How will the Ukrainian conflict affect construction?

On February 24th 2022, Russia attacked Ukraine, escalating the Russo-Ukrainian War, which began in 2014 with the Ukrainian Revolution of Dignity (Maidan). With more than 5.2 million Ukrainians fleeing the country and a fifth of the population displaced, the invasion has triggered Europe’s greatest refugee crisis since World War II. Buildingspecifier.com Editor Joe Bradbury investigates how the conflict will affect construction.

The invasion has been widely denounced as an act of aggression around the world. The United Nations General Assembly passed a resolution calling for Russia’s military to be fully withdrawn.

Sanctions

The Ukrainian conflict has immediate, serious, and far-reaching economic ramifications. This is owing in part to the fast international response prompted by the conflict, with the United States, the European Union, and the United Kingdom (among others) enacting a series of substantial sanctions (many of which were joint and coordinated) against Russia. These numbers are steadily rising.

The sanctions imposed thus far have mostly targeted a number of sectors of the Russian economy, as well as certain military and political officials in Russia and Belarus, and have limited the importation of some Russian exports.

The impact on construction

The crisis in Ukraine and the resulting sanctions are already having an impact on the cost and availability of materials and equipment needed for construction projects. In the United Kingdom, this industry often has low profit margins yet requires substantial resources to complete projects. As a result, any disruption to supply chains swiftly results in financial difficulties. The battle will aggravate an already tumultuous market already beset by Brexit, COVID-19, shipping delays, inflation, and rising energy and fuel prices.

Given Europe’s substantial reliance on Russian gas and oil supplies, the conflict has had a significant influence on fuel prices, with both prices rising significantly. These prices are anticipated to stay high and rise further, raising the cost of materials used in projects that require a lot of energy to make and create, such as steel, bricks, plastics, and ceramics. Transportation expenses for construction equipment, plant, and supplies are also expected to rise.

According to data and analytics firm GlobalData, the construction industry in Eastern Europe is expected to contract by 3.4% in 2022 as a result of the prolonged conflict between Russia and Ukraine.

Recent research from GlobalData reveals that economies with strong ties to Russia would be the most affected, but the conflict will have rippling effects throughout the area, with higher energy and raw material prices, as well as a loss of trust in the region from project investors.

The worst affected market, of course, will be that of Ukraine, which is forecast to fall by 69.1%.

Joel Hanna, Economist at GlobalData, said “Construction in most countries in Eastern Europe is likely to be affected by rising energy prices, exacerbated supply chain disruptions and local currency devaluations owing to weakened investor confidence in the region over the uncertainty of the Russia-Ukraine crisis. Moreover, household income squeezes are likely to weaken demand and undermine growth in commercial construction projects, while rising construction costs will push housing prices higher, reducing demand for residential construction.”

He added “Construction costs in Eastern Europe are already rising owing to the post-pandemic demand rebound and supply-side shortages pushing up raw materials prices and shipping costs. The crisis in Ukraine adds significant upward pressure to construction costs in 2022, which will eat away further at project profitability, dampening the outlook for construction activity in the near future.”

In summary

It is still too early to tell how sanctions against Russia may affect construction materials. However, bricks, aircrete blocks, roof tiles, steel lintels, cable trays and trunking, manhole covers, gas boilers, and some electrical products are still in short supply.

Some argue that price inflation, caused by a shortage of raw materials, rising energy, freight and labour costs is of greater concern than availability. So far this year, many firms have announced price increases of 5-10%, with energy-intensive products seeing rises of up to 20%.

While road haulage problems have lessened as the shortage of HGV drivers has reduced, transport costs remain high, with shipping rates still eight-to-nine times higher than pre-covid levels and air cargo rates seven times higher.

Meanwhile, the impact of the Ukraine conflict and following Russian sanctions on the supply of building materials in the UK is still to be determined.

Only 1.25% of building supplies shipped into the UK last year came from Russia, Ukraine, and Belarus. However, increased prices of raw materials needed in the making of steel, such as aluminium, copper, bitumen, pig-iron, and iron ore, may have an impact on prices.

Increasing costs in more exposed European markets could have an impact. Sanctions against individuals with links to the regime in Russia and firms with Russian ownership could also affect the UK supply chain.

So in answer to the question, how will the Ukraine conflict affect construction, the answer is – watch this space.