The July figures of the Monthly Industry Report of Turkey IMSAD, the umbrella organization of the construction materials industry have been disclosed. The report points out that construction materials industry production increased by 4.4 percent in the first quarter of 2022, the increase in production was 0.1 percent in January due to power outages and rose rapidly to 8.3 percent in February and declined to 4.8 percent in March; and 2.8 percent in April which is the first month of the second quarter. The following findings were featured in the report:
Construction materials industrial production increased by only 0.5 percent in May compared to May last year, continuing its decline. Production growth also declined in May due to the lesser number of working days as a result of the high number of holidays. Thus, the production increased by 3.5 percent in the first five months of the year compared to the same period of the last year. Domestic demand for construction materials declined in May, while indications of slowdown in foreign demand are emerging.
Production rates increased in certain sub-sectors, while some sub-sectors experienced a decline in production in 2022. While the production rates in 12 sub-sectors increased compared to the previous year in the first five months of the year, the production in 10 sub-sectors has declined. The highest production increase in the first five months were realized in ceramic coating materials with 32.5 percent, in combined parquet and floorings with 23.4 percent and in ceramic sanitary articles with 22.6 percent. Production of iron and steel bars and profiles rose by 15.7 percent and production of plastic construction materials rose by 22 percent. Despite these, the production of bricks and roof tiles declined by 18.5 percent, iron and steel radiators by 11.4 percent and insulated cables by 5.7 percent in the same period.
The third month of the decline in construction sector in the Eurozone has begun
The European Union and the Eurozone are the primary markets of Turkey’s construction materials industry which exports to markets throughout the world. It is being observed that the concerns for the overall slowdown-recession in the global economy and Europe are having a negative impact on construction activities. The course of construction activities in those markets and the demand for construction materials will be determinant in the performance of Turkey’s construction materials exports in the second half of the year.
Indicating a recession for the first time in May after a 20-month period, the Eurozone Construction Activity Index maintained this trend in June and July and demonstrated the sharpest decline since February. The index, which was 47 points in June, fell to 45.7 in July. The main reasons for the accelerating recession trend in construction activities in the Eurozone were the failure in the expectations and the recession in demand. While the impacts of cost increases and supply and supply problems reduced gradually, the increase in both input and output prices also slowed down.
A sharper recession occurred in commercial building and structure constructions across sub-sectors in the region. While the recession in residential construction activities were of a more limited nature, the growth in infrastructure and engineering activities slowed down significantly.
On the other hand, a significant recession occurred in new work orders in the construction sector across the Eurozone. The recession in the orders had an impact in both residential and commercial buildings. An overall contraction is expected in the construction sector in the second half of the year. The construction materials industry also started to suffer from recession in terms of the new orders received in connection with that expectation.
Construction activities in the UK shrunk for the first time since January 2021
Being one of Turkey’s most significant export markets for construction materials in Europe, construction activities in the UK declined in July for the first time since January 2021.
There was a contraction in residential construction activities and engineering-consultancy-architecture services across sub-sectors. The rise in housing finance interest rates and concerns in respect of housing prices and demand have led to a decline in residential construction activities. On the other hand, growth in the construction of commercial buildings continued, despite getting slower.
The decline in new work orders in the UK indicates that the recession in the construction sector will continue to go on in the second half of the year. On the other hand, high construction costs are expected to decrease with the decreases in commodity prices and accordingly prices of other materials.
Turkey’s construction materials exports will be affected in two ways
The recession that has begun in construction activities and demand for construction materials in the Eurozone and the UK seems to limit Turkey’s construction materials exports. However, it is stated that many energy-intensive construction material producers may also be subject to restrictions with the energy and natural gas savings to be implemented across Europe. Compensating for the production losses that will occur as a result with additional supplies from Turkey stands as a strong option. In such a case, likely losses of Turkey in construction materials exports to Europe are expected to be remain at a minimum level.