Building materials business down in the first quarter of 2023

The real estate market, traditionally the first sector of the “real” economy to be affected by monetary tightening policies, is suffering not only from the pangs of the rise in interest rates but also from the scissor effect of a rise in construction costs combined with a tightening of the conditions for granting loans to households (HCSF criteria). The economic downturn in new construction, which began in 2022, is therefore set to last, dragging upstream activities in its wake, including those of materials. Less directly impacted by the rise in interest rates, the public works sector is nevertheless also suffering from rising costs and sluggish public procurement even though, on the private demand side, order books are replenishing. In this contrasting context, the pace of activity in aggregates and ready-mixed concrete continued to slow in the first quarter.

A stall in the activity of aggregates

The first results available for the month of March suggest the continuation of very slow activity in the materials sector. Aggregates production thus lost -0,7% compared to February, leaving the level -10,9% below that of March 2022 (CVS-CJO data). In the first quarter, the aggregates business therefore fell by -3,5% compared to the previous quarter, recording volumes down -11,8% compared to the first quarter of 2022. Calculated on a sliding basis over twelve months, the decline in activity is now down to -7,5%. As for ready-mixed concrete, deliveries lost -3,8% in March compared to February and volumes were down -8,2% compared to March 2022. In the first quarter of 2023, however, concrete activity remained close to that of the fourth quarter of 2022, or even slightly higher (+0,7%) but it appears to be significantly lower than that of the first quarter of 2022 (-6,8%). Cumulatively over twelve rolling months, ready-mixed concrete production now shows a decline of -5,5%. In aggregates as in concrete, the start of 2023 is therefore characterized by a great sluggishness in activity, further amplified if we compare it to the start of 2022 which had been much better than the rest of the year.

The materials indicator, still provisional for the month of March, also reflects very sluggish activity at the start of 2023: down -9,5% year-on-year over the month, the indicator should fall by -9,8 % in the first quarter compared to the same period a year ago (CJO data).

Building: the descent is underway

According to the survey conducted by INSEE among building professionals in April, the business climate is stable and still remains well above its long-term average, a sign that activity remains fairly supported in the sector. However, the other indicators are gradually weakening, confirming a continued erosion of the fundamentals. Starting with the outlook for activity, which has deteriorated quite significantly since the start of the year, particularly for structural work and new housing, the balance of which has now fallen below its long-term average level.

At the same time, contractors' assessment of their structural work order books slipped in April; even if the latter still make it possible to ensure 9,2 months of work, this stall suggests that new orders are rare. The Banque de France's monthly survey of structural works companies also confirms this with the plunge in order books, the balance of the observed situation of which was negative in April, for the third month in a row. In this context, pressures on the production system and supplies are gradually ebbing and the balance of opinion on expected building prices continues to moderate even though it remains well above its long-term average. At the same time, construction activity continues to decline. Housing starts fell by -6,8% in the first quarter compared to the previous quarter (CVS-CJO data) and by -12,8% over one year. Rolling cumulatively over twelve months, at the end of March, the number of housing units started fell by -8,3% to 359.200 units (including -9,7% in the collective with 170.800 units). The situation is not much better in the non-residential sector where the surface area of ​​premises started fell by -12,6% over one year in the first quarter leaving the total over twelve months down -2,9% to 25,474 million m2 . However, permits remain fairly well oriented: almost stable in the first quarter (+0,3% over one year), they show an increase of +3,4% over the last twelve months for a total area of ​​40,11 million m2 authorized, with certain segments such as offices and retail proving to be very dynamic (+16,4% and +11,7% respectively). A trend far from being shared by housing, whose authorizations continue to sink.

In the first quarter, permits plunged by -31% over one year, including -42,6% for single-family dwellings alone. Cumulatively over twelve months at the end of March, the number of authorized dwellings thus contracted by -11,5% to 441.400 units (including 225.400 in the collective), a trend set to widen further with the more recent dropout of the collective. On the individual side, the latest CMistes figures published by Markemétron and available for the month of March confirm a depressed economic situation despite the seasonal rebound in sales, but which remains well below what is observed on average at this time of the year. In March, the market continues to unscrew with sales down -43,9% compared to their long-term average which leaves a first quarter down -30,5% year-on-year and lower by -41,2, XNUMX% at the long-term average level. It is true that the macroeconomic environment is particularly unfavorable to housing investment. Beyond the economic slowdown linked to the surge in inflation following the Ukrainian conflict, the factors weighing on the residential market have been accumulating for several quarters: scarcity and high cost of land, inflation of construction rules and standards, limitation of construction projects by local authorities, gradual reorientation of the housing policy towards existing real estate (in the context of the challenges of energy transition) and rising material costs.

Added to this sluggish context, which is leading to a restriction of the real estate supply and an increase in the cost of projects, are a tightening of the conditions for granting credit (implementation of HCSF criteria at the beginning of 2022) and a rapid increase in interest rates. interest despite still negative real rates. The accumulation of these constraints leads to lowering the morale of households and pushing a large proportion of home buyers off the market, forcing them to reduce or postpone their projects.

The latest survey conducted at the end of April by INSEE among developers confirms this diagnosis, with their opinion on housing demand and their prospects for housing starts continuing to sink and now stand well below its average. of long period.

TP: stable outlook

According to the survey conducted in April by the National Federation of Public Works, the volume of activity in the sector would be close to that of last year during the first quarter (+1,1%). This trend, clearly out of step with that of aggregates, can no doubt be explained by the nature of current construction sites, characterized by the lower weight of road works and earthworks in favor of network structures that consume less material.

Thanks to a few large-scale operations, order books are regaining some momentum (+22,4% in volume over one year in the first quarter) but the rebound in public orders and local authority investment is still awaited. The outlook for the next few months is not changing much, remaining around the long-term average, the main obstacle to activity in the sector relating to labor (for 41% of companies) before the lack of demand (36% ).