Last year saw varying cement consumption trends across European markets. Overall the region benefitted from mild winter weather and, while some countries demonstrated a continued recovery, others were constrained by government spending cuts and austerity measures. Going forward, the impact of the sovereign debt crisis is likely to have a more pronounced effect on construction activity this year, with expectations that output will reach its lowest point in 2012 before moving into positive territory in 2013.
In Western Europe, Germany saw construction output increase 5.4% in 2011 with housing and non-residential construction segments showing the strongest gains. Cement consumption rose to 28Mt, 13% YoY, and for 2012 the local cement association, VDZ, has said this level is likely to be sustained. Domestic consumption in France improved 8.1% to 21.4Mt while Swiss cement deliveries advanced 2.9% to 4.69Mt (year before: 4.55Mt). However, the latter is expected to see construction activity decline this year with Cemsuisse forecasting a 2-4% drop in cement demand. In the UK, where cement demand rose 7.3% to 8.4Mt, recent positive indicators are said to be masking underlying weak construction markets and building output is forecast to be down 5% this year.
Austerity measures and high unemployment continue to inhibit activity in Spain and Italy. Last year, Spanish cement demand plummeted 17.2% to 20.2Mt and, according to analysts at Bernstein Research, the bottom has yet to be seen. The research house forecasts: “We see a further decline in the residential construction market coupled with increasing austerity measures continuing to reduce demand. We forecast a decline of 12% in 2012 and 7% in 2013…In the long run we expect demand to return to 20-25Mt, well below half the former peak.” Italian cement consumption, meanwhile, declined for the fifth year in a row in 2011, falling to around 31Mt (-34% from the 2006 peak). Greek cement consumption – where public sector orders have virtually ceased due a lack of funds – is set to fall further in 2012 to probably no more than a quarter of the peak level seen in 2006 (11.6Mt).?
For this year, Moody’s expects cement volumes in Western Europe will suffer low-single-digit declines. “Some important European cement markets, such as Germany, France and the Nordics, are likely to grow very modestly in 2012,” the ratings agency notes. “However, slumping cement volumes in selected European countries – Greece, Spain and to a lesser extent, Italy – will continue to impair overall Western European cement sales as austerity measures put infrastructure plans on hold.” Indeed, latest data from Eurostat shows that European construction output dropped for a second month in January 2012 as gains in Germany (4.3%) and France (0.6%) were offset by declines in Spain (3.5%) and Italy (7.8%).?
An encouraging picture was seen last year in some Central and Eastern European countries with particularly strong construction sector growth recorded in Russia, Poland and Ukraine. Russia’s cement sector rebound, driven by residential and infrastructure construction, is considerably outpacing the domestic economic recovery. Last year demand reached 57.2Mt – well on its way to pre-crisis levels – and Morgan Stanley forecast growth of 5-6% annually until 2018. Polish construction activity gained momentum in the 2H11, where activity in the residential market started to recover after two weak years. Both Poland and Ukraine have also benefitted from infrastructure projects in advance of Euro 2012.
However, a number of governments in the region postponed or suspended projects in an effort to reduce their infrastructure spending, namely in the Czech Republic, Hungary, Croatia and Slovakia. In Hungary, HeidelbergCement only reported a slight advance in sales while Holcim closed one plant down. Meanwhile, in the Czech Republic, although sales rose 5% to around 3Mt, this recovery was attributed to the launch of delayed construction projects from the previous year and a 5% decline in cement demand is forecast for this year. Romania, Bulgaria and Serbia invested in infrastructure projects – mostly road building – but there was little recovery in residential construction in these countries.
The sovereign debt crisis and a revision to macroeconomic forecasts last summer prompted analysts at Euroconstruct to revise down their outlook for construction output. While the 2011 estimate was almost unchanged (-0.6% from 0.4%), it expects the economic slowdown to hit construction the hardest in 2012. The forecast has moved slightly into the negative zone (-0.3% from +1.3%) and the 2013 estimate was cut by only half a point and remains positive. Construction will not return to the level of the early 2000s until 2014, and the group states: “In 2013 and 2014 construction growth will outstrip GDP growth, although the gap will be very narrow.”
