
Plenty have blamed the Government, yet total blame for this crisis cannot be laid down at their door. But I’ll save that contentious issue for another post. The problem here though is that as an industry, we use a lot of steel, be it for reinforcing in window and door frames, or the hardware used to put windows and doors together. It’s also used in products such as solid and glass roofs for conservatories and glazed extensions. We use a lot of steel.
Stephen Cooper, head of manufacturing at KPMG in the UK, said: “The metals sector is currently facing a bigger threat than in 2009 when the global financial crisis sent shockwaves through the industry. Today we heard the news of up to 1,200 job cuts in Scunthorpe and Scotland, which follows the confirmed closure of the entire steel site in Teesside, with the loss of around 2,200 jobs. Adding to this, yesterday another site announced that 1,700 jobs were set to go. This is not only a crisis for the metals industry but a crisis that goes to the very heart of the UK’s industrial manufacturing. The negative knock on effects of this crisis for the UK economy cannot be underestimated.
Mark Firmin, head of Restructuring at KPMG, added: “While much of the news so far has been dominated by metal producing businesses, the current crisis has much wider implications throughout the whole supply chain. Knock-on effects will be felt by steel processors, stockholders, distributors, scrap metal dealers, metal traders, maintenance providers and equipment suppliers who will all be impacted by a falling steel price in different ways. We also forecast significant distress within metal product manufacturing businesses. Whilst they will be benefiting from decreased input costs, their revenue will likely decline in turn. Survival will depend on having a niche and flexible product portfolio and associated supply chain.”
Stephen Cooper concluded: “Companies that are highly dependent on consistently high quality grade metals, such as those in the automotive, aerospace and the oil & gas sectors need to also keep a close watch on what is happening in the market, because it could have a significant impact on their own supply chains. This ‘supplier risk’ which involves thousands of different grades of metal for key components is currently underestimated in our view.”
Housing compounding problems
We’re not building enough houses. This has been an issue we have known for years. But it’s a problem that is really starting to bite now. The population is growing and there is a generation stuck at home, unable to afford to move out of their parents’ homes and get on the mortgage ladder.
The Prime Minister says he wants to build around 200k new homes by the end of this Parliament. This is nowhere near close to the actual number that needs to be built. In fact I seriously question if they can actually build the 200k they said they would.
Herein lies the problem. If there aren’t enough new, affordable homes for people to move into, not only does construction suffer, but the mortgage market suffers too. People can’t get on the ladder, which means the housing chains further up become stagnant. If people can’t move homes, they can’t spend on home renovations like new windows and doors, like a lot do when they move into their new homes.
This has a major knock-on effect not only for our industry, but the economy as a whole. If we can’t sort out the housing crisis, all associated industries are going to suffer.
We live in a globalised world. This means that issues in other regions of the world can affect the rest of the planet, and this is happening right now.
The IMF has just lowered it’s global growth forecast again. The Chinese economy is slowing down – with some believing that it’s slowing down quicker than the Chinese wish to admit. Mario Draghi has just said that the EU may need more financial help by December. Whilst the UK might appear to be doing OK, these issues around us will have a dragging effect on our own economy, whether we choose to believe that or not.
At the time of the PMR report coming out, many of us looked at it and disagreed with it’s negative outlook. Yes we’re innovative, yes we’re hard working and yes we’re as diverse as we’ve ever been. But what we are not is immune to forces outside of our own control. Whilst times might be good now, it’s perhaps time to cast an eye towards the fairly near future and consider that things might be about to grind to a slow halt.
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