The outlook for the European building materials industry will remain stable in 2016 due to increasing cement demand in the US, UK and Egypt and the resulting uptick in pricing, says Moody's Investors Service in a report published today.

Overall demand in Europe is likely stabilise in 2016 but oversupply could pressure prices as new capacity comes on line in India and Indonesia.

Moody's report, titled "Building Materials - Europe: 2016 Outlook - Stable, Supported by Cement Volumes and Prices in N America, UK",

"Our stable outlook for the EMEA building materials industry primarily reflects the positive trends in cement consumption and pricing that we are seeing in the US, UK and some emerging markets, which will offset cost inflation and improve EBITDA margins for the sector," says Falk Frey, a Moody senior vice president and author of the report.

In the US, the continued residential construction recovery coupled with improving non-residential construction has led to an uptick in pricing and demand for all building materials, including aggregates, cement and ready-mix concrete, all beneficial to EMEA building material companies. While ongoing low interest rates support these positive market dynamics, a rise in rates remains a key risk factor for the industry.

Emerging markets should continue to support demand and underpin the stable outlook now that the Middle East and north Africa region has stabilised and, for example, Egypt shows solid growth in cement consumption of 1-4 per cent in 2016.

However, Asian demand will be affected by FX volatility and new capacity coming on-stream that could lead to temporary overcapacities (ie, India, Indonesia), which will pressure LafargeHolcim Ltd's (Baa2, stable) and HeidelbergCement AG's (Ba1, stable) margins. FX volatility and economic weakness are important issues in Latin America.

M&A will continue through 2016 and beyond as the fragmented nature of the cement industry in most countries drives consolidation, thereby optimising cost structures and supporting profitability.
For example, LafargeHolcim's recent successful merger with CRH plc (Baa2 stable) strengthens its business profile, while Italcementi SpA's (Ba3 review for upgrade) proposed merger with HeidelbergCement will substantially lower leverage its ratio and boost cash flow generation.