Global Construction Materials Market

Global Construction Materials Market: Value Chain Analysis - ML00027-021

Global Construction Materials Market

Value Chain Analysis

ML00027-021


Table of Contents

2

Complete Value Chain: Overview

Complete Value Chain: Overview (cont’d)

Raw Materials: Overview

Raw Materials: Analysis

Raw Materials: Burning Issue – Coronavirus

Material Production: Overview

Material Production: Analysis

Material Production: Burning Issue – Consolidation

Retail: Overview

Retail: Analysis

Retail: Burning Issue – Construction Companies Under Pressure

End-User: Overview

End-User: Analysis

End-User: Burning Issue – Rising Costs

Appendix


Complete Value Chain: Overview

3

The global construction materials market value chain can be divided into four distinct stages: raw materials, material production, retail, and end-user.

Raw Materials

Clay

Gravel

Slag

Crushed Rock

Calcium

Silicon

Aluminum

Material Production

Cement

Bricks

Aggregate

Retail

DIY

Wholesale

Contract

End-User

Building Contractor

Self-Builder

Businesses


Complete Value Chain: Overview(cont’d)

4

The global construction materials market value chain can be divided into four distinct stages: raw materials, material production, retail, and end-user. Large companies dominate each step of the value chain, particularly in the retail phase.

Raw Materials

LaFarge

Vulcan Materials

Cemex

Martin Marietta Aggregates

Heidelberg

Material Production

Heidelberg

China National Building Material Company

LaFarge

Cemex

Vulcan Materials

Martin Marietta Aggregates

Retail

Kingfisher Group

CRH

The Home Depot

Lowe’s

Travis Perkins

End-User

D.R Horton

Lennar Corp

Pulte Group

Vinci

ACS


Raw Materials: Overview

5

Raw materials producers for this market are predominantly global giants. They are primarily very large aggregate and mining providers due to the scale of production many of the leading construction companies require.

Raw Materials Producers

Mining Companies

Clay Crushed Rock

Silicon Calcium


Raw Materials: Analysis

6

The raw materials used during the production process are almost entirely attributable to large, international mining companies

• Mining is responsible for the vast majority of the substances required for the manufacturing of cement, bricks and aggregate

to put together a structure. Many companies engaged in mining also manufacture supplies to retail companies or direct to

end-users.

• Aggregates are formed by the mixing of several different elements but despite this, many leading companies will be

responsible for the mining of shale, limestone, sandstone and other stones required for the manufacturing of bricks, concrete

and other materials commonly found in building construction. This streamlines the process of creating the components

required by construction companies, reducing costs.

• Mining companies themselves tend to be limited to very large multi-national firms due to the extent of consolidation the mining

industry has experienced. Component companies on the whole prefer buying from large companies due to the reliability of

supply and the economies of scale such companies can provide.

• Companies involved in this market tend to be very large and operate in many countries. Consolidation in mining has been

ongoing for a long period of time, demanding companies seeking to compete must operate on substantial economies of scale.

Consequently many companies will be responsible for the manufacturing chain from the point of mining to creating products

that are then sold directly by retailers.

• Leading companies typically are not involved in other areas of mining such as metals and precious metals.


Raw Materials: Burning Issue

7

The mining industry stands to be severely hit by the global outbreak of COVID-19

The widespread outbreak of coronavirus is having an impact on markets and industries across the globe. The mining

industry is no exception. With advice ranging from country to country but generally recommending isolation and social

distancing, mining operations globally are grinding to a halt. In Italy, which has the second largest number of COVID-19

cases outside China, the national lockdown that was enforced in March 2020 resulted in Alta Zinc closing down production

at its flagship project in northern Italy.

Mining giants that operate on a global scale, including Rio

Tinto and Anglo American, have reported that production has

significantly slowed due to restrictions relating to coronavirus.

Rio Tinto’s Oyu Olgoi project in Mongolia has put a stop to

non-essential operations following the restrictions imposed by

the government in the country. Meanwhile, Anglo American is

suspending operations at its Qullaveco mine in Peru.

