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4 August 2010

Mineral Products and Construction Growth in the Second Quarter Does Not Signal a Sustained Recovery

The latest data on second quarter mineral products and construction performance have the potential to give a misleadingly positive impression of industry activity and prospects.

New MPA survey results indicate that aggregates, cement, ready mixed concrete and asphalt sales volumes all improved in the second quarter of 2010 compared both with the same period of 2009 and the first quarter of 2010.

Asphalt sales were 10% higher than in the second quarter of 2009 due to factors including emergency repairs and the progress of some major road contracts.

The rise in aggregate sales reflected the increase in road sector activity, but also the more general improvement in ready mixed concrete sales – public sector construction has continued to grow in the first half of 2010 and there has been a modest increase in housing starts. However, all of the increases recorded were based on historically low levels of market activity in 2009.

The MPA figures reflect the construction growth evident in Government’s recent estimates of economic growth in the second quarter.  This data indicated surprisingly high 1.1% GDP growth in the second quarter, the main driver of which was a 6.6% increase in construction activity compared with the first quarter, and a 5.8% improvement since the second half of 2009.

These improvements do not, however, indicate a pattern of sustained growth in these sectors.  Simon van der Byl, MPA Executive Director, commented:

“In spite of these welcome improvements there are, however, no indications of sustained growth in either the mineral products or construction sectors.  High levels of mainly public sector investment in health, education and infrastructure have boosted construction investment in recent months but Government has announced very significant reductions in investment which will significantly reduce associated construction activity as existing projects are completed and not replaced. 

“There is little likelihood of any significant improvement in private sector construction work over the next eighteen months therefore the recent improvements in mineral products and construction markets will be short-lived.

“If Government does cut construction investment to the extent currently predicted, construction output will flip from being the generator of economic growth highlighted in the second quarter GDP figures to being a drag and constraint on economic growth in 2011, 2012 and 2013. Considering the new planning uncertainties afflicting the housing market, continuing doubts about Crossrail, the questions over the funding and timing of new energy infrastructure and the axe hanging over road maintenance and construction work it is difficult to see where overall market recovery will come from.”

ENDS

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