Council for Aluminium in Building

Q1, 2019 – Confidence despite Brexit uncertainty

The very latest Q1, 2019 CAB State of Market Survey showed continued rises in expected sales volumes and a very positive view of capital investment over the next 12 months. In the next quarter 79% net balance of members forecasted growth (68% in Q4, 2018) while 63% net balance of members forecasted growth in the year ahead (73% in Q4, 2018). While the quarterly forecast is highly encouraging, there is again a concern that this might represent some element of short-term stockpiling. The wider construction sector showed a small contraction in activity in March 2019 and a levelling off in housing starts.
Once again members were as positive or more positive across all the investment metrics for the year ahead compared to the previous 12 months.
Looking at the sales compared to a year ago, 37% of members reported a rise above 5% and 26%, a rise of up to 5%. Only a total of 5% of members reported any reduction (up to 5% or more than 5%).
Overall CAB members expected overall cost inflation to persist but there was not the same level of concern as there was in the last quarter with 47% net balance expecting increases in the next quarter and 58% net balance expecting increases over the next 12 months (86% and 95% respectively in Q4, 2018).
Continued demand for skilled labour placed upward pressures on wages and salaries with 79% net balance of members highlighting it as a key cost factor. Raw materials (68% net balance) and lingering high energy costs (63% net balance) also continued to exert upward pressure on manufacturers input costs.
Demand was reported to be the key constraint on sales growth over the next 12 months. 63% of CAB members reported that demand was likely to be the key constraint on sales over the next 12 months. The other major constraint was raw material prices (16%) with other factors noted as capacity, material supply imports. However, 5% of members reported no constraints.
Confidence in the year ahead encouraged CAB members to forecast a 47% net balance in headcount during 2019 (55% in Q4, 2018). However, only 26% net balance forecast an increase in the next quarter suggesting some short-term uncertainty brought on by Brexit issues.
Overall capacity levels were reported to be sufficient in Q1 given sector output and demand. 17% of members reported that they had operated at between 90% and full capacity over the last 12 months (19% in Q4, 2018). In a year’s time, capacity utilisation was expected to be 90% or higher according to 22% of members (29% in Q4, 2018).
Once again there was a very positive view of capital investment over the next 12 months which continues to be a very strong feature of the CAB State of Market Survey. In Q1, three metrics showed a forecasted increase for the year ahead compared to the past year. Customer research (47% compared to 26%), e-business (42% compared to 26%) and plant/equipment (63% compared to 58%). The remaining metrics showed the same level of confidence, product improvement (68%), R&D (47%) and property (37%).

Construction Sector Concerns
The aluminium in building sector continues to defy the wider construction outlook that is not as positive. The Markit/CIPS PMI for construction was 49.7 in March, up from 49.5 in February but remained below the no-change mark of 50, indicating that construction activity contracted for a second consecutive month, the first time this has occurred since August 2016. The decline in construction output was driven by a fall in commercial and civil engineering activity, which more than offset a modest upturn in residential building work.
Housing starts stagnated at 165,160 last year, despite government efforts to pump up housing supply to achieve its much heralded building target of 300,000 homes by the mid-2020s. After steadily growing in recent years from a trough of around 75,000 in 2009, starts have remained at the 165,000 level for two years, according to the government’s own figures. The plateau is being blamed on Brexit uncertainty.