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Bricks and mortar – are suppliers feeling the benefits of housebuilding's resurgence?

Housebuilders are reporting healthy profits, but are the material manufacturers that underpin their work also feeling the benefits?

The major housebuilders are enjoying growing profits, so you might expect brickmakers, who provide the raw material for their labours, to be feeling happier too.

Some of them are – but they’re cautious. Two of the country’s biggest bricksmakers, Hanson and Wienerberger, recently said they are starting to increase production, while the largest of the independent firms, Michelmersh Brick Holdings, reported a 10 per cent increase in its brick dispatches in the first six months of 2013 compared with a year earlier. 

Hanson is planning to reopen its Claughton works, which it mothballed in 2009, towards the end of this year and has put on extra shifts at brickworks near Newark. It also splans to add extra shifts at a factory near Leicester, which will create around 65 jobs in total.

But this represents a “drop in the ocean”, according to the company’s spokesman, compared with the almost 4,000 jobs shed and 12 works closed by the company over the past five years.

Weak backdrop

The firm’s output will grow by about 4 to 5 per cent as a result of the changes but, again, this is against a backdrop where it almost halved from 900m bricks before the credit crunch. “We’re coming from a low base,” the spokesman adds.

Wienerberger has put on extra shifts in its Todhills plant in the North-east and has imported stock from its plants in Belgium, the Netherlands and Germany.

“Housing probably has enough steam in it to be kept going… but the rest of the construction market is still quite subdued”

Keith Barker, Wienerberger

While this pick-up in activity is good news for the brick industry, it is far from a return to boom times.

There are questions over how long the rise in demand for bricks will be sustained. Wienerberger commercial director Keith Barker says some of the rise in demand is due to improvements in the housing market, but some has been caused by firms increasing their stocks because they fear longer delivery times due to the rise in purchasing.

This is a one-off investment rather than a reflection of increased construction work, but makes up a significant amount of the extra demand.

“Replenishment of stock is probably as big as growth,” he says. “[The rise in] new-build housing probably has enough steam in it to be kept going… but that is not all of the construction market and the rest of it is still quite subdued.”

Turning point

Nonetheless, he thinks there are “probably more reasons for optimism than at any other point in the last five years”.

The industry is building back up from a very low base. According to the Office for National Statistics, British brick production has dropped about 40 per cent from 2007, when it stood at 2.47bn, to 1.46bn in 2012.

During the downturn the industry has run down its stocks from 1.1bn in 2008 to 515m in 2012. Deliveries also dropped off from 2.4bn in 2007 to 1.6bn in 2012. They have started to pick up recently, going from 397m to 460m between Q2 2012 and Q2 2013. 

Many of the factories and companies that closed or scaled back during the downturn are now “gone for good”, according to Michelmersh chief executive Martin Warner, who estimates the industry has closed or mothballed about 30 out of more than 80 brickworks.

Michelmersh is producing an extra 5m to 6m bricks by making “relatively small improvements” to its existing facilities, for example improving kilns, he says.

Much further in the future – perhaps in a year or two  – the company could “probably invest elsewhere to make a few more million bricks” which would more than replace the capacity of a small brickworks it closed in Dunton in May 2013.

Varied approaches to recovery

This difference in approach between Michelmersh, Hanson and Wienerberger – namely making small improvements to existing facilities and putting on extra shifts versus re-opening factories – illustrates the differences in how much the firms scaled back during the downturn and the distinctions between the major brickmakers and the independents.

The big three brickmakers – Hanson, Ibstock and Wienerberger – make up about 90 per cent of the UK market, according to Brick Development Association chief executive Simon Hay.

“The big manufacturers also have the capacity to increase. They have more mothballed factories and potential to invest more”

Simon Hay, Brick Development Association

Michelmersh, which has about 5 per cent of the market, is the largest of the independents. Mr Hay says the larger housebuilders, which are seeing an upturn in activity unlike many of their smaller peers, tend to have relationships and contracts with the larger brickmakers, whereas the smaller brickmakers often produce speciality products.

This is one reason why some of the big brickmakers are likely to be increasing their capacity more than some of their smaller counterparts.

That said, Mr Hay adds that the growth enjoyed by the larger housebuilders should eventually trickle down to the smaller brickmakers as well.

“The big manufacturers also have the capacity to increase,” he says. “They have more factories, more mothballed factories and potential to invest more.”

Differing trickle-down effects

Mr Warner at Michelmersh agrees that the rise in housebuilding is less likely to affect his firm in the same way as the major manufacturers which supply the large housebuilders.

“I have not seen that pick-up in demand in numbers but we are very busy,” he says. Instead, he hopes bricks prices will pick up a bit.

The ONS found brick prices were almost static between 2009 and 2011 before rising marginally in 2012 and then hovering around the same level.

Mr Warner says firms would prefer to put on extra shifts rather than have the significant costs associated with opening additional factories.

Similarly, he thinks those independent manufacturers that have survived the downturn have less spare capacity than the big firms.

“I think most of [the speciality makers] have a bit of capacity but not a vast amount,” he says.

“They are probably fairly comfortable with the marketplace they are in and those that have survived are doing relatively well. It is the majors with large volumes of works where demand has been a bit slack and they can put in extra shifts.”

Housebuilding is expected to grow steadily over the next few years – something which is sure to help brickmakers to some extent.

The Construction Products Association predicts that housing starts will grow 13 per cent this year, 8 per cent in 2014 and 2015, and 7 per cent in 2016 and 2017.

For now, many firms are waiting to see what the level of sustained demand from the whole construction industry will be once the current flurry of restocking passes.

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