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Weak demand in civil construction

The civil construction industry picked up slightly in the first quarter of 2012, but demand is still weak, according to the latest FNB/BER civil construction confidence index released on Thursday. “Activity is up, but the slow rate at which new work seems to be coming on stream could hamper the pace of the recovery in this sector,” Cees Bruggemans, chief economist at First National Bank, said in a statement. The index rose to 34 in the first quarter of the year, up from 26 in the last quarter of last year. It was 21 in the third quarter of 2011.

An index reading of 100 shows that all respondents are satisfied with prevailing business conditions, while zero shows all respondents are dissatisfied. “The current reading of 34, therefore, indicates that the majority of respondents (indeed two out of three) remained dissatisfied with prevailing business conditions, Bruggemans said. This was the fifth consecutive quarter that construction activity had increased, indicating a more sustained, but slow recovery, he said. “However, the rate of increase moderated slightly compared to the second half of last year.” Most construction activity flowed from existing or ongoing projects.

In the public sector, this included Transnet's expansion of port facilities and the new multi-product pipeline between Durban and Gauteng, and some work on Eskom's Medupi, Kusile and Ingula power station projects. Government spending on roads, water and waste water management projects dominated, especially at the municipal level, Bruggemans said. In the private sector, construction work came mainly from the mining industry. “This was on the back of still relatively high commodity prices and in preparation for an expected increase in coal demand once Eskom's new power stations come on line.” Competition in tender prices eased in the first quarter.

“This suggests that firms have taken the opportunity created by increased activity levels to relieve some margin pressure,” Bruggemans said. This led to a slight increase in profitability in the first quarter. However, increased activity levels had not led to more jobs. The demand for new construction work remained relatively weak, and was still a constraint on the industry.

Source: iol.co.za

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Weak demand in civil construction

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