UK Covid Update WHITE PAPER - Xactware
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WHITE PAPER UK Covid Update
COVID-19 has changed the landscape of the UK since lockdown came
into effect on 23rd March. Insurers moved claims operations into the homes
of their staff as offices had to close or restrict numbers. For contractor
operations, all but emergency works had ceased.
Currently, approximately a quarter of the UK work force is furloughed.1
The construction industry was particularly hard hit by the lockdown.
However, the number of furloughed staff is now sitting at approximately
21.1%, compared to a 21.5% average across all industries according to the
latest Office of National Statistics Data.2
The situation is volatile. Weekly government changes to the lockdown rules
and the ongoing safety reviews could make life significantly easier for the
construction industry. Distancing rules were altered on 23rd June 2020
and on 24th July, with face coverings became mandatory in shops,
supermarkets and banks in England.
1
https://www.telegraph.co.uk/business/2020/06/02/87-million-furloughed-quarter-workers-get-government-subsidy/
2
https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/bulletins/
coronavirusandtheeconomicimpactsontheuk/16july2020#workforce
UK Covid Update 2MARKET INDICATORS To understand the ongoing construction price changes, Verisk’s pricing team monitor key market indicators, including raw material prices such as metals, oil, timber, and gypsum. An example is oil, a key indicator as it has a massive impact on the cost of transporting goods and heat processes, which are key in the production of many construction components. Oil prices3 suffered the biggest decline.4 This was exacerbated by OPEC’s unwillingness to reach an agreement for production to reduce in line with demand. This sparked a price war with the barrel value reaching a low not seen since the beginning of the century. The United States intervened in the dispute between Russia and Saudi Arabia, resulting in the early May recovery which is continuing.5 At its peak, WTI Oil prices fell to -$40.32 per barrel, the lowest price on record.6 3 http://www.macrotrends.net 4 https://www.iea.org/news/global-oil-demand-to-decline-in-2020-as-coronavirus-weighs-heavily-on-markets 5 https://www.nytimes.com/2020/04/12/business/energy-environment/opec-russia-saudi-arabia-oil-coronavirus.html 6 https://markets.businessinsider.com/commodities/news/us-crude-oil-wti-falls-to-21-year-low-1029106364 UK Covid Update 2
Oil Price per Barrel WTI
70
60
50
40
30
20
10
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2019 2019 2019 2019 2019 2019 2019 2019 2019 2019 2019 2019 2020 2020 2020 2020 2020 2020
In February metal prices began to decline,7 with prices only beginning to recover at the
end of May, a trend which has continued into June. There are risks with this recovery as
fears over a second wave of COVID-19 in the USA and China are threatening the
exchange rates and commodity markets.8
$7,000.00
$6,000.00
$5,000.00
$4,000.00
$3,000.00
$2,000.00
$1,000.00
$0.00
Jul 18
Aug 18
Sep 18
Oct 18
Nov 18
Dec 18
Jan 19
Feb 19
Mar 19
Apr 19
May 19
Jun 19
Jul 19
Aug 19
Sep 19
Oct 19
Nov 19
Dec 19
Jan 20
Feb 20
Mar 20
Apr 20
May 20
Aluminum Copper Lead
The production of gypsum products in the UK was hampered significantly by the need
for factories to shut down production temporarily to accommodate government
lockdown measures. Currently, gypsum production is back to at least 80% of pre
COVID-19 production.
