Materials activity resists in January-February

The conflict in Ukraine is reinforcing these trends, adding on the one hand an energy dimension to the resurgence of inflation already at work for several months and, on the other, a degree of uncertainty in the confidence of economic agents. While activity held up fairly well for aggregates and ready-mixed concrete in January-February, the following months will be decisive in gauging the impact of these new factors on future activity. For the time being, the books remain well stocked on the housing market and the conditions for an awakening of demand for public works are there. But the significant increase in costs and quotes risks weighing negatively on the volume/value trade-offs made by private and public customers, even if it is still difficult to gauge the extent of this.

February 2022 better than 2021

According to the first results of the monthly surveys, activity remained dynamic in February in building materials. Thus, aggregate production would have gained +1,6% in January, leaving its volume +7,2% above its February 2021 level (CVS-CJO data). Over the past three months, activity has risen by +3,8% compared to the previous three months and increased by +1,7% compared to the same period a year ago. Over the first two months of the year, the production of aggregates rose by +3,5% over one year and posted +10,5% cumulatively over the last twelve rolling months (-1,1% in comparison of the twelve months of 2019-20).

On the BPE side, February deliveries certainly fell -1,2% compared to January but remain +6,9% above those of February 2021 (CVS-CJO data). Over the last known quarter and compared to the previous three months, the volumes produced were almost stable (-0,4%) but remained upwards over one year (+1,1%).

For the first two months of 2022, BPE activity gained +4,1% compared to 2021 and the cumulative over twelve months leaves the trend at +11,3% year-on-year (+0,6% compared to twelve months) previous ones, just before the arrival of the health crisis). After an annual increase of +9% in 2021 and +1,4% compared to 2019 (CJO data), our materials indicator, still provisional for 2022, should also show a good start to the year with an increase of +4,7 % over one year for the January-February bimonthly period.

Construction: more worried business leaders

The effects of pressure on supply and the rise in input prices on activity seem for the moment fairly well under control, even if they may have played, in part, on the slowdown in the last quarter. The latest survey conducted in March by INSEE among building professionals confirms that the business climate remains at a high level, with the latter being more positive about their past activity than the previous month, but a little more reserved about activity for the next three months.

Indeed, while order books are still at high levels (9,7 months for structural work, i.e. almost 3,5 months more than the long-term average), the economic uncertainty felt by professionals has a increased in March and their assessment of their notebooks has become a little less favourable. This should undoubtedly be seen as the first effects of the Ukrainian conflict combined with the supply difficulties resulting from the health crisis. In March, tensions on the production system continued to intensify (supplies, personnel) and production capacities were almost used to their maximum in structural work (93,3% against 88% over the long period).

In this context of sustained demand, constrained supply and rising production costs, more and more building contractors are announcing that they will raise their prices in the coming months. On the construction side, the latest data from the ministry suggests that the non-residential sector is still struggling with started and authorized surfaces which still fell -3,8% and -11,9% respectively over the last three months to the end of February, compared to 2019.

Housing starts fell by -3,9% over the same period. On the other hand, permit applications posted a sharp increase (+6,8%) thanks to the strength of the individual (+29,8%) linked to the anticipation effect of the implementation of the RE2020 in January 2022. This influx of authorizations at the end of 2021 will unfortunately be followed by a downward adjustment in 2022, no doubt reinforced by property prices still rising and by the rise in economic uncertainty. The figures for the single-family home market published by Markemétron confirm this with a drop in builder sales of -25% over one year in January-February. It is true that the economic context has darkened for households.

Moreover, the INSEE survey conducted in March reflects a plunge in their confidence indicator: concern about their future personal situation and their ability to save is growing, as is their fear of a rebound in unemployment. This is the direct translation of the consequences of the war in Ukraine, with purchasing power eroded by the sharp rise in energy prices and inflation in general; this cocktail, which is not conducive to real estate investment projects, will weigh on the constructive dynamic of 2023. In the meantime, the projects in progress should continue to fuel activity in 2022 in a productive context constrained and strained by costs.

Key figures

0% in 2022: A year suspended from the effects of inflation on the demand for works which will at best leave the production volumes of aggregates and ready-mixed concrete at their 2021 level.

TP: volumes of work trimmed by costs

Although the month of January saw a rebound in activity, February rather marked time with a decline in the volume of work carried out by -3,1% over one year (CVS-CJO data). Cumulatively since January, activity remains slightly up (+0,6% over one year) if we reason at constant prices; in value, on the other hand, the activity gained +8,3% over the same period, which reflects the extent of the impact of cost increases on the work carried out, of the order of +7,7 points.

At the same time, order intake is still slow to firm up, particularly for public customers. However, the conditions for an awakening of investments by local authorities have been met: healthy cash flow, loans from the Recovery Plan awaiting deployment, past electoral deadlines, infrastructure needs... But there remains the unknown of the volume/price split which will ultimately be arbitrated by construction customers in the face of work budgets whose costs have jumped. By virtue of the theory of unpredictability, the government has just positioned itself in favor of a renegotiation of the prices of public markets, or even private ones, already contracted. While this is good news for companies that will not bear the additional costs alone, the effect of a downward revision of the volumes of work ultimately carried out seems inevitable.

Outlook 2022

In this context, ready-mixed concrete demand could at best remain stable in 2022. In fact, the projects started and permits granted in 2021 should be finalized and materialized in 2022, with delays and potential additional costs, authorizations in the individual being traditionally little subject to cancellation. On the aggregates side, the extent of the adjustment in demand for work in the face of more expensive estimates remains uncertain; the +1% increase in volume initially forecast seems in any case already compromised.