THE CONSTRUCTION INDUSTRY is booming, with firms expanding their staffing levels and purchasing activity last month.

That’s according to AIB’s Purchasing Managing index for the sector, which also points to more concerning trends noted in the last month.

“Less positive was a sharp acceleration in the rate of input cost inflation, with the latest increase the most pronounced since December 2022,” it noted.

Inputs for the sector refer to materials like cement, concrete, and steel.

“Close to half of all respondents signalled a rise over the month, with inflation often linked to higher fuel costs.”

Rising fuel prices also impacted suppliers’ delivery times, with shortages of materials and difficulties finding drivers also contributing to a marked lengthening of lead times, it found.

Business sentiment was dampened by uncertainty as a result of the war in the Middle East, the PMI stated. 

AIB senior economist John Fahey said of the survey: “Irish construction firms continued to convey an optimistic view on the prospect for increasing activity levels over the coming 12 months. However, the uncertainty arising from the conflict in the Middle East saw confidence levels fall to a four-month low.”

Firms still predicted a rise in activity, often as a result of positive demand expectations, the survey said.

The industry is in a very positive space in the first quarter of this year, the CEO of the  Construction Industry Federation (CIF) Andrew Brownlee told The Journal – but the rapid rise in costs for firms is a concern.

Pointing to major projects that have been greenlit, such as the Metrolink and the Greater Dublin Drainage Scheme, as well as housing policy changes, Brownlee said there’s increased demand in the sector, leading to more staff being taken on.

However, as noted in today’s PMI, the fuel crisis and war in the Middle East has brought volatility to the sector.

The fuel crisis has caused a “bit of a dent in the confidence of the sector about where things are going to go – the potential for a recession, the potential for supply issues kind of present themselves, and how we mitigate the very significant cost increases that the sector is facing at present because of the oil price shock”, he said.

“The raw materials that go into construction: cement, concrete, steel, they’re all generated via fuel intensive processes. So look, if you take cement as an example, it’s gone up 15% in a few weeks.

“The second big challenge is obviously the fuel that that we require to run our plant and machinery on construction sites. So the excavators, the diggers, mobile cranes – that all runs on green diesel. And I suppose we’re a bit disappointed that a lot of the action and excise reduction has focused on white diesel or auto diesel and on petrol.”

Brownlee said the government’s latest fuel support package, announced on Sunday evening and costed at €505m, at the moment “seems to really only focus on the agriculture sector”.

It is unclear whether the fuel support subsidy scheme is applicable to vehicles essential for construction, such as excavators, although Brownlee says he believes it may apply to large trucks. CIF has sought clarity from government on this.

“The price of MGO fuel [green diesel], which is what powers the construction industry, has increased by 83%,” he said. “That’ll be a real challenge for the construction sector, because our costs are going up and up and up, and we have no means of mitigating that, we have no means of predicting where the costs and prices are going to go.

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“That challenges us when we have homes to build and infrastructure to deliver.”

In public works contracts, there is a price variation mechanism that allows the contractor to pass on additional unexpected costs as a result of inflation, but this protection isn’t there for private contracts.

Builders need to have the capacity to absorb these shock short-term increases in their costs, Brownlee said. For smaller and medium-sized builders, it can be a challenge to shoulder these increases and remain operational.

He doesn’t foresee any impact to project delivery at present, stressing the strength of the sector, but said the industry wants to see recognition of the “extreme shock to the cost of doing business in construction”.

“That’s something we didn’t see explicitly referenced in the announcement on Sunday.

“We really think the construction industry is in the eye of the storm of the kind of fuel price shocks. And we do think we need government to recognise that in terms of how it supports the sector, and then there should be no risk to delivering projects.”

He said the industry would like to see more supports in terms of the rising costs of green diesel. Government has addressed this for agriculture by putting in place the support scheme, he said.

“I think the government ensuring or extending that support scheme to include all plant, machinery, transport and the construction industry, which is powered by MGO fuel, would be a really critical step, and that’s what we’re asking for.”