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Money Margin pressures are intensifying across Australia's construction sector

08:20  07 june  2018
08:20  07 june  2018 Source:   businessinsider.com.au

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Activity across Australia ’ s housing and apartment construction sectors improved sharply last Activity levels across Australia ’ s construction sector have been improving for over a year Despite boom-time like conditions, construction firms are reporting increased margin pressures

The construction sector is anticipating stronger growth across engineering and commercial This period will be marked by intensifying skill shortages which will put pressure on labour and labour Constructors Association (ACA) President, Peter Brecht, said: "The survey confirms that Australia ’ s

Australia's construction sector continues to strengthen.© AAP Image Australia's construction sector continues to strengthen. Australia's construction sector continues to strengthen, boosted by housing and engineering work.

The Australian Industry Group’s (Ai Group) Performance of Construction Index (PCI) stood at 54.0 in May in seasonally adjusted terms, down 1.4 points from April.

The PCI measures perceived changes in activity levels across Australia’s construction sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

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Activity levels improve across Australia for 12 consecutive months. Margin pressures intensify for services firms, especially in energy costs. Retail sector records its fastest deterioration in activity levels since mid-2012.

Activity levels across Australia ’ s construction sector continue to strengthen, underpinned by surging growth in non-residential work. However, even with boom-like conditions in non-residential construction , the Ai Group said margins for firms remained under pressure as input costs continued

So at 54.0, activity levels still improved in May, just at a slower pace than April.

The Ai Group reports that activity levels have now improved in each of the past 16 months, the longest period of consecutive improvement in the 13-year history of the survey.

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The Ai Group said the improvement was driven by firmer activity levels for housing and engineering construction, offsetting a steep slowdown in commercial work and deterioration in apartment building.

"House building activity expanded at a stronger rate in line with firmer demand conditions and a solid backlog of work," it said.

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In the UK construction sector , margins are under increasing pressure during a time of unprecedented uncertainty. Margin pressure . The construction industry has suffered from low margins for a period of time, and has struggled to recover to the pre-financial crisis levels.

Activity levels across Australia ’ s manufacturing sector improved at the fastest pace on record last month, according to the Australian Industry Group’s latest PMI report. Firms are reporting increasing margin pressures , including from higher wage growth to workers.

"Engineering construction also gained some further momentum in May consistent with reports of new tender wins and on-going support from a strong and expanding pipeline of publicly funded investment in major infrastructure works."

Fitting with a recent moderation in non-dwelling building approvals, the group said activity across commercial construction slowed noticeably during the month.

"The pace of growth in commercial construction was significantly slower in the month, although May was the sector’s 13th consecutive month of stable or expanding activity amid a range of projects underway, including offices, accommodation and education buildings," it said.

Again, mirroring recent trends in non-housing dwelling approvals, the Ai Group said apartment building continued to decline.

"Apartment building remained the weakest performing sub-sector in May with activity contracting for a third consecutive month, albeit at slower rate in comparison with April," it said.

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The PCI measures perceived changes in activity levels across Australia ’ s construction sector from one month to the next. “The ongoing gap between these price series demonstrates that strong pressures on profit margins persist for businesses in the construction industry.”

The PCI measures perceived changes in activity levels across Australia ’ s construction sector from one month to the next. “The widening gap between these price series indicates that profit margins are coming under increased pressure for businesses in the construction industry,” the group said.

This table from the Ai Group shows how each sub-sector fared in May, comparing the results to April as well as a year ago.

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Like the performance by sub-sector, individual activity subindexes also put in a mixed performance in May with new orders and employment growing at a slower pace while supplier deliveries accelerated.

"The industry’s on-going expansion was supported by continued rises in both activity and new orders," it said.

"This was associated with a stronger increase in deliveries from suppliers, although employment growth softened from the 3.5-year-high in April."

On new orders specifically, a lead indicator on activity levels in the future, the results suggest the recent divergence between housing and engineering construction compared to apartment and commercial building will likely persist in the months ahead.

"Slower growth in new orders was evident in the commercial sector while in the apartment building sector new orders contracted at a sharper rate," it said.

"In contrast, new orders expanded at a higher pace in the house building sector and eased only slightly for engineering construction businesses."

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In the UK construction sector , margins are under increasing pressure during a time of unprecedented uncertainty. Margin pressure . The construction industry has suffered from low margins for a period of time, and has struggled to recover to the pre-financial crisis levels.

The strong growth in the price of steel has hit Australian constructors hard and has lead to significant downward pressure on their profit margins . Company profits, by nature, are especially volatile and this has historically been the case for Australia s construction sector .

Despite strong conditions across most parts of the industry, the Ai Group said margin pressures remained intense.

The input prices subindex surged by 8.1 points to 82.6 points, indicating that cost pressures in the construction of building projects lifted sharply during the month.

Like the headline PCI, the distance away from 50 indicates how quickly prices are increasing or decreasing over a given month.

In May, the answer was a lot.

"This increase in costs was driven by robust demand for construction materials, escalating energy input costs and supplier price hikes related to strength in commodity prices," the group said.

In contrast, the selling prices subindex increased by a smaller 2.7 points to 60.4 points, indicating that pressure on input prices are only partially being past on to buyers given strong levels of competition.

"The ongoing gap between these price series demonstrates that strong pressures on profit margins persist for businesses in the construction industry," the Ai Group said.

"This is consistent with reports of a highly competitive quoting and tendering environment."

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