Employees of various mining companies have reportedly

contracted the virus, leading to further quarantine and isolation

measures. While the true impact of COVID-19 is difficult to

assess due to the nature in which the situationis rapidly

changing, it will undoubtedly have a detrimental impact on

2020 mining production figures.


Material Production: Overview

8

Material production is split between two broad areas: clay and aggregate. Leading companies involved in

both areas enjoy substantial economies of scale enabled by trading internationally, selling to leading

construction companies.

Material Production

Aggregate

Lafarge Martin Marietta

Vulcan Materials

Oldcastle Materials

Bricks

Wienerberger

Forterra


Material Production: Analysis

9

Leading companies involved in the production of construction materials have experienced extensive consolidation to keep costs down through economies of scale.

• The diverse nature of these parts means that many different types of companies are involved at this stage. Leading

companies tend to specialize in a particular segment but will often cover most or all of the products in that segment. For

instance, French giant Lafarge is engaged in the production of cement, construction aggregates and concrete. The ability to

produce such a range of materials on a mass scale has enabled the company to grow to become a world-leading brand in

construction.

• Although leading players are all primarily involved with construction materials, they rarely, if ever, cross-over into other forms

of construction such as civil engineering. The economies of scale enjoyed by leading players are sufficiently substantial that

the costs of a leading manufacturer of cement, for example, moving into timber production make the move prohibitively

expensive. Consequently, companies stay within a broad segment.

• The specialist equipment required by brick manufacturers means leading companies in this area of the market are largely

separate from the remainder. Due to the quantity and reliability demanded by leading construction companies regarding

bricks, brand reputation is valued very highly. Due to an almost entirely automated manufacturing process and mass

production, bricks are produced at very low margins, making it harder for companies engaged elsewhere in construction

materials to move into this segment.


Material Production: Burning Issue

10

Brick manufacturing has experienced extensive consolidation of late in response to low margins and cautious economic outlool; the COVID-19 pandemic could cause further consolidation in the coming years

Brick manufacturing has undergone considerable consolidation of late with leading player Wienerberer taking over several

players in the European construction materials market. Recent financial results point towards the market becoming

increasingly difficult to operate in. The largest brick maker in the world cited higher raw material costs, reduced demand for

one and two-family homes in Germany and wet weather in the United States, being the causes behind a share price fall of

nearly 9% towards the end of 2017. Wienerberger purchased several companies during 2017, including a brick

manufacturer in Austria, Germany, the United States, Romania and Belgium. This is part of wider merger and acquisition

activity in the market. Bain Capital purchased the brick making arm of CRH, the largest construction company in Ireland

during 2014.

The construction materials market is increasingly exposed to

events around the world due the international scale of many

leading companies. Even companies that only exist in one

country are exposed to this because of the influence

international players have on domestic markets. The COVID-19

pandemic, which has effectively ground many industries and

markets to a halt is likely to lead to further consolidation in the

market in the coming years as some companies may struggle to

remain viable.


Retail: Overview

11

Retail is split between the various types of companies, which include wholesalers and retail companies.

The construction materials retail segment is dominated by large businesses which have the scale to

accept large orders from leading home builders.

Retail

Wholesalers

Independent Retail

Retail Chains Manufacturer


Retail: Analysis

12

Large wholesalers and manufacturers are the gateway for leading construction companies when making large orders, whilst retail chains fulfil the needs of small contractors and individuals.

• The retail section of the construction materials market consists of wholesale, retail and independent brick yards.

• Wholesalers and brick manufacturers typically deal with large house building companies such as Barratt Homes, which

will order vast numbers of bricks every year. Such are the importance of these orders to wholesalers that the

economies of scale are significant. Leading manufacturers such as Wienerberger have engaged in partnerships with

large house building companies. In 2014 Barratt Homes agreed a deal to construct 1,600 new homes using the new

interlocking brick, Porotherm. Partnerships of this type are very important to suppliers of materials because of the need

to secure orders from large home builders but also to remain at the forefront of product development.

• Small contractors will not be able to form partnerships with leading manufacturers so will instead buy bricks and other

construction materials from wholesalers. Whilst this is a more expensive route than signing contracts with leading

suppliers, the flexibility enables lower-tier contractors to only purchase what is immediately required, reducing financial

risk.

