Although not as constant as last year, the raw material prices continue to edge up. The latest being glass prices. PVC resin prices appear to have become more stable of late and the cost of aluminium has fallen from record highs following Russia’s invasion of Ukraine.
Raw material prices plateauing is one thing, the cost of the energy to produce our products continues to rise, which in turn affects everything else.
In the face of rising prices, whether we like it or not, we’re going to have to pass those increases on.
Little room for absorption
About two weeks ago, 6 established fabricators within the fenestration sector published a joint letter calling for a cap to price increases and for pressure to be put back up the supply chain to resist any further increases.
It’s not often the likes of joint statements like this are published. Only in exceptional circumstances, such as the start of the pandemic, for example. When these are published, I find they give us a glimpse into the real nature of what is happening within the sector. For example, for companies to come out with a joint letter such as this, is perhaps an indication that market conditions are together than is being publicly talked about. That perhaps the slowdown we all knew was coming was happening faster than many thought it would have. It takes a lot to garner such a response as that letter, so it offers us a window into some market realities.
I suspect it is also being done out of frustration. Those fabricators that put their name to that letter, as well as many others around the country, are likely on the other end of emails on a regular basis from their own customers. The latter are putting pressure on them to hold off on the price increases.
So they, as well as most other fabricators, are finding themselves between a rock and two hard places. Their suppliers, the systems companies are wanting to pass on the price increases they themselves are being handed to them by those even higher up in the supply chain. Demand is rapidly cooling, and their installers are pressuring them to stop any further increases. It’s not an enviable place to be. Hence the letter.
It’s worth noting that profit margins at both fabricator and systems company levels are not as fat as people would think. For example, margins for systems companies lie in the low to mid-single digit percentages. For fabricators, break even is at roughly 85% of their weekly frame output. Profits are made after that.
Market conditions have changed significantly in the last 6-9 months. Although raw material prices have become somewhat more stable, energy and labour costs are going through the roof, against a backdrop of cooling demand. There is very little room to absorb any more cost increases. Therefore, it must be passed down the supply chain, as uncomfortable as that will be for many.
Cost of energy is crippling
Had the stabilisation of material prices been the main singular factor in the tapestry that is fenestration, we perhaps would have been able to see a more significant reduction in some costs at the fabricator level. Sadly, it’s not.
As we’re all acutely aware, the cost of energy, which affects literally everything, continues to spiral out of control both within businesses and the general public. This is negating some of the benefits we might have seen from the plateauing of raw material costs.
For the public, the energy price cap is set to land somewhere between £3600-£3800 at the next revision, making for a very costly Winter. For businesses, it’s been worse. There is no price cap for businesses, so they have been feeling the full force of any and all increases from their suppliers. The next 3–6-month contracts companies sign with their energy providers will be very expensive.
The long and short of it is that energy prices are crippling. There’s is very little we can do, and unless the Government suddenly decides to nationalise the entire system, at the cost of tens of billions and perhaps more, this is something we’re sadly going to have to weather for at least the next 18 months.
To bring this back to the debate about price increases and who should pay, it ultimately must be the end user. Yes, this continues to feed into the inflation cycle, but with margins being squeezed in all areas, against a backdrop of falling demand, it’s highly unlikely that any business within our supply chain can simply absorb whatever is handed to them without it being seriously damaging to the business.
For fabricators, it’s now a case of finding savings within the business if they find their existing models cannot cope with the current crop of increases. Some may find they have some tough decisions to make in the coming weeks and months. The same goes for systems companies.
When it comes to installers, increases will need to be passed down to the consumer, but effort must also now be made to attract the wealthier clients. Lower and middle-income demographics are being hit very hard right now and will be hit harder when the energy price cap rises again in October and January 2023. We have to argue as an industry that investing in new windows and doors is a very useful tool to combat rising energy costs, but for some families, that goal may now already be out of reach.
So, it’s about finding new clients via new products to bring in new revenue streams. Installers cannot afford to stand still and hope for the best, because hope and positive platitudes are not a plan. A plan is a plan, and they need to be made now.
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