The construction materials market is affected by economic conditions, weather and a complicated political climate

The deadlines for forming a new government are lengthening, fueling uncertainty about the future direction of economic policy. In this context of legislative and institutional uncertainty, the risk of a period of prolonged wait-and-see is combined with the parenthesis of the summer break linked to the summer holidays and the Olympic Games. Suffice it to say that the great economic gloom in the construction sector should be continue in the coming weeks. Certainly, the signals of a crossing of low points seem to be confirmed but the lack of visibility on the behavior of agents, the evolution of interest rates and the action of public authorities, could delay the cyclical recovery of the real estate. In this climate, the activity of materials slips at low levels...

A bad month of May

The sawtooth profile that has been taking shape month by month since the end of 2023 is confirmed in May. After a month of April in recovery, activity declined again for aggregates and BPE. Thus, quarry activity recorded a decline of -5,8% compared to April and -10,8% compared to the month of May 2023 (CVS-CJO data). This is a clear decline which brings the trend of the last quarter down by -6,1% compared to the previous quarter and -8,4% over one year. It is true that the weather conditions this spring were hardly conducive to activity given the heavy rainfall. According to Météo France, the month of May 2024 was the rainiest in 15 years with a 34% increase in precipitation compared to normal over the last 30 years (including +50% in Île-de-France). This context could have disrupted the construction sites. Cumulatively over the first five months of the year, the aggregates activity shows a contraction of -6,9% and -7,2% cumulatively rolling over twelve months. BPE did not escape this gloom, recording a decline of -7% between April and May and bringing volumes to a level -18,3% lower than those of May 2023 (CSV-CJO data). Over the three months from March to May, deliveries fell by -7,6% compared to the previous three months and by -14,7% over one year, almost the same rate as the evolution observed on the cumulative of the five months of 2024.

The UNICEM materials indicator also confirms the great sluggishness of activity with a volume index down -6,1% in April, year-on-year, despite an increase of +3,1 % compared to March (CVS-CJO data). Over the first four months of the year, the indicator shows a contraction of -10% year-on-year, with the tiles and bricks, BPE and cement sectors recording the most marked declines.

The economic climate is still very gloomy in the building industry

The latest survey conducted by INSEE in the construction industry indicates a further deterioration in the business climate in June. Indeed, the opinion of entrepreneurs on future and past activity is deteriorating quite markedly, particularly in the structural work segment, moving further and further away from the long-term average. Despite logs which still show a stock of 8,7 months of activity in the structural work (i.e. 2,2 months more than the long-term average), the judgment that business leaders make on these notebooks have clearly deteriorated. The latter, however, remains surprisingly much higher than what it showed during the 2014-2015 crisis, even though the current level of construction activity is much lower, particularly in the residential sector. Indeed, in terms of new housing, construction starts fell further by -13,9% year-on-year over five months to the end of May. The pace is, however, tending to slow down because, thanks to a recovery in recent months (including +4,2% from March to May compared to the previous three months, CVS-CJO data), the trend returns to -7% over one year. for the last known quarter. However, this drop brings the annual rate to around 265.000 housing starts for the year 2024, a level even lower than the floor reached during the crisis of the 1990s (at 270.000).

As for housing permits, they fell again -11,4% over March-May year-on-year and -8,3% compared to the previous three months (CVS-CJO data). Cumulatively over five months, authorizations fell by a further -10,7%. Here too, the rate of decline is moderating (for the record, a year ago, they plunged by almost -32% over the same period) but the path remains long and gradual. On an annual basis, the number of permits is slightly below 350.000 units, the lowest level since 1998. As for the upstream part of the sector, even if the low point of the market seems to have been reached, the trends remain very negative. Thus, in the diffuse individual, the latest Markemétron bulletin suggests that the landing is now complete, transactions have been recovering for several months in the wake of falling interest rates and increasing credit production. But at the end of May, sales were still on a downward slope of -22,3% over one year and would hardly reach 50.000 units in 2024. As for real estate development, reservations are at their lowest. And it is not during the summer that the curve will reverse. In a summer context marked by the Olympic Games and political uncertainty, households will wait and see. We will undoubtedly have to wait until the start of the school year and the electoral outcome to know whether the competition that banks will engage in on the credit market, the evolution of long-term rates, the direction of economic policy or even the variation in real estate prices will succeed in revitalizing household demand for housing. The stakes are high ! The publication of INSEE's quarterly accounts confirms that what has been hurting growth the most for more than two years is the decline in investment in construction by households and businesses! Between the end of 2021 and the end of 2023, the real estate crisis via the fall in housing purchases reduced French economic growth by 0,5 points, with the increase in GDP reaching only 1,5% over the period due to this negative impact. , according to OFCE calculations. And this is only the accounting contribution of the aggregates. Indeed, the impact of the real estate crisis is spreading throughout the activity of the upstream and downstream sectors of the sector and results in an increased rate of business losses. Data from the Banque de France show that the number of failures increased 2,4 times between the first half of 2021 and the first half of 2024 (to 31.626 cases); unsurprisingly, the real estate and construction sectors are the most affected with, respectively, an increase in insolvencies of +42% and +35% year-on-year in the first half. The action of the future government will therefore be crucial to stem the bleeding.

In this sluggish climate, public works stands out with activity which further progressed in May, by +1,7% over one month and +7,5% over one year, according to the FNTP.

Public works: activity holds up well

The bad weather conditions therefore had little effect on the construction sites even if the hours off due to bad weather were 1,8 times higher than in an average month of May. Since January, the volume of work carried out has increased by +1,9% year-on-year and order books remain very well oriented. Boosted by the major projects of local authorities and the electoral cycle, the contracts concluded continued to progress in May, by + 12% in volume over one year, bringing the increase to almost + 33% on a rolling annual basis. The FNTP underlines in its latest note that, according to the initial 2024 budgets, TP expenditure planned by metropolises (excluding Greater Paris) increases by + 7,6% (to €4,1 billion), despite the reduction of certain subsidies. Among them, credits allocated to urban transport (€1,3 billion), sanitation and urban development (€1,3 billion) recorded the strongest increases. As for the budget for roads and roads, which represents 29% of the total, it only increases by 2%.

Key figures

The July UNICEM economic commission maintains its outlook for 2024 with a decline in BPE deliveries of between -11% and -12% and a decline in demand for aggregates of around -5% to -6%.

Illustrative image of the article via Depositphotos.com.