• Brickyards and independent retailers are typically the most expensive place to purchase construction materials, but

many materials can be purchased in quantities not available elsewhere. Specialized goods such as reclaimed bricks for

renovations are niche products but are often not available elsewhere.


Retail: Burning Issue

13

The construction industry has struggled to cope with higher costs passed on to leading companies from suppliers of construction materials. Higher production costs have hit the entirety of the construction industry supply chain.

The construction material price index for the United Kingdom revealed the cost of materials has experienced an upward

trend over recent years. Rising costs were attributed as the primary reason behind the collapse of Carillion by many. The

Construction Products Association’s Construction Trade Survey showed the number of construction companies struggling

with costs to be stable but still elevated. Higher fuel and energy costs for material manufacturers is a leading reason behind

the problems. Producing bricks, for instance, is an extremely energy intensive process. Even a comparatively small rise in

energy costs can have a significant impact upon the price per brick that leading home builders are charged.

Reducing performance by construction companies will further impact

wholesalers and manufacturers. Lower demand will harm already very

tight margins for construction materials manufacturing. Rising costs have

already been blamed for a slow house building market in the United

Kingdom. Improved conditions for house building across the developed

world would help retailers reduce costs by reducing initial costs to

construction materials manufacturers. For retail companies the situation

is not helped by skills shortages in the construction industry which have

raised labor costs. Automation and robotic technology may help, but

meaningful progress remains some way off.


End-User: Overview

14

End-users are divided between general contractors, individuals and businesses. Contractors dominate the

market because of the number of buildings constructed, whilst individuals and businesses will commonly

only build in very small numbers.

End-User

General Contractors Individuals Businesses


End-User: Analysis

15

End-users vary massively in size of operations. Leading contractors dominate, whilst small projects remain the preserve of lower-tier contractors, business managed projects and individuals.

• The construction materials market is characterized by the large scale of leading end-users. Large organizations – be

they private companies or public sector institutions – will be almost entirely responsible for big budget construction

projects such as large office buildings and extensive house building efforts. These end users are extremely valuable to

construction materials manufacturers due to the scale of operations and small number of large companies.

• Meanwhile, small stand alone housing and other comparable construction projects are typically performed by smaller

players, often acting as sub-contractors. For these contracts there will only ever be a very small number of potential

clients and construction contracts will take the form of one-off undertakings, a bespoke house or office building. The

often specialized nature of this work provides important consumers to niche suppliers.

• Many contractors around the world are primarily engaged in house building but also take on additional work in terms of

conventionally constructed buildings for other purposes. Each element of these large one-off projects will often be

supplied by one company for the sake of cost control and consistency. This means leading construction materials

companies compete very hard, granting end-users increased buyer power.

• Individuals engaged in self-build projects do not have access to the same low-cost materials large companies do and

are limited to small-scale wholesalers or retail companies such as B&Q.


End-User: Burning Issue

16

Houses in many developed countries are getting smaller as demands of consumers change and the construction industry becomes tougher for home builders to operate in

Homes are getting smaller in many developed countries as

more people move into cities, placing pressure on existing

housing stock, and co-habitation reduces. Squeezed wages

for many compounds the problem of buying a home even

more, reducing demand and causing home building

companies to work harder to achieve profitability. Average

family home size in the United States peaked during 2015;

the size of new builds is now at the lowest point for nearly

four decades, partly as a result of a shortage of available

land but also higher construction costs. Combined, these

factors are forcing house builders to reduce home size to

speed up construction schedules in an effort to cater for

modern social trends in which families are less common and

smaller. This is placing greater pressures on companies

manufacturing construction materials to reduce prices and

encourage more orders.

However, the trend is compounded by economic

uncertainty of many end-users. This is particularly true

regarding job security and lack of wage growth over the

past decade. Home builders will increasingly have to

adapt to constructing smaller houses according to the

changing needs of many end-users, forcing material

suppliers to adapt to the changing needs of the housing

market.


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Global Construction Materials Market

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