Towards a third year of decline and historically low levels for the materials and construction sectors

The volumes of BPE and aggregates activity in October were at levels much lower than those of last year. The housing crisis, which began a year ago and which is reflected in the marked decline in construction starts, sales and permits, is gradually spreading to all downstream and upstream sectors of the sector, with materials not escaping for this purpose “domino”.

As the recovery of the real estate market is not expected in the short term, the year 2024 will still bear the scars of the plunge in new residential investment by households, stuck between degraded solvency, still high prices and interest rates which will struggle to decline. On the public works side, the electoral cycle is certainly helping to revive community projects, which are still very targeted at certain clienteles, territories and work specialties, while the real estate crisis will also weigh on private project management. Overall, the need for aggregates and BPE will decline again in 2024 and the volumes produced could reach historic lows.

A bad month of October for the BPE

If the first results of the monthly survey for October suggest a stabilization of aggregates activity compared to the month of September (+0,1%, CVS-CJO data) they reflect a clear decline in that of BPE (- 2,5%). In either case, the volumes produced are down significantly compared to October 2022, by -8,1% for aggregates and -10,7% for BPE. Thus, over the last three known months (August to October), activity is almost flat compared to the previous three months for aggregates (-0,3%) but declines for BPE (-1,9%). . During the last quarter, aggregate volumes lost -5,9% year-on-year, a slower rate than the rolling cumulative figure over ten months (-7,4%) or the cumulative figure over 12 months (-6,7. 6,6%). This suggests a slightly less degraded economic situation over the recent period, which is not the case for BPE. Indeed, the contraction in volume for the last quarter reached -6,2% over one year, i.e. a worsening of the downward movement compared to the rolling cumulative figure over January-October or over twelve months (-2023%). Taking into account the indicators available to date, the year 6,5 could result in a drop in production of at least -7,5% for BPE and -XNUMX% for aggregates (raw data).

Still provisional for the month of October, the materials indicator would record a contraction of -9,8% compared to October 2022 after the drop of -7,5% observed in the third quarter over one year (CJO data). Materials intended for construction show the most pronounced declines and the overall activity of the basket of materials, cumulatively over the first ten months of the year, is expected to decline -8,5% year-on-year.

Building: the worst is yet to come

In November 2023, the business climate in the construction industry, measured by INSEE, deteriorated again. All balances of opinion are deteriorating, or at best stabilizing, (order books, past and future activity, planned workforce, etc.) to come close to long-term averages, or even move away from them. In the structural sector, the balance of opinion on perceived economic uncertainty has rebounded sharply. As the months go by, the outlook for the housing situation becomes darker: certainly, the fall in building permits seems to have moderated over the past two months (the only positive point on the table!) but the trend nonetheless remains strongly downward with a decline in filings of -17% year-on-year over the last three known months (August to October), which brings the cumulative number of authorizations over twelve months to 375.000, a fall of -26,2%. As for construction starts, on the other hand, still according to SITADEL data from the ministry, the decline continues to worsen to reach -25,4% over one year this last quarter, compared to -17,8% cumulatively over the last twelve month. At this rate, it now appears certain that less than 300.000 housing units will be started in 2023 (305.400 units at the end of October). The year should therefore end with a loss of around 70.000 housing starts and, given the current direction of permits and sales, a further contraction (around 50.000 units) is expected in 2024. At the end of October, sales builders of individual houses fell by almost 38% over one year (according to Markemétron), those of real estate developers plunged by -40% in the third quarter and their projection for the opening of new programs has never been so low since the The investigation exists (July 1991). These indicators clearly reflect the current slump in the housing segment. However, the coming months could mark the easing of some of the factors that fueled the crisis. The sharp rise in interest rates (+450 basis points in 15 months) will give way to a lull; a slight drop in rates could even occur in the second half of 2024, even if the era of low rates seems well and truly over.

Likewise, the credit distribution policy, rationed by financial authorities since 2022, could become a little more accommodating again at the end of 2023 and in 2024, in connection with the reconstitution of bank margins and a slight relaxation of granting criteria (HCSF) . But the year 2024 will bear the scars of these past shocks and above all, all the brakes have not yet been released to revive the new home market: the solvency of households will in fact remain strongly penalized by inflation, and the rise in unemployment risks to encourage them to save rather than invest. As for real estate prices, although in decline in the old property segment, they will struggle to fall in new properties due to the rigidity of cost structures (land scarcity, drying up of real estate supply, construction costs inflated by standards...). Finally, public support for home ownership (PTZ) ends at the end of 2023 in its current format and its refocusing drastically limits its incentive potential. As for the Pinel system, intended for individual investors, it will end in December 2024. All these elements argue for a constructive situation that is still very poorly oriented next year even if the non-residential segment could appear less degraded than housing.

Public works impacted by real estate

According to the FNTP, activity recovered in 2023 and, at the end of October, the work carried out showed an increase of +4,8% in volume (CVS-CJO). The moderation of production costs and the awakening of concluded contracts (+13,2%), linked to the increase in public investments during this period of the electoral cycle, are helping to fuel the projects. However, the latter remain very concentrated on certain clienteles (large metropolises, intermunicipalities) and on certain specialties (energy, civil engineering, urban transport, etc.) and, in fact, do not yet uniformly supply the demand for our materials. . In particular, the sluggishness of road works (especially managed by the departments) would further weigh on demand for aggregates. Finally, in 2024, the real estate crisis would also hamper some of the work of private clients, with the holding of the Olympic Games also weighing on the progress of construction sites in the Ile-de-France region.

Material requirements 2024

Materials activity would also be slowed down next summer by the cessation of work and logistical restrictions linked to the Olympics. For the BPE, an impact estimated at around 1,5 points would add to the economic downturn. In total, BPE production would fall by 10,5% in 2024, to less than 33 Mm3, while that of aggregates would lose 6%, to 300 Mt... historically low levels!