Financial impact on aggregates production

Hardly a day goes by without the words recession or credit crunch hitting the headlines. Many question how many of these headlines are really media hype but how much will the instability of the banking world affect aggregates production in Europe?
April 10, 2012
Claire Symes Editor of Aggregates Business Europe
Claire Symes Editor of Aggregates Business Europe

Hardly a day goes by without the words recession or credit crunch hitting the headlines. Many question how many of these headlines are really media hype but how much will the instability of the banking world affect aggregates production in Europe?

In preparing the news for this issue of ABE, it is clear the financial crisis is impacting the quarrying sector with slower sales recorded in the fourth quarter of last year, compared to 2007. But where will the market go from here? Governments around the world have committed many billions of Euros of funding for infrastructure investment over the next few years. While these projects may take a while to get started on site, they will mean a guaranteed market for building materials for their duration.

But the current lower levels of demand are impacting on the cash flows of companies right now. 643 Cemex has just been through a massive refinancing programme to extend the maturity of its debts from buying 3583 Rinker and Heidelberg is also looking at a similar process to spread its commitments from acquiring 1343 Hanson. Market analysts have suggested that Lafarge could be the next global player to readjust its debt that resulted from the takeover of 3056 Orascom last year.

UK-based Ennstone is also suffering a lack of liquidity as its good business in Poland has failed to offset difficult conditions in the US and slow business in the UK. The company has been selling off assets since late last year but without prospects of a quick return to growth in the US or the UK, it looks like the business may go into administration.

While these debts and lower levels of revenue growth point to a difficult year, this recession is very different from others experienced in the past. This economic crisis differs due to the speed at which it hit - the whole situation seemed to spiral after the collapse of the US-based 3057 Lehman Brothers bank in September 2008 - and also because the economic drivers of industry still exist, it is just the access to credit that is causing the problem.

All with commitments to infrastructure, governments around the world have also been pouring millions into the banking system but until those institutions start to lend to each other at reasonable rates again, we cannot expect the global economy to recover.

While the crisis seems to be global - with the UK, Spain and Ireland worst hit in Europe - the severity of the impact on the aggregates market does vary. Quarry operators who have already reported their accounts for last year are indicating that markets such as Switzerland and some parts of Eastern Europe are still performing well and good growth is being seen in other emerging markets.

Few want to put a date on, or can agree when, widespread recovery will start - some are optimistic for spring this year while others, and depending on the region they are looking at, suggest it could be mid-2010 before the market rebounds.

Nonetheless, some industry analysts have warned that the recovery, triggered by re-availability of credit, could be as rapid as the arrival of the decline, leaving many quarry operators struggling to meet demand. The companies that are likely to do well following the recovery are the ones that are currently using this lean period to sharpen and optimise their businesses.

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