It's been a torrid time for Europe's building materials producers, as construction projects have stalled significantly in the past couple of years. We think the worst will be over for them soon, but that's not the whole story. Despite lower energy costs, input prices remain stubbornly high
Building material production levels will bottom out in 2024
We expect 2024 to be a year of transition for the building materials industry comprising of concrete, cement and bricks. In most European countries, production levels tumbled in the past couple of years; volumes are down by almost 15% in Spain and by nearly 25% in Belgium compared with the beginning of 2022. We believe that those volumes will not start to recover until 2025.
Should European interest rates start to come down, as we expect, and we see sustained higher wages, we're likely to witness a turning point leading to more investments in new premises. However, building projects have a long lead time and the number of issued building permits was still declining in the third quarter of 2023. It will take some time before sales pick up.
The beginning of the end of the decline
There are signs indicating that the worst is over. For instance, the confidence indicator for the EU construction sector is still negative but has slowly improved during the last few months of 2023. The confidence indicator for the building material sector has stopped decreasing. In addition, EU house prices rose again and increased in the third and fourth quarters of last year. This allows project developers to increase prices for new-build dwellings. Project plans that weren’t profitable due to higher building costs can now, at least in some cases, be lucrative again.
For example, local Dutch data support this changing trend. Project developers have seen their sales increase since summer 2023 after a period of decline, and sales of new homes are also on the rise again.
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