Sale of materials for the construction industry: a return of growth in Europe

For the first time, the Committee for European Construction Equipment (CECE, see box), published in April 2015 its annual economic report. It shows that in 2014, the construction industry in Europe is finally starting to increase again, and that it ought to increase even more in 2015. The European equipment market has increased by 9% in 2014, Europe being the second most dynamic world region, after North America. However, this growth has not yet counterbalanced the decline from the previous year, and this industry is still 40% below the record levels of 2007. According to the CECE, la continuation of growth for 2015 isn't unrealistic, but the amplitude is still hard to predict.

Summary :

1) General economic context : Activity in the Euro zone still limited

2) Construction industry : The return should fortify in 2015

3) Projections for the construction industry for the next 3 years

4) Equipment market : Important volatility and heterogeneity

a) Sales of earth-moving equipments
b) Sales of road construction equipments
c) Sales of concrete construction equipments

5) Projections for the equipment industry in 2015

1) General economic context : Activity in the Euro zone still limited

After a troubled year in  2012 and a stabilisation in 2013, the European economy had a 0,8% in 2014. In 2015, the GDP of the Euro zone should increase by 1,1%, despite the structural weaknesses in the monetary union and the ever-growing tensions with Greece.

The exportations will be supported by the downward trend of the euro compared to the dollar, and the improvement of the outside demand (apart from Russia) : they should increase by 4,2% in 2015, whereas it increased by 3,4% in 2014.

Always below  by 17% since the crises, the investment is the main missing ingredient for a true return to growth in the Euro zone. As proven by the low impact of the improvment of investment loans, the business climate is still more important than the loan providing. The Juncker plan is there to fill in this lack of investment, but an impact shouldn't be thought about before 2016, at best.

Gross investment and GDP growth projections in the EU

Source : CoeRexecode, European commission.

2) Construction industry : the return should fortify in 2015

After seven years of a intense crises and a low growth of 1% in 2014, the construction industry enters a new growing phase. Euroconstruct sees a growth consolidation of the industry in a near future : +2,1% in 2015 and +2,2% in 2016-2017.

a) The residential construction market supported by renovation

The residential construction market slightly grew by 1,4% in 2014. Hungary, Poland and Slovaquia supported the Eastern European growth. This part of Europe is always supporting the market, with a growth rate in 2014 of 4,8%, when it was 0,8% in Western Europe.

On the other hand Ireland, the UK and Sweden stimulated the residential construction market in Western Europe. In the UK, this market is still booming, with 16% of new investments in 2014. In other countries, the residential construction market declined, in Spain (-5,9%), in Norway (-4,4%), in Czech republic (-5,7%), in Finland (-3%), in the Netherlands (-2,7%) and in France (-1,5%).

Stimulated by government policies and EU financing, the renovation market, 60% of the residential market, supported the growth in every countries (except in Spain) in 2014. New constructions declined by 7% between 2011 and 2014.

b) The non-residential construction market is improving

The non-residential construction market, which represent 33% of the whole construction production in 2014, increased by 1% in 2014, with +1,4% for renovation and +0,6% for new non-residential constructions. Depending on the general economic development, the non-residential construction in Europe is now stabilising and follows a slow upward trend. Even if the situation is still critical for several European countries for the moment, it should improve in the coming years, if there are no aggravation to the current crisis. The recovery in the non-residential construction is expecting at a moderate pace.

c) Civil engineering leader of the construction industry

With a 1,4% growth in 2014, the civil engineering market recovered better, compared to other sectors in the construction. Every European countries had a positive growth, except Finland and Italy. The infrastuctures expenditures are still high in Eastern Europe, but also in Norway, Sweden and Switzerland. In Ireland and in Spain, where the financial and fiscal crisis has a dramatic impact on the construction industry, the situation reversed in 2014, but with a very low level of activity.

3) Projections for the construction industry for the next 3 years

According to the CECE, the total production of the construction industry should increase by 2% in 2015, and should stabilise at 2,2% in 2016 and 2017. At the end of this period, the construction activity level will reach 1400 milliards euros, always 15% below the pre-crisis level. The three main construction market parts should increase in the short and medium term.

a) Projections for the 3 construction market parts

The growth of production in residential constructions ought to accelerate in the short and medium term, close to 4% by year, from 2015 to 2017. Both new constructions and renovations will support a slight recovery in the residential construction market in  Europe. This new growing phase will accentuate in the next three years, especially in Eastern Europe, where new residential constructions should increase by 3,5% every year, against 2% on average in other regions.

For non-residential investment, the trend should also be upward but more moderate than for residential constructions (slightly over 2% in 2015-2017). According to the CECE's projections, the constructions of new non-residential buildings should distinctly increase in 2015.

Finally, the civil engineering industry should increase at the average speed of +2,5% in the next three years, the growth should continue growing year after year. The building renovation activity will still have an important effect on the construction industry.

b) Detailed projections for the 5 main markets

Among the 5 biggest markets, the UK market will be most efficient, with a stable recovery of the residential market (+3,9% in the next three years), especially in the private residential construction, which should grow by nearly 10%. Commercial buildings should have a record growth of 8% in 2015, whereas public works should increase by 7,9%.

