Mineral Products sales lower in 3rd Quarter whilst outlook for 2016 remains positive
Construction market demand for mineral products was lower in 2016Q3 compared with the previous quarter, providing some evidence of a slowdown in construction activity over the summer.
Following strong markets in the second quarter, MPA sales of ready-mixed concrete (RMC) declined by 1.4% in 2016Q3, whilst aggregates and asphalt fell more marginally by ½%. Mortar sales however, closely linked to housing activity, grew by 1% over the quarter, after two quarters of relatively flat volumes.
Beyond the quarterly fluctuations however, the longer-term trends remain positive and contrast with Office for National statistics (ONS) outputs which show more muted construction activity so far this year. Sales volumes for all materials were higher in 2016Q3 than in the same quarter last year, and RMC and aggregates sales increased by 4.6% and 4.3% respectively in the year to September compared to the previous year, whilst mortar sales stood 3.8% up. Materials such as RMC and aggregates are used across all major construction sectors, particularly in the earlier stages of projects, and therefore provide hard evidence of work happening on the ground.
Asphalt sales however have been volatile since mid-2015, raising industry concerns over the phasing and visibility of Highway’s England’s road programme. Despite 11% growth in sales volumes during the second quarter, asphalt sales were marginally down over the summer, and stood 2.3% below their level in the year ending in September 2016 compared with the year to September 2015.
Looking forward, the weaker outlook for business investment and real wage growth as a result of the vote to leave the EU is expected to constrain construction activity over 2017/18, with infrastructure spending likely to be a more positive feature of construction from 2018. RMC and aggregates sales are now expected to grow by 3% over 2016-18, and 1% for mortar volumes. Asphalt sales however are expected to be 4% lower in 2018 compared to 2015, as local authority road budgets remain constrained and Highways England work is being delivered more slowly than previously expected.
Aurelie Delannoy, Chief Economist at MPA, commented, “We don’t know if the slowdown in sales over the summer is due to the Brexit vote, but it is important to note the stronger than anticipated markets throughout 2016 so far. We anticipate the bigger Brexit-related impact for our materials to appear more clearly in 2017/18 in line with general construction activity.”
“This outlook could improve notably, however, if the political response to the referendum is to increase public investment and encourage private investment. Decisions to accelerate the delivery of transport and energy projects, as well as general infrastructure and housebuilding, would stimulate medium term economic activity and boost productivity and long term potential growth. Sluggish productivity growth is a longstanding problem for the UK economy; encouraging both public and private investment should help. The particular need to stimulate regional growth is also evident given the limited post-recession recovery in regions outside London. The revival of interest in some form of Industrial Strategy linked to the regions could play an important part if it is action orientated, genuinely strategic and avoids trying to ‘pick winners’. We hope that the forthcoming Autumn Statement will seize the opportunity to boost confidence to invest in both the public and private sector in the UK.
