UK construction: calls for real activity

Following disappointing 2012 figures, the UK construction sector is braced for another tough year ahead and industry bodies are stressing the need to boost activity across the sector to prevent further declines in the industry and the wider economy.
 
Evidence of a rapid decline in construction activity was confirmed by Mineral Products Association (MPA) sales survey results for 2012, which indicate a reduction of nine per cent in cement, aggregates and ready-mixed concrete in 2012 and an 18 per cent drop in asphalt sales. This marked the lowest year for aggregates and concrete sales since 1965. The provisional construction output figure indicates a nine per cent fall during the year. For the first 11 months of 2012, cement sales totaled 7.23Mt, down 8.3 per cent from 7.9Mt on the same period of last year.
 
The rate of decline of cement, aggregates and concrete sales moderated in the fourth quarter but in general markets remained very depressed through the year. GDP results released by the Office for National Statistics last Friday showed that GDP was relatively flat between 2011 and 2012, and fell by 0.3 per cent in the final quarter of 2012 compared to the previous quarter and was flat compared to the same period a year ago. The main contributors to this decrease were the manufacturing and mining and quarrying sectors, which contracted 1.5 per cent and 10.2 per cent, respectively. Construction overall fared slightly better, growing by 0.3 per cent QoQ. However, compared to the same period a year ago construction was 11 per cent down.
 
Commenting on these figures, Noble Francis, economics director at the Construction Products Association, said: "The GDP figures released today show that the final quarter of last year was extremely difficult with the construction industry 11 per cent lower than a year ago. Recent figures for new orders, which are a forward-looking indicator for the industry, were seven per cent lower than a year ago and as a consequence the coming year is likely to see further contraction from what is already a very difficult position."

Industry cutbacks

With no immediate signs of an increase in infrastructure or housing orders, Hanson has announced a series of proposals to restructure its business and meet the challenges that lie ahead. The company, which is part of the HeidelbergCement Group, said it is to suspend production at 60 of its quarries throughout England and Wales from two weeks to two months. Its stoppages are expected to affect 350 employees which the company will attempt to retain on reduced wages. Towards the end of last year Hanson also announced a number of restructuring measures including the closure of a brickworks and concrete factory, reductions in capacity, management shuffles and changes to corporate functions. Further cuts are expected in the sector following Lafarge's merger with Anglo American's Tarmac unit which announced GBP60m of cost savings when the deal was completed last month.
 
Cemex has also been reducing its overheads through redundancies and plant closures and over the past five years has halved its workforce by 3500. Exacerbating the issue, this week the company told local UK press that it is having to import more cement from less efficient plants in Germany and Ireland because it is being taxed too heavily to make it in Tilbury. High carbon costs, recommended by the European Union and adopted by the UK, mean it is cheaper for Cemex to import cement from plants elsewhere in the bloc, located in countries such as Germany and Ireland, where governments have decided not to impose such high taxes on energy. At present Tilbury is only operating at 20 per cent of capacity because of the high cost of electricity as well as energy and carbon taxes. Local MEP Vicky Ford has called this "a complete waste of energy" and demanded "a level playing field" for UK businesses.

Accelerated delivery

The MPA is now calling for accelerated delivery of outstanding infrastructure projects with its chief executive Nigel Jackson, stating: "We welcomed the increased funding for construction announced in the [government's] Autumn Statement but these increases are less than the volume of construction lost in 2012. In these circumstances, it is now critical that we see real and accelerated delivery of the huge backlog of outstanding infrastructure projects.
 
"There has been enough discussion of the need for more and better infrastructure whether for housing, energy, utility or transport and the financing required. This is all now recognised and accepted. 2013 has to be about delivery, delivery, delivery. MPA maintains its offer to work with all arms of government to help secure the growth we need to turn the economy around."