In Spain, even if the construction industry is in better shape, the important stock of existing buildings are an obstacle in certain regions. In Italy, probably the country that was hit the hardest by the crises among the 5 economies, in 2017 the industry will still be 27% below the industry in 2007.

The German industry is still very important : the two main German industry councils foresee for 2015 activity level that hasn't been seen for 15 years, producing more than 100 billion euros (+2% in comparison with 2014). As in the previous years, new housing will be the heart of the growth.

In France, on the other hand, the construction activity should decline by 0,4%. If the renovation activity is set to increase by 1,5% in volume, the new housing will reach their lowest level, with a very low improvement of new constructions, with 304.000 units. The new non-residential constructions non-résidentielles should decrease by 8%, while the civil engineering is expexting a production fall of 8% in 2015.

4) Equipment market : Important volatility and heterogeneity

Monthly sales of construction equipments in Europe (base 100 in 2010)

2014 was a good year for the European industry of construction equipments, with sales on the European market that have increased by 9%, in comparison with 2013, and exports slightly up. However, 2014 has also been a very volatile year for this market in Europe, with an entire economic cycle in a year : indeed it started strong after an average winter, then a stagnation during summer and at the start of fall followed by a new start at the end of the year.

Construction equipment sales on the main markets in comparison with 2013 in %.

The heterogeneity was also important depending on the country : when the UK, the biggest market in terms of volumes, had an increase in sales by a third in comparison with 2013, Turkey and Russia had a devastating year, with declining markets of 25% and 37% respectively.Even beyond Europe, the volatility was similar : the north-american market increased by one fifth, while China decreased by the same rate. China, the biggest construction equipment market in the world, has now accumulated more than 60% since 2011.

The good performances of the European market in 2014 have only recovered what was lost in 2013. By adding all products and countries, the market is still at more than 40% below the record levels of 2007, with important differences depending on the country : Southern Europe is still at very low levels when British and German markets are nearing their 2007 pre-crisis level.

a) Sales of earth-moving equipments

In 2014, 135.000 units of earth-moving equipments have been sold in Europe (including Turkey and Russia). It represents an increase of 6% in comparison to 2013, bringing the sector back to its 2012 level. The industry lost its run-up during the year : after an important increase of 11% during the first trimester, the sales growth has gradually disappeared, and the 4th trimester declined by 5%.

The Russian market drops by 38%

This negative momentum is attribuable to Russia. Because of polotical tensions, the eart-moving equipment market crashed : sales during the 4th trimester dropped by 60%, when the average rate for decrease in 2014 was 38%. The other problematic market is France, where economic perspectives degraded : even if the sales increase for 2014 was 8,5%, the 4th trimester was weak, and the short term projections are not the best. The Turkish market seems to go another way : even if the earth-moving equipment lowered by 23% in 2014, the last months of the year showed an upward trend.

The British market increases by 32%

The UK market was more dynamic in 2014, with an extraordinary growth of 32%, bringing the earth-moving equipment market at the second rank in Europe, behind Germany. The German market, already at very high levels, was able to grow even more, by nearly 10%. Nordic countries (Danmark, Finland, Island, Norway and Sweden) have, an average, increased by 10,5%.

In Western Europe, the Netherlands (+35%), Belgium(+11%) and Austria (+14%) had an important growth. Finally, Southern Europe has finally showed a few signs, but still very low : the Spanish earth-moving market increased by 54%, and the small Portuguese market jumped by 69%. Italy, the only market still important in southern Europe, has a solid growth of 20%.

Small equipments sell better than bigger ones

Regarding products, small earth-moving equipments performed better than heavy equipments, especially mini-excavators (+21% compared to 2013) and mini-loaders  (+17%). The compact loader sales dropped by 15%, and et backhoe loader sales, because of the poor performances of the Russian and Turkisk markets, dropped by 24%. The current prudence of the renting sector in terms of investment also make incertain the growth of sales for compact equipments in 2015.

Heavy equipment sales also increased in 2014, but the weakness of the mine and quarry sector, the lack of infrastructure investments and the Russian crisis reduced them.  Heavy loaders sales decreased by 9%, and those of rigid dumpers  dropped by 27%, when they were already low. The articulated dumpers (+15%), wheeled excavators (+12%), bulldozers (+6%), graders (+3%) and tracked excavators had a corect growth. Recent indicators suggest that the worse is now finished for the mining industry, which could stimulate, at a certain extend, the demand of this type of equipments in 2015.

b) Sales of road construction equipments

During the 4 trimesters of 2014, the road construction equipments was the most performant sector in Europe : the sales total growth reached 19%, compared to 2013. The growth rates were similar among the group products : the sales of light compaction equipments increased by 20% (the hand rollers are first with +34%), the self-propelled rollers sales by 16% (tandem rollers are first, with a 25% growth) and the graders sales by 21%.

