Political Activity Creates Opportunities for Construction Chemicals

The UK has just come out of a general election and appointed a new Labour government. The first statement issued by the new Chancellor, Rachel Reeves, was the mandatory house building targets and the desire to “Get Britain Building”. This could be seen as an odd first statement coming from the Chancellor, but direct government investment and the encouragement of private sector investment in new housing and infrastructure projects is a tried and tested way to kick start economic growth and bring countries out of a recession or slow growth. Investment in construction supports not only the chemicals and materials companies, but also the local workmen. This in turn then has a knock-on effect on expenditure in local shops, restaurants and services. Everybody wins, except perhaps the green belt.

Likewise in mainland Europe we see other political activity and likely change in governments, with the French going through their election process and subsequent likely change of party at the helm of power.

This political change and activity could be a shot in the arm for the deeply distressed chemical industry. Particularly if, like in the UK, the new governments focus on building and infrastructure. Many chemical and material products go into construction, from concrete, mortars, admixtures, adhesives, coatings, sealants, ceramics, insulation and plastics.

Source: Office of National Statistics, UK

Construction output was down 1.4% in Q4 2023 due to recession, which is expected to be offset by gains in the industry in the later half of 2024. The triumph of the Labour Party in the 2024 elections would most likely provide a boost to the construction sector, the benefits of which would be reaped by the construction material and chemical suppliers.

Another reason to be optimistic about the construction sector in the UK is the fall in the unemployment rate by 40 basis points in Q4 2023. The expected decrease in inflation rates in H2 2024 and 2025 is likely to translate into a reduction in interest rates, which would further spur the growth of the construction industry.

Some of the key materials areas that will see the biggest benefit are pre-cast concrete and in particular modular construction systems. Pre-cast concrete and modular construction is already an area Markets & Markets has identified as high growth, even before the latest government announcements. Schools, hospitals, housing, bridges and roads are key areas for pre-cast concrete and demand for construction chemicals across the board will increase in line with construction activity.

Modular construction in the UK would be supported by the new government's efforts, which involved an aggressive housebuilding target of 1.5 million additional new homes over five years to revive the industry after a sustained recession. The expected move to BIM Level 3, coupled with the implementation of the Affordable Homes Programme, has the potential to emerge coupled with the implementation of the Affordable Homes Programme has the potential of emerging as a game changer for the industry.

A significant rationale for the growth of modular construction in the country stems from the limited current penetration of offsite house building. A notable example is its European ally Sweden, which claims to build over 40% of its houses using offsite manufacturing technologies, compared to less than 15% in the UK.

One critical reason for the limited penetration of the modular construction industry in the country is the absence of high-volume churning modular construction facilities. High overhead costs coupled with a limited project pipeline have been the key factors stunting growth. Adopting offsite construction techniques could alleviate this, which would likely drive the consumption of construction materials and chemicals.

With a landslide victory for the Labour Party and a strong focus on construction of schools, dentist surgeries, hospitals and a huge push on housing builds, the UK looks like a stable investment option and a good market to focus on for short term revenue games.