Summary
Despite the recent comments about recovery and "green shoots" the evidence would still indicate that we have some distance to travel before the building material industry returns to the levels of volumes enjoyed in the period circa 2004-2007 pre the market crash.
Strong performance in the RMI and Infrastructure markets will help offset weak demand in the other sectors.
Analysis
Construction output will continue to fall as it stands, current data indicates that perhaps 2009 will fall by a record 16% followed by another drop in 2010 of 5% before we bottom out.
Some commentators state we have bottomed out now, I would challenge this thinking and offer evidence from contractors forward order books as proof, orders for offices, retail, factories and warehouses have all fallen significantly and will not pick up in the short term as confidence is low and funding not so easy to come by.
We are looking at a period of 3 years before building material volumes rise to the 2004 level, price and gross margins will remain under pressure until 2013 i believe.
As i write this article positive signs are emerging for private housebuilding, mortgage approvals are at their highest point since March 08 and almost 10000 up on the previous 6 month, house prices have risen for the third straight month and the Nationwide states that there is a chance that house prices could end the year higher than they started.
House Builders such as Persimmon are indicating that new sites are opening up, 50 in total, that along with generous schemes to aid the purchase of new homes will help shift building material volumes, early winners here will be the brick and block producers such as Hanson and Celcon.
The big surprise potential driver and possibly the key to unlocking the lowest number of private houses built post WW2 could be the Pension Funds, if the recent press speculation is true and the Institutions have an appetite to build homes and apartments then this appetite can be matched to the spare capacity that contractors have at present, given the slow down in other sectors, we could be about to observe a very busy period of construction and demand for traditional building materials once more.
Allan Durning consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