A similar situation than the eart-moving equipments market

This market's situation is similar to the earth-moving equipment market in 2014 : Western and Northern Europe were a stability centre, Southern Europe has started to recover from their very low levels, and in Eastern Europe, sales increased, except in Russia and Ukraine. The UK market increased by 33%, France recorded growing sales of 21%, and the Nordic countries gained 22% on average.

Spain still has the most important rate with 61%, and the Italian market had an incredible growth of 31%. Countries in central and eastern Europe recorded a surprising sales growth of 47%, with an improvement in Poland and in the Baltic countries. Without surprise, the Ukrainian market crashed, and Russia saw an important decrease of 27%. The Turkish market has, also, recorded an important deterioration of 37%, but the clim during the 4th trimester suggest the worse may be behind.

A growth that exceeded expectations and ought to continue

While the road construction activity should have be limited because of the restricted public financing in lots of European countries, this growth exceeded expectations. Road construction equipment is now the sector that recovered the best after the crisis. This positive trend should continue, with an average annual growth rate of 2,6% for the road construction sector in Europe in the next 3 years, according to the Euroconstruct projections of november 2014.

c) Sales of concrete construction equipments

While there was a noticeable growth in 2014 for earth-moving and road construction equipments, the building construction sector hasn't picked up yet. This lower performance comes from a low construction sector in Europe (+0,9%), after two consecutive years of decline and because of the high demand for concrete equipment in 2013.

A general decline in sales by 13%

The concrete construction equipments sales started 2014 right : the 1st trimester of sales in Europe was a third superior than those in 2013. But from the second trimestern the sector went negative : in total, sales in 2014 were 13% inferior to those of 2013 on the European markets. This decrease is due to the crash of cement mixer sales by 17%. The concrete plant sales have slightly increased whereas the concrete pumps sales were stable. However, with low product volumes, these deformed growth rates should not be misinterpreted.

Large volume markets developed differently depending on the regions and countries : the German market crashed by 20%, while the French market slightly increased by 4%. Switzerland and the UK have also increased, but the Austrian market couldn't stay at the level it was at in 2013. Like other sectors of the equipment market, there is a positive momentum in Southern Europe, especially in Italy.

Exports to MENA countries to counterbalance the Russian market crash

The political problems in Russia– low competition, European sanctions,but also the protectionist measures by the Russian government – is visible in the concrete equipment sales for 2014 : not only has the market crashed dramatically, but the European companies lost market shares. Russian manufacturers of cement mixer, and the Asian ones, benefit from this trend that ought to get worse in 2015.

Concrete equipment manufacturers could lean on their exports : the first export destinations, especially in the Middle East and North Africa (MENA market), were stable in 2014, with the developement of the residential and non-residential construction market. This trend will probably continue in 2015.

d) Tower crane sales

The tower crane market in 2014 developed in line with the concrete equipment market : after a first half of the year positive, the last 2 trimesters went downward. Compared with 2013, the sales total in 2014 was slightly negative.

On the main markets, sales in the UK have increased, when they were more or less stable in France and Germany. The Russian market, formerly one of the most important for European manufacturers, has decreased yet again. The slow recovery expected in Southern Europe still isn't here : the situation improved slightly in 2014.

While the home market is low, European tower crane manufacturers turn towards the export market : in 2014, North America and some Middle East countries, especially the United Arab Emirates and Saudi Arabia, were important export places, while the sales for the Far East and India stayed weak.

5) Equipment market projections for 2015

At the start of 2015, European construction equipment manufacturers stayed prudent about the equipment market evolution, with a CECE business barometer close to zero. Even if the general theory for the future is the continuation of recovery, the amplitude is still debatable. The earth-moving and road construction equipment manufacturers are optimist, when concrete equipment manufacturers are hesitant : according to their estimations, more than half the expected sales ought to happen during the first half of 2015 will either decrease or stay intact.

The perspectives aren't that bad for 2015 : the European construction industry is about to recover, with the 3 branches of the residential construction, non-residential construction and civil engineering, with positive growth projections. The mine and quarry sector should also overcome its crisis and could stimulate the demand in 2015. On the other hand, the renting sector's investments ought to stay limited this year.

However, several uncertainties come from political crisis, especially the Russia-Ukraine conflict, which will probably be more severe for the European equipment industry. A short-term recovery for the Russian market is very unlikely,  whereas the crisis for the Euro zone could hinder the clients propensity to invest. With this backdrop, a flat market or a low growth seems to be the most realistic scenario for Europe in 2015. But the Northern and Western European markets are still at high levels, and the differences between northern and southern countries shouldn't intensify.

Beyond the European market, the projections aren't bad either : the North America equipment market should continue growing, even though it will probably be at lower levels than in 2014. The Middle East market seems to defy political uncertainties and are still important export destinations for the European construction equipment. Finally, the old engines of economic growth in Asia, especially in China and India, should be stable after a troubled past.