The outlook for the global building materials industry remains varied with strong growth in most emerging markets, a likely recovery in West European and Australian markets and a challenging outlook in the US and some North African markets. Pricing also remains a key issue in most markets, according to an informative new report from JP Morgan Cazenove.
The analysts remain cautious on exposure to US construction spending. Growing macro-economic concerns, a depressed housing market, little incremental demand for commercial space and uncertainty on federal funding for highways spending are among its concerns. However, US$5/t price increases announced in April are noted as succeeding in some local markets.
A recovery in Western Europe is expected this year on the back of strong growth in residential markets in France and Germany. Due to austerity measures announced by most countries, the report expects infrastructure spending to remain flat or to post a slight decline compared to last year. Uncertainty about the macro-economic situation in peripheral Europe remains a concern, but its outlook on Central and Northern Europe remains positive. Similarly, Eastern European construction markets should show a fast paced improvement with most companies reporting strong trading conditions in the region, led by Poland and Russia.
JP Morgan Cazenove also expects continued growth in Asian demand this year. While the Australian market appears to be seeing slight improvements, growth in China, India and Indonesia remains strong and it expects growth in these markets to remain robust longer term because of rapid urbanisation and infrastructure/housing needs for a growing population base. However, pricing volatility remains inevitable as unpredictable volume demand combines with significant investments in new capacity.
A positive outlook on Sub-Saharan Africa and a cautious outlook for Middle East and North Africa due to political uncertainty in the region is noted in the report . For example, although analysts have seen 4% and 1% improvements in Egyptian cement demand for April and May respectively, overall a 5% reduction in annual volumes overall as the weak February and March figures feed through and combine with flatter anticipated volumes from here onwards to the year-end. Furthermore, higher energy and labour costs are likely to put margins under pressure this year. On the other hand, markets in Sub-Saharan Africa continue to grow driven by residential and infrastructural demand in-line with a typical emerging market.
Finally, in Latin America, housebuilding growth continues in Mexico and Brazil. Cement volumes were up 11.5% in Brazil YoY in Brazil in June so volumes seem to continue to perform well. Pricing versus cost increases will be a similar issue here to the rest of the world.