Who will gain from French construction boom?
Analysts have been optimistic about the prospects of the French construction market during 2017. The Federation Francaise de Batiment reports that the recovery is underway, while French market analyst CM-CIC has revised its growth forecast for construction spending up to 3.3 per cent in 2017. But will the mood change after the French elections in May?
Much of the demand for the construction sector has come from the improving French housing market, which has been on the rebound since 2015. In the last two years, housing transactions have risen 15 per cent each year. House prices have begun to increase and lending rates are forecast to rise slightly in 2017, reports Crédit Agricole. The main driver behind this growth is the new-build market, which saw a 19 per cent rise to reach 103,500 sales in 2015 and approximately 122,000 sales in 2016, an increase of 18 per cent.
However, France is not an even field for construction, as Paris accounts for the bulk share of the market. The construction of new homes in the Greater Paris region picked up 11 per cent in 2015 and surged by 39 per cent in the 1H16, according to Crédit Agricole.
But it is not just housing that is experiencing an uplift in activity. The emphasis on infrastructure and road building in particular has strengthened with Vinci, Bouygues and Efface picking up orders for toll roads, promoted by the new EUR3.6bn road stimulus plan, as well as high-speed rail projects and airport expansion work. Efface is completing the Bretagne-Pays de la Loire high-speed rail link at present, while Vinci has bought 60 per cent of two Lyon airport hubs and will expand them to handle 15m passengers by 2032.
Cement demand
Therefore, can we see this increase in a construction activity shared with the cement producers in France? Cement demand had been falling until 2015 when consumption dropped five per cent to 17.2Mt, according to the French cement association, Syndicat Français de l'Industrie Cimentière (SFIC). Last year there was a recovery and cement consumption rose to around 17.4Mt. Looking ahead, demand in 2017 is expected to rise by 3 per cent, taking annual demand up to 17.9Mt. Beyond 2017, the situation is less predictable, given the impending elections and possibility of a shock victory by Marine Le Pen’s Front National party.
How will the cement industry benefit?
Firmer demand trends will support industry profitability and improve utilisation rates. Total production capacity is currently estimated at 29Mta, significantly higher than consumption, which underlines how far below optimal conditions the sector is currently operating.
HeidelbergCement will view the latest French construction forecasts with some enthusiasm. It is presently acquiring the facilities of Ciments Calcia, via its acquisition of Italcementi, which should be fully integrated by the end of the year. The group is well placed in France, operating 6.78Mta of cement capacity through nine integrated cement plants and the 0.6Mta Rombas grinding plant. Among its operations are the 0.6Mta Gargenville cement plant, 23 ready-mix facilities and two mixing stations all located in Paris. HeidelbergCement is also the only producer to supply deliveries by barge inside the capital, while it can also draw on nine aggregate quarries and three cement terminals in the city.
LafargeHolcim divested some of its French assets in 2016 but still operates 11 integrated plants and seven grinding plants with the former Holcim France’s contributions being the integrated works at Altkirch and the grinding plant at Ebange.
Vicat generates 32 per cent of its group sales in France and out of this, 36 per cent of sales are gathered from its cement business, 40 per cent from concrete and aggregates and 24 per cent from other products and services (printing, writing paper, bags and premix). The group has five integrated plants and three grinding stations, plus 137 concrete plants and 38 aggregate quarries in France.
CRH operates as Eqiom in France and has three integrated cement plants and four grinding mills, along with 115 concrete plants and 33 aggregate sites in the country.
Ecocem France has built up 0.7Mta of cement capacity with its slag cement facilities at Fos-Sur-Mer and Dunkerque.
Meanwhile, Addoha Group is still trying to enter the market with a 0.4Mta grinding plant in Fos-Sur-Mer, but has run into opposition. The project is unlikely to come off the ground if there is an election win for the far right in France this summer.
Cem'In'Eu, the new independent cement group based in Saint-Nazaire, has commenced construction of a new grinding plant at Tonneins in the depertment of Lot-et-Garonne, south-western France. Strategically located with access to the Garonne river network, the plant is scheduled to start produciton in April 2018.
Profitable market
France is a mature market, vertically integrated, and tightly controlled by the incumbents. As a result, prices are amongst the highest in Europe and profitability is high. Any increase in demand, will translate directly into higher margins from the existing players. Imports of cement (around 2.6Mta) play a role in supplying the market, but are largely managed by existing players.
