Building materials pessimism
By Sandy Guthrie07 October 2010
Volumes of European building materials are no longer expected to pick up in the second half of this year, according to Moody's Investors Service in its latest Industry Outlook for the sector.
There are, however, signs that construction activity in Russia, and to a lesser extent in the Ukraine, will turn positive during the reminder of the year.
The report suggested that although the drop in building materials volumes had stabilised in most European countries, the European building materials industry remains under pressure.
The rating agency said it no longer expected a second half pickup in volumes compared to the same period of 2009, as a result of the continuing weak construction markets, such as Spain and Italy.
Matthias Hellstern, a senior vice president and author of the report, said, "Moody's would consider changing the outlook to stable in the next few months if there are more signs that the broader industry has reached the bottom in terms of volume declines and if pressure on prices eases in several markets. In our view, this has not yet happened on a wide enough scale to stabilise the outlook."
In the report, "Mixed Signals on Recovery for European Building Materials Companies", Moody's notes that overall, cement volumes in most mature European markets in the first half of this year were below the already-low volumes that were shipped in the same period of 2009.
Moody's does not expect a real pickup in the second half compared to 2009. In addition, volumes of building materials in a few Western European markets, for example Spain and Italy, continue to decline strongly. Only limited positive volume development is expected in the UK and Germany.
"The building materials industry in all central European markets, such as Hungary or Romania, will remain weak - with the exception of Poland," said Mr Hellstern. Volumes in Poland were lower than in the first half of 2009 as a result of a very harsh winter and severe flooding in May, he added, but he felt lost volumes in Poland should recover in the second half of this year.
Moody's noted that there were indications that construction activity in Russia, and to a lesser extent in the Ukraine, would turn positive during the reminder of the year.
"Demand for building materials in Russia is driven by continued government spending on infrastructure and the fact that residential construction has picked up again somewhat, which is also supported by government subsidies for mortgage lenders," Mr Hellstern said.
Several markets are experiencing price pressure driven by overcapacities and lower volumes, Moody's found. This is occurring in Italy, Spain, Central Europe and several regions in the US. It is happening with a number of types of building products, including heavier materials such as cement and aggregates, as well as with lighter materials, such as gypsum or bricks.