Are you wondering what's going on? Four years into the Great Recession, also known in Australia as the GFC or Global Financial Crisis, it might be worth having a pause to survey the landscape, particularly with regards to the impact of the crisis on the building materials industry.
As is well known, the global crisis was triggered by the collapse of the US sub-prime mortgage market, but this was not the only 'house of cards' waiting to fall. The ill-conceived Euro project was thrown together by European elites, without asking the majority of the European voting public and without first aligning the economic and fiscal policies of its constituent members. This inevitably led to the triumph of human nature over long-term good sense and a 'grab-all-you-can-while-the-going-is-good' mentality from some of the peripheral states. The credit crunch in the US - (actually first triggered when French banks woke up to impossibility of selling or even of assigning a value to the mortgage-backed securities that they held) - led to banks on both sides of the Atlantic mistrusting each other to the extent that they refused to do business with each other and instead were only willing to deal directly with the central banks in their own countries. The immediate decrease in credit availability was one of the factors that led to widespread economic weakness, but the uncertainty sparked by the acute collapse of several institutions in 2008-2009 made investors flee from decisions: we heard reports of companies bankrolling new plant projects in Russia calling up the equipment suppliers and shouting at them to 'cancel all the orders.'
The torrent of near-apocalyptic business news in the autumn of 2008 and the first half of 2009 led central banks to start their Quantitative Easing programmes, where they created new money from thin air, using it to increase the money supply, to lubricate lending and - possibly as an intended consequence, but that's the cynic in me speaking - tending to increase inflation (with the happy corollary of decreasing the real value of everyone's debts) and decreasing the international value of their currency, making exports more attractive. This has led to a mini-export boom for some equipment manufacturers, where overseas projects have been able to source credit (most often in oil- and cash-rich Gulf states and lately in gas-rich Russia) and where the cost of buying the equipment has effectively fallen. A number of companies in building materials equipment manufacture have had a very good last couple of years, although some that were/are focused on supplying domestic demand (for example in western Europe and the US) have seen their markets for equipment collapse. This was driven home to us when we staged a cement conference in Riyadh, Saudi Arabia and a US filtration equipment company was one of the exhibitors. "We go where the markets are," said the hard-working proprietors.
Markets for wallboard - particularly in the US - collapsed to multi-decadal lows, as foreclosures and a huge overhang of newly-built houses with no possible buyers (in the absence of any mortgage deals) came onto the market. US housing prices crashed by 30% from peak to trough (even though economists had suggested that they were 'only' 30% too high in the first place - they just fell back to their 'real' value - not to below it). While hundreds of thousands of housing units sat on the market with no buyers, no more needed to be built, decimating the demand for wallboard. The situation is only just starting to turn around ('official' unemployment measures are starting to fall and the Case-Shiller housing price index has started to move upwards in almost all areas of the US), but there remains an imblance in wallboard supply and demand (despite the fact that all old and/or inefficient plants were mothballed or closed during the downturn, to avoid more losses). Demand will have to increase significantly if it is to rise to the potential level of supply in North America and to where the wallboard producers can start to make 'proper' money again.
Poor old Europe is still in the doldrums and looks likely to suffer the ignominy of a technical recession in 2012. The dithering of the various politicians have led the continent no closer to a recovery - and the markets seem to think that we may only be half way through the crisis, with the worst yet to come. With uncertainty comes weakness - in demand and in profits. Insulation markets have held up better than wallboard, due to the inexorable rise of energy prices. Might widespread production of shale gas yet depress energy prices (as they have done in the US)? Only time will tell.
Asia seems to have 'decoupled' from the crisis-ridden West, but China is now suffering due to the weakness in demand from its traditional Western markets - maybe it was never as decoupled, after all. Whether it is suffering a hard landing at the moment depends on your definition of a 'hard landing.'
For most of the world, the only way is up.
