Aggregates rocked by road downturn

The downturn in the UK road programme has hit demand for aggregates hard. By May of this year, UK coated stone and crushed rock volumes had fallen by 16% and 17% respectively.

While pricing discipline in broad aggregates has held firm, pressure may be rising and - in coated stone specifically - close to breaking point .

Kevin Cammack, analyst with stockbroker Merrill Lynch, said demand for crushed rock and coated stone, the two prime UK building materials exposed to changing demand for road construction and maintenance, has fallen by 7% and 6% respectively in England in the year to date.

This is in line with cuts to the UK road programme, where spending on new roads will fall by 15% in 1996, together with a collapse in maintenance funding, reducing it to its lowest level for two decades.

Cammack said that a consolidated marketplace has seen prices remain comparatively immune to these volume declines. Tarmac, Hanson (through ARC) and RMC control 58% of the coated stone market and 49% of crushed rock.

In his report UK Aggregates Stocks - Hitting the Road, Cammack noted that pricing gains are echoed across most of the industry. Bardon, for example, has managed to increase its prices for crushed rock by 9% and coated stone by 5%, despite incurring volume declines.

Worryingly, demand for crushed rock and coated stone appears to be steadily declining, while the demand for sand and gravel and concrete has shown an improving trend (between 4% and 5%) over the same period.

There is the risk of this weakness continuing throughout 1996 and 1997, placing increased strain upon pricing structures.

Cammack said: "Continued pressure on volumes must be placing increased strains upon pricing structures. In fairness, the industry has weathered the problem in volumes with great pricing resilience, but we do fear that, in coated stone, cracks in the industry's resolve may soon appear. If this proves to be the case, then how long before ranks are broken in the associated upstream products?"