The construction sector is starting to consider halting construction and giving up new ones with the rise in the price of raw materials such as cement or aluminum in the last month and a half.
The concern in the sector is such that companies at a national and island level are already considering sending their workers to ERTE to avoid layoffs.
“We don't want to fire anyone, but the situation is desperate,” says María de la Salud Gil, president of the Las Palmas Construction Association. “The real effects of this situation have not yet been fully reflected because companies are holding back,” she warns.
The war and the transport strike have a direct impact on the sector
The war in Ukraine and the carriers' strike have had catastrophic consequences in construction, such as increased costs and delays in shipments, so many developers and clients can no longer afford the prices.
“Construction costs already rose 26% at the end of 2021, but now that percentage is 40%,” explains the president. “We conducted a survey of private construction developers in the Canary Islands and 80% responded that they are going to halt their investments for the moment due to the variation in prices.”
In addition, she adds that “four out of five homes sold are second-hand”, which reflects the serious problem facing construction.
Sources in the sector maintain that since the outbreak of the war, the prices of some materials, especially aluminum, have tripled and quadrupled, since Ukraine and Russia are its main producers.
The carriers' strike has also had notable consequences, causing a lot of merchandise to accumulate in the ports, causing major delays. In the case of the Canary Islands, this problem is aggravated by its characteristic as an outermost region, and even more so in Lanzarote, due to the double insularity, so some companies have begun to stockpile products.
“We don't have enough materials here on the island, our stock is very limited, so transportation problems have fully affected us,” says María. “There have been times when freight was more expensive than the merchandise itself.”
Private companies, the most affected
The worst part of this cost fluctuation will be borne by private companies as they do not have a price revision, as is the case in public works, although the latter are weighed down by the slow pace of administrative management.The president of the Las Palmas Construction Association points out that, in the public sphere, the Government of the Canary Islands is going to approve the price review very soon, but that, as of today, they do not know how it will be managed.
The price of cement rises, but sales remain stable
Cement sales in Lanzarote had been showing very positive figures since last year, figures that even exceeded those before the pandemic.
However, in these first months of 2022, sales have been falling, marking the two worst months in years, with only 4,027 tons sold in January and 4,027 in February. This is mainly due to the completion of two large works consuming this material, the new Playa Blanca hotel and the Garavilla shopping center in Arrecife.
“When there are large construction projects, there is a lot of specific consumption, so this can distort trends and make it seem like sales are increasing in general,” say sources in the construction sector in Lanzarote. “The growth and decrease in cement sales is relative in these circumstances, but if those specific works are not counted, sales remain stable,” they clarify.
For now, there is no concern within the sector about the lack of construction, although this could change if costs continue to increase at a dizzying rate. Specifically, it is expected that the price of cement will rise again in May, after the rise in January. This is an exceptional situation, since cement usually varies its price annually and not every few months, as is happening now.
“There will be two options in May if the price of cement continues to rise: raise the prices of the works or stop producing,” says María de la Salud Gil.
