The industry has likely seen and completed most of this first wave of price increase brought on by the war in Iran.
Since the start of the conflict, we have seen oil, petrochemicals, and other commodities like aluminium rise sharply since the start of the conflict. We are all now seeing that at the pumps in the form of much higher diesel and petrol prices.
Even though the bombs have largely stopped, the naval blockades in the Strait of Hormuz are exacerbating an already fraught situation. It means that we’re likely to see continued price increases later on in the year.
Oil still rising
Oil prices dictate many things, including material prices in our own sector. PVCu is a derivative of oil, and aluminium billet also comes from the same region. Right now, there is a ceasefire between the US, Israel, and Iran. However, with no diplomatic breakthrough in sight, the chances of a return to bombing look increasingly likely. Should that happen, regional security will take another heavy blow, and we can expect commodity prices to spike even higher.
Running parallel to that risk is the continuing blockade of the Strait of Hormuz. Iran has imposed tariffs on the few ships that are allowed to pass, and the US Navy is sending ships back that try to navigate that waterway. In short, there is very little getting in and out despite the pausing of the bombing. As a result, we have seen oil prices continue to rise, which at the time of writing stand at $108 a barrel for Brent crude. It did rise to as much as $125 before profit-taking saw it pull back slightly.
As a result, we are going to see continuing energy prices increase for at least the medium term. Petrol, diesel, and gas prices can all be expected to rise in the coming months unless there is a sudden breakthrough in the Middle East. Right now, that does not seem likely.
The price of energy affects everything. So even if the cost of PVC resin and aluminium billet were to remain where it is right now, the cost of energy to run systems companies and fabrication businesses will still rise. Companies throughout the supply chain should prepare themselves for further increases from their own suppliers towards the back end of Summer.
Push for urgency
As a sector, rather than wait and hope for things to get better, we need to be proactive and look at ways to continue generating business in what is becoming a rapidly difficult market.
For installers, being open and honest with homeowners is actually going to work in your favour. Just as they did in COVID, consumers are aware of rising costs across the board due to the war in Iran. At the time of COVID, consumers were well aware of supply chain disruptions across the board and rising energy costs all at the same time. It meant there was a certain degree of haste on the part of homeowners to get projects in motion.
The same thing can be applied here. If installers know price increases are coming down the line in just a few weeks time, it does allow them to convey to homeowners that investments made in their properties now will actually be cheaper than in a few weeks time, and that it is better to press the button now than to wait things out, where things could be even more expensive towards the back end of the year.
The industry ought also to continue to refocus towards the high-end of the market. Whilst low and middle-income demographics are unfortunately going to be once again squeezed by rising energy, food and other costs, one demographic is going to largely remain unscathed by this, and that is the top 20% of earners in the UK.
I once read that the top 20% of earners in this country fund 80% of all renovation and private building work. And when you have the money to spend on building your own home, you’re going to opt for high-end products like aluminium sliders and bi-folds, lanterns, pivot doors, sash windows, flush windows, timber doors for grand entrances and so on. Installers, if they haven’t done so already, should be looking at these product niches to bring in new and better profit margins. The opportunities are there, I can vouch for that myself. It just requires some time, energy and forward planning, and if executed well, it can win lots of profitable new business.
So whilst we must prepare for prices to continue to rise later this year, we must also remain focused on the opportunities that are out there.
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The oil market is being distorted by very rich speculators; buying ships laden with oil, holding them in international waters forcing the price upwards, and then making vast profits.
Much profit making is going on in the industry supply chain also.
This is a dangerous situation and will lead to bankruptcies, loss of trust and confidence as the consumer is feeling ever more squeezed by taxation.
Meanwhile more regulation is being piled onto the industry.
We are writing to the Trade Press and Government warning about this.