The South African construction industry ebbs and flows with the changes in the economy and that means the metal price goes up and down, making it a challenge for construction companies to set their prices in such a way that the company can make a decent profit.
While this can mean exciting opportunities do come along the way, construction companies also face the challenge of having to work with volatile metal prices. Unforeseen price hikes can throw project budgets and timelines into disarray, impacting profitability and client satisfaction.
Understanding What’s Behind the Fluctuations
Construction companies can understand these fluctuations and mitigate risk by understanding the factors influencing metal prices and implementing proactive strategies.
Metal prices are influenced by a complex interplay of global and local factors, with these being just a few of the key factors playing a role:
Global Supply and Demand
Fluctuations in global metal production, combined with international construction activity, can significantly impact prices. Disruptions like trade wars (and literal wars), political instability, and natural disasters can all cause price spikes.
The Oil Factor
Oil prices are intricately linked to metal prices. Since transportation costs significantly impact the final price of metals, rising oil prices can lead to increased metal costs.
The South African Rand
The exchange rate between the Rand and major currencies like the US Dollar can influence the price of imported metals. A weaker Rand can lead to higher import costs.
Local Market Dynamics
South Africa’s own mining and production capacity, along with transportation infrastructure limitations, can influence domestic metal prices.
How to Mitigate Risk
While predicting metal price fluctuations with absolute certainty is impossible, construction companies can adopt these types of strategies to minimise their impact:
- Early and Accurate Material Estimation: Thorough project planning with precise material estimates is the ideal starting point. Companies can do this when they partner with experienced engineers and quantity surveyors to ensure accurate metal requirements at the initial stage. This allows for better budgeting and early negotiation with metal suppliers.
- Be Flexible: You should be comfortable with incorporating flexible material clauses into your construction contracts. This will give you room for adjustments in case of significant price hikes, protecting both the construction company and the client.
- Open Communication: Maintain clear and transparent communication with your clients. You should discuss the potential impact of metal price fluctuations and also options like cost-sharing mechanisms or project timeline adjustments if necessary.
- Forge Strong Supplier Relationships: Building a strong partnership with a reliable metal supplier like Metal World in Nelspruit is vital. A trusted supplier can offer valuable insights into market trends, pricing forecasts, and potential alternative materials. They can also help secure better deals through bulk purchases or negotiated contracts.
Proactive Procurement Strategies
Aside from excellent communication and planning, you can also use these proactive measures:
- Although not ideal for every company, alternative materials or construction methods that may use less volatile metals should be considered. This can involve consultations with structural engineers to identify cost-effective solutions without compromising project quality.
- Instead of purchasing all the metal upfront, try using a phased procurement approach. This allows you to lock in prices for a portion of the materials while maintaining some flexibility to adjust purchases based on market fluctuations.
- For larger projects, think about using hedging options in consultation with a financial advisor. Hedging allows you to lock in future metal prices at a predetermined rate, giving you some protection against potential price hikes.
Metal price fluctuations are a reality in the construction industry. For expert advice and a wide range of metal products in Nelspruit you can contact Metal World.
Our team is dedicated to helping construction companies better understand the metal market and find solutions that ensure project success.