Materials business holds firm as 2022 begins, but new uncertainties loom

The global health crisis has caused many productive tensions (supply shortages, recruitment difficulties, rising production costs, etc.) which, with the recent outbreak of war in Ukraine, should not mitigate over the next few months, as initially assumed. Indeed, given the current geopolitical context, an energy supply shock (comparable to the oil shock of the early 70s) cannot be ruled out... with the consequences we know for inflation and growth. . For the time being, on the construction side, the latest indicators suggest that activity will not hold up well at the start of 2022, even if in the building sector, the single-family home market has lost its vigor. Conversely, activity tends to improve on the public works side, although the public order books are still slow to fill up.

A rather dynamic month of January

According to the first estimates available, activity in materials picked up in January after a rather sluggish end to the year. Thus, the production of aggregates would have rebounded by +6,7% compared to December (CVS-CJO) standing +0,8% above the level of January 2021. Over the last three months, the aggregates activity was up +2,1% compared to the previous quarter but remained down -2,3% compared to the same period a year ago. Cumulatively over twelve months, the production of aggregates thus increased by +9,3%, leaving volumes -1,6% below those recorded before the start of the health crisis. On the BPE side, deliveries also firmed up significantly in January, posting an increase of +8,5% over December and +2% compared to January 2021 (CVS-CJO).

Over the November-January quarter, BPE activity gained +2,4% compared to the three months from August to October, but it is still -1,8% lower than the same period a year earlier. Cumulatively over twelve months, ready-mixed concrete production recorded an increase of +10,4% over one year, which brings the volumes back to their 2019 level (-0,2%). After increasing by +8,9% in 2021 (i.e. +1,3% compared to 2019), the activity indicator for our basket of materials also increased in January 2022 (+2,5% over one year in provisional data, CJO), thus marking a rebound after the decline recorded in the fourth quarter (-1,1% over one year).

Climate in good shape in the building but...

The downturn in the morale of construction business leaders, noted in January in the INSEE survey, did not continue in February, with the business climate even improving slightly last month. More positive about their past and future activity, entrepreneurs are also more numerous than in January to judge that the level of their order books is higher than normal. Given their current workforce, which has increased in recent months, structural work companies estimate that their books still provide 9,7 months of work (compared to 6,3 months on average over a long period) and 61,5% of them say they are unable to produce more, ie a historically high level and almost twice as high as the average situation observed in the past (33,5%). Faced with rising production costs and ongoing recruitment or supply difficulties, more construction professionals are planning to raise their prices

according to the survey. In addition, all the indexes of the profession which measure these costs and are used to update or revise market prices (BT for building, TP for public works or even GRA for aggregates) showed significant increases in November 2021, the last available value: over one year, the BT01 index climbed by +4,5% while the TP01 index and the GRA index had already risen to +8,5% and +9% respectively. And these increases are set to accelerate with the arrival of the Russian-Ukrainian conflict, which further threatens the balance of energy supplies in Europe.

On the construction side, the latest data published by the Ministry of Ecological Transition show a continued recovery in housing starts and permits in January. Driven by the dynamic of individual housing, the number of housing units started (389 units, from February 400 to January 2021) exceeded its pre-crisis levels by +2022%. As for permits, they gained +1,6% with 2,7 authorizations issued. However, the strength of the single-family home market could be dulled if we are to believe the latest bulletin published by Markemétron. In fact, CMistes* sales seem to have stalled in January (-471% over one year) despite credit conditions which remained attractive. The first reports in February would confirm this trend reversal and professionals in the sector point to the direct effect of institutional changes (entry into force of RE000, fight against land take, etc.). If households' appetite for home ownership remains intact, inflationary pressures and the rise in uncertainty at the start of 26,8 could further compromise their desire to invest. The latest INSEE survey of developers shows that the prices of new buildings have risen significantly in 2020, by +2022% for single-family homes and +2021% for apartments. The rebound in real estate supply (+13,1% over one year) was not enough to stem the decline in housing stocks (-4,7%) in the face of recovering sales (+21%) although still -2,3% lower than their pre-crisis level!

A little better in public works

As for public works and according to the FNTP survey, the start of the year opened with a slight rebound in the volume of work carried out (+3,4% over one year, CVS-CJO), which breaks with the downward trend of the previous months. Similarly, order intake picked up in January and returned to its level at the start of 2021. However, over twelve rolling months, order books fell further by -7,2%, the sequence of election periods and the health crisis since March 2020 having “sealed” public procurement, according to public works professionals. Yet the treasuries of local authorities have never been so healthy. Up by +12,6% between 2020 and 2021 (including +8,6% for municipalities and +23,2% for departments), local government deposits at the Treasury peak at 76 billion euros, i.e. twice more than in 2010. This context seems rather buoyant to support investments and the implementation of the recovery plan in 2022... if however the rise in uncertainty and the resurgence of inflation linked to the Russian-Ukrainian conflict do not come trim the dynamics of projects.