Construction: The Action, Once Again, Is In Developing Countries

Expectations for home, commercial, and civil construction this year are pretty similar to what they were last year: Projects will increase by 4% or more in developing countries such as China and India but will lag in mature economies such as the U.S., Western Europe, and Japan.

For suppliers of concrete additives, waterproofing agents, and other construction chemicals, China “is a good place to be” this year, says Andrew Bonham, president of W.R. Grace’s construction products business. Demand for such chemicals in the country this year will grow 7–8%, outpacing the Asia-Pacific region’s overall growth of 4–5%. Bonham expects continued “decent” construction chemical growth in India of 6–8%.

In Europe, the sovereign debt crisis means that construction markets in Portugal, Spain, Italy, and Greece will continue to struggle, Bonham says. Demand for construction chemicals in Austria, Switzerland, and France will be flat to slightly down, whereas the stronger economies of Germany, Belgium, the Netherlands, and the Scandinavian countries are likely to experience a 1% uptick in demand.

In the U.S., Bonham expects demand for construction chemicals to grow at about 2%. Most of that growth will take place in the housing market, with some of the spending increase linked to the recovery from Hurricane Sandy. Economist Frederick M. Peterson of Probe Economics points to a recent bump up in housing starts, which also bodes well for construction chemicals.

However, the current uncertainty over the U.S. government’s tax and spending plans for 2013 means that other infrastructure spending will be flat at best, Bonham notes. He also predicts that state and local government spending on buildings, roads, and other things will continue to dwindle in the face of the weak economy.

As goes the construction market, so goes the large market for architectural paints, adhesives, and sealants, says Phil Phillips, managing director of paint industry consulting firm Chemark Consulting. If the U.S. government takes action to deal with its fiscal problems, then attitudes on growth will improve and housing starts could rise 3–4% this year, he says, and paint along with it.

With much of Europe already in recession, Phillips expects paint demand there to be flat or to decline slightly. Demand in South America should grow 6–8%. Paint demand will rise 5–8% in Asian countries such as India, Thailand, and South Korea, and an even more robust 7–9% in China, he predicts.