In February, the Australian Bureau of Statistics (ABS) released construction materials volumes data for the December quarter of 2012, which showed continued weakness in the production of concrete blocks, clay bricks and roof tiles – materials typically used in housing construction – but ongoing strength in the consumption of cement and pre-mixed concrete – items more associated with infrastrure and mining investment.
The Data released by the ABS is not seasonally-adjusted and is highly volatile. Hence it is presented below on a four quarter moving average (4QMA) basis in order to smooth volatility and seasonality:
According to the ABS, the production of concrete blocks and pre-mixed cement each increased by 4% over the year. By contrast, the production of clay bricks (0% change), concrete blocks (-4% change), plaster board (-5% change) and roof tiles (-10% change), were either flat or fell over the year.
Today, we received confirmation that building materials companies are experiencing tougher trading conditions on the back of poor east coast weather and falling construction levels, particularly in Victoria. From the AFR:
Persistent wet weather down the east coast and a slower Victorian construction market is expected to put pressure on the full-year earnings of the largest construction materials manufacturer, Boral.
Construction materials company Adelaide Brighton, which specialises in cement and concrete on the eastern seaboard and Western Australia, tempered half-year earnings expectations on Thursday due to weaker than expected market conditions in Victoria…
“It is a bit softer than we previously thought, primarily driven by weakness in Victoria,” Adelaide Brighton managing director Mark Chellew, told The Australian Financial Review.
“We are seeing concrete and cement demand in that state down by around 10 to 15 per cent and we are seeing continuing weakness in Queensland.”
While Boral has a smaller presence in Victoria than Adelaide Brighton, the company’s market update may have major implications for the company given demand for cement and concrete, a major driver of earnings, is forecasted to be lower nationwide, analysts say.
Boral has not provided full-year financial guidance but market consensus is for the company to post a net profit of about $139.7 million.
The company posted a net profit for the 2012 financial year of $176.6 million. Boral could not be reached for comment…
Credit Suisse notes that the south-east Queensland and Victorian cement and clinker markets are weak and the South Australian and Western Australian markets are flat.
However, activity in NSW, a key driver of earnings for Boral, is “slightly up”, it said.
More tentative confirmation that the RBA’s plan for housing to fill the void left as the mining investment boom unwinds continues to look shaky.
