Issue Date: January 11, 2010
Construction: Recovery From Recession Will Be Long And Slow
In a recent study of the chemical industry, consulting firm Deloitte predicts that the recession will have a long-lasting effect on makers of construction chemicals and paint ingredients. The study’s authors point out that the size of the U.S. housing market, for instance, dropped 47% between 2007 and 2009 to $178 billion. By 2014, Deloitte expects, the market will rise to $254 billion, still 24% below 2007 levels.
Although government stimulus spending on infrastructure projects in 2010 will increase demand for construction materials, Deloitte cautions that “what we could be seeing now as a rebound is more of a reset.” In fact, the study suggests that “some key end markets in certain geographies may take half the decade or longer to reset to 2007 levels, and business models will have to be adjusted accordingly.”
Luis Fernandez, vice president of Dow Chemical’s coating materials business, forecasts that global paint demand will increase by 0 to 2% in 2010 compared with last year. However, the strength of coatings markets will vary depending on the region.
For example, the U.S. architectural coatings market in 2009 was about 30% below the peak year of 2006, Fernandez says. He expects 2010 sales to be flat compared with 2009, with a percentage increase in the high single digits in 2011.
On the other hand, Fernandez says he has seen a “tremendous rebound” in sales of architectural coating materials since the beginning of 2009 in China, Southeast Asia, and Brazil—in some cases at double-digit rates. And he looks forward to similar strong growth in 2010 and 2011. But even if 2010 sales are flat in many markets, “it will be an improvement over 2009,” he says.
The global market for construction-related chemicals will continue to be “a challenge” in the first half of 2010, with improvements coming in the second half, says Andrew Bonham, president of W.R. Grace’s construction unit. He predicts that world construction chemicals consumption will grow between 2 and 4% for the year. But those numbers will depend on the timing of the recovery in different regions and on construction material costs.
Bonham expects only a modest recovery in the North American residential market in 2010 and figures that commercial construction’s rebound will lag residential by six to eight months. A bright spot in Western Europe will be U.K. spending on infrastructure to get ready for the 2012 London Olympics. Yet construction will be down in Spain because of earlier overbuilding. And “China, of course, will see higher growth in 2010,” Bonham says, along with rapidly developing economies in Latin America, the Middle East, and India.
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