A complicated start to the summer for the building materials market

The economic environment which conditions the demand for materials continues to deteriorate at the start of the summer: the new real estate market remains weighed down by the rise in interest rates, the tightening of conditions for granting credit, the high level of construction production costs (land included) and by a regulatory and political context that is not conducive to price relief and support for the residential sector.

The latest indicators therefore show, unsurprisingly, a continued deterioration in home sales, which will amplify the fall in permits and housing starts that have already been at work for several months. And non-residential construction is progressing less well than expected. As for public works, although activity is holding up a little better, it is nonetheless fragile and without scale. The order books lack thickness and regularity, with public orders and investments in municipal infrastructure still lacking three years from the next municipal elections. In this context, the activity forecasts for ready-mixed concrete and aggregates for 2023 have been revised down by one point compared to last March.

In May, activity slowed down further in aggregates and ready-mixed concrete

According to the first results of our monthly survey, the volumes of activity of our materials would have again lost ground between April and May. Thus, in aggregates, production fell by -0,6% in May over one month to stand -5,8% below its levels of a year ago (CVS-CJO data). Over the last quarter (March-April-May), volumes lost another -2,6% compared to the previous three months and -6,9% compared to the same period a year ago. Given the sharp decline in the first quarter (unfavorable base effect on 2022), the cumulative trend over the first five months of 2023 reached -9,2% over one year; but the annual rate has stabilized around -7% in recent months.

On the BPE side, deliveries also fell by -1,3% in May, compared to April, and by -6,8% compared to May 2022 (CVS-CJO data). Over the last three known months (March to May), the volumes produced have thus lost -3,6% compared to the previous three months (December to February) and show a lower level of -6,1% compared to those recorded. during the same period last year. It is this same trend that emerges for the cumulative production of the first five months of the year (-6,1% over one year), a rate slightly below that observed over the cumulative twelve months and which , as for aggregates, has varied relatively little since February (around -5,4%).

The materials indicator, still provisional for the month of May, confirms a fairly bearish trend in activity. After a first quarter down -9,9% year-on-year, activity in the materials basket posted a -7,9% drop in May, which leaves the total for the first five months of the year at -8,9% over one year (CJO data). None of the materials that make up the indicator escaped the decline, with bricks and concrete products for public works even recording a double-digit decline.

Building: the descent continues

As might be expected, the tone of the surveys carried out in the construction sector has darkened over the months. Thus, the business climate measured by INSEE among professionals continues to fall back, for the sixth consecutive month, to reach 107 in June, moving away from its high point in October 2022 at 114,5. However, it is still above 100, reflecting business still considered favorable by entrepreneurs, as confirmed by the balance of past activity, which is still positive and above its long-term average. On the other hand, the balance of opinion on expected activity crossed into negative territory, particularly in the structural work segment where it has fallen back significantly since March. While the order books still show 9,2 months of structural work (an almost constant figure for six months), the perception of professionals on these books is clearly deteriorating, which reflects a singular scarcity of new orders. As a corollary to slowing activity, supply difficulties continue to ebb: while more than 60% of structural work companies were unable to produce more in November 2022, only 44% are now in this case in June. Recruitment difficulties are moderating (70% of companies are concerned compared to 84% in June 2022) in connection with the evolution of past and future workforces, whose balances of opinion are now negative.

Finally, there are fewer and fewer contractors planning to increase their prices over the next few months: in structural work, the balance of opinion on this question has been divided by 2,5 in one year but it remains positive and well above the long-term average, which suggests that cost/price increases are continuing. The slowdown in demand will therefore not result in a short-term decline in inflation on new housing. For the time being, the market is caught in a vice between the increase in prices on the one hand (+5,7% over one year in the first quarter of 2023 according to the INSEE survey on the marketing of new housing) and the drop in household solvency on the other hand. According to the Observatoire du Crédit Logement, the average rate for housing loans (excluding insurance) reached 3,45% in June 2023, an increase of 110 basis points since January and 193 bps in one year (1,52% in June 2022). A household that could borrow €100 at the end of 2021 can only borrow €79,5 in June 2023 due to the rise in interest rates. Despite an extension in the duration of loans (255 months on average at the end of June for the purchase of new property), the borrowing capacity of households is deteriorating, all the more so as the application of the HCSF criteria is has been strengthened over the recent period. Result, in the second quarter, the production of credit and the number of loans granted plunged by more than 51% over one year. These trends corroborate those of single-family home sales observed by Markémetron in May: the latter contracted by -43,3% over one year. This is the lowest level of sales recorded in May in the last 20 years, which leaves the cumulative over the first five months of -45,2% below the long-term average level over this period. Housing permits which, from March to May, fell by -31,6% (-18% cumulatively over twelve months) will therefore continue to sink like housing starts, the trend of which shows a decline of - 18% over the last three months and -11,1% cumulatively over twelve months. According to the FFB's latest forecasts, with unchanged policy and taking into account the indicators available to date, the level of housing starts could fall to 275.000 housing units in 2025, or 68.600 less than to date!

TP: downturn in May

According to the latest survey conducted by the FNTP, public works activity fell back in May (-3,6% compared to April) but remained fairly close to last year's level (-0,5%, in constant euros, CVS-CJO data). Over the five months of 2023, the work carried out progressed slowly, by +1,1% over one year. This progression also masks diversities in the nature of the sites, those devoted to roads and earthworks being much more misdirected. Similarly, the rebound in order intake observed in certain months (+14,5% in volume over one year for the five months of 2023), especially linked to the allocation of lots on major projects, covers contrasting and heterogeneous situations according to the territories (large metropolises versus the smallest municipalities) or even according to the contracting authorities (private/public). However, only an awakening of the investment of the local communities will make it possible to balance and consolidate the activity.