7
https://www.lme.com/en-GB/Metals/Non-ferrous#tabIndex=0
8
https://www.ft.com/content/a63b4823-3fce-4c8f-8307-c4eec1811c93
UK Covid Update 3In a recent statement on the British Gypsum website, MD Matt Pullen stated “We are
confident that we will in the near future help re-stock all of our existing merchant,
distributor and DIY stockists so they can meet the ongoing demand for our products, from
individual tradespeople working in private homes, to the greater number of housebuilding
and commercial building sites that have now safely re-started construction. Until this time,
we will continue with our implemented allocation process for plasterboard and plaster, to
ensure fair supply of available product.”9
Timber products in the UK have seen a cutback in production by key Nordic sawmills in a
direct response to demand. Hopes of a recovery are tied to finding a new way to manage
COVID-19. In April the European Organisation of The Sawmill Industries and European
Timber Trade Federation released a jointly stated, “However, if the general economy
and the construction sector remain subdued in Q3 and Q4, a prolonged contraction will
take a heavy toll on the timber industry, even in countries that so far have managed to
weather the storm.”10
9
https://www.british-gypsum.com/about-us/coronavirus
10
https://www.atibt.org/wp-content/uploads/2020/04/E ROPE-ETTF-EOS-Joint-Press-Release-Impact-of-Covid-19-on-
Timber-Market-20200417-1.pdf
UK Covid Update 4RESEARCH FINDINGS
Material
Currently the lower cost of raw materials has not manifested into large changes in the cost
of building materials in the UK market. Because of the complexity of production processes
and the corresponding drop in demand for products, prices have largely remained
stagnant. The major difficulty has been in sourcing materials as supplies have dwindled.
This was particularly prevalent for plaster products, masonry products, internal doors,
and PPE.11
Plaster Price Movements
14 %
12 %
10 %
8%
6%
4%
2%
0%
-2 %
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According to Xactware material research, the reduction in production of plaster products
has led to a price rise across the country. The largest price rise observed was for 9mm
plasterboard, which increased on average 11.53% across the UK.
11
https://www.constructionnews.co.uk/agenda/11-materials-and-products-in-most-short-supply-20-04-2020/
UK Covid Update 4Average Price Movements
10 %
5%
0%
-5 %
-10 %
-15 %
-20 %
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Tiling items have seen the biggest decrease in price. Average grade tiling fell most
significantly, due to price reductions in the national retailers, with price drops on average
of 10%. The reduction in the oil price per barrel has translated in significant price
reductions in the UK diesel market, with the largest decrease in price seen in Northern
Ireland, where prices dropped by 19.12%.
Generally, the biggest average price increase was seen in Scotland with 0.86% while the
biggest decreases were seen in London at -1.23%. Aside from these exceptions, prices
have remained static across the market.
UK Covid Update 5Labour Verisk property research indicates wages, much like material prices, have remained static. However, the overall costs associated with completing a buildings repair has increased. In order to comply with Government regulations and to safeguard the comfort and health of both the contractors and policyholders alike, additional preparations are required. These include, but are not limited to, minimizing the number of operatives on site at any given time, arrangement of additional transport, deep cleaning of work areas, and additional waiting times for material collections. Verisk is able to adjust any labour consents within our system to account for additional working times if they become the new normal. Until then, we are introducing three new items for additional planning requirements, alongside the item we introduced last quarter for additional PPE costs. These are for additional anti-viral cleaning, additional administra- tion time to co-ordinate projects, and additional time for material and equipment collection. The usage for PPE costs has been lower than we expected and could provide customers with specific insight on increased spend. We would encourage the use of these items. Another underlying issue of policyholders is the reluctance to have contractors in their home. This has raised concerns that contractors will require welfare facilities while customers restrict home access to contractors. In the I Love Claims webinar on 18th June, it was mentioned that social distancing has hampered efforts with training and apprenticeships, activities aiming to counter the skills share deficit which is faced in the UK. The Verisk property pricing team will continue to monitor the situation very closely. We will share any insight with our customers as and when the situation changes. We will continue to reach out and talk to our customers, listen, and share information before deciding our next steps. Changes will be reflected in our quarterly pricelist release as the industry reaches a new normal. The next pricelist release will be on the 1st October 2020 and will reflect any cost movement over the summer. Stay Safe! For further information please contact UKpricing@Xactware.com UK Covid Update 6
verisk.com © 2020 Verisk. All rights reserved.
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