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Renewed strength in cement & concrete demand; fuelled by houses & non-residential building booms
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Demand for cement and concrete has picked up over the past two years correlating with the current upturn in total construction activity in Australia. According to our models, demand for premixed increased by 3% in FY2021 and is estimated to have risen again by 4% in FY2022, while cement was up 1.4% and an estimated 4.4% over the same period.
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This upturn comes after experiencing a two-year dip in materials demand (FY2019 and FY2020). The vast majority of this decline was due to the slowdown in residential building, combined with falls in road construction and a pause in renewable energy investment (related to the timing of the 2020 renewable energy target).
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Materials demand began to pick up in early 2021, boosted by the short-to-medium term stimulus spending by Federal, state and territory governments, aimed at countering any recessionary impacts of the pandemic. Residential building incentives (lead by the Federal HomeBuilder program) has caused a mini-boom in house building. Also, substantial government spending on social infrastructure, primarily education and health, plus large investments in warehouses and other industrial building, caused a spike in non-residential building.
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The anticipated upturn in public sector road and infrastructure projects has been brought forward by the states and territories, and will add impetus to demand over the next 12 months and beyond.
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We now anticipate another small uptick in demand for cement and concrete in FY2023.
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On our estimates, the largest single source of premixed demand at the national level is non-residential building, contributing just under a third of total demand in FY2022.
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During FY2021, our model estimates a contraction of roughly 4%, due to the impacts of COVID-19, and associated lock-downs, on commercial and industrial building. This has now reversed, and in fact, for FY2022 we estimate a large spike of 15% fuelled by both public sector building (particularly the health sector) and private sector investment (with notable increases in industrial building, transport and retail sectors). Looking further ahead, we’re forecasting a contraction in demand from overall non-residential building works over the next four years (although levels are expected to remain high in a historical context).
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In FY2021, the residential building sector (excluding alterations and additions) accounted for around 32% of total demand. Also underscoring its importance, it accounted for more than 90% of the decrease in materials demand from FY2018 to FY2020, and most of this can be attributed to the fall in high density dwellings (apartments).
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More recently, the HomeBuilder scheme, along with other incentives in the various states, has provided a temporary lift of 25% in detached house building during FY2021, and this is offsetting the continued declines in multi-dwelling residential.
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The boost to house building will now reverse itself however, as the incentives are removed and the realities of lower migration and increased rental stock reassert themselves.
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Road construction demand fell during FY2021, losing almost 300,000 tonnes of asphalt demand on our estimates. Demand is expected to increase quite strongly in FY2022 and FY2023.
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The most recent decline represents a pause in road construction works, following the completion of some notable projects. Some key projects, whose completion has contributed significantly to falls in demand include; WestConnex Stages 1 & 2, NorthConnex, Pacific Highway Woolgoolga to Ballina, and the Northern Connector in Adelaide.
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Construction activity will now regain strength, however, as a number of large projects are currently in the pipeline. In real work done terms, activity in the roads sector was down 4% in FY2020 and 3% in FY2021. FY2022 is expected to see an increase in work done of 7%, followed by an extraordinary spike of 34% in FY2023.
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Other engineering construction
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Demand from other engineering construction has dropped back by a modest amount since FY2018, and is not expected to move up until FY2023. The decline over this period will be about 16% peak to trough.
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The declines are largely reflective of the trends in the utility sector - initially led by large falls in telecommunications as the NBN construction came to a completion, followed by a nosedive in electricity construction around FY2020 and FY2021 when a pause in renewable energy investment occurred (related to the timing of the 2020 renewable energy target).
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Looking ahead, rail and electricity stand out as the main growth sectors from FY2023 onwards. The next wave of renewable energy related investment, driven by the acceleration in large-scale battery storage, is supporting electricity construction demand. Meanwhile in rail, the culmination of large capital city projects all progressing in that year will lift the demand for materials related to other engineering higher for some years to come.
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For more detailed forecasts and analysis please subscribe our report – Australian Construction Materials Forecasts. We provide detailed market estimates and ten years of forecasts of demand for cement, concrete, asphalt, aggregates and related products, typically broken down into 64 geographic regions.
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Our most recent reports:
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Australian Construction Cost Trends
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This report examines the outlook for construction costs, in detail be sector and type of input.
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Australian Construction Projects Database
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This latest list of projects corresponds with our fully revised set of forecasts published in November 2023.
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Australian Regional Construction Outlook
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Our latest regional forecasts for residential building and construction have just been released.
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Australian Construction Materials Forecasts
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Our latest forecasts assess the implications for construction materials demand of the current outlook for building and construction.
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Australian Road and Bridge Works
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This report examines the strength and composition of the current upturn, and determines the likely timing of the peak, and subsequent decline.
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