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