Wear-resistant steel, a crucial material in construction machinery and dump trucks, is closely tied to the real estate market.
Wear-resistant steel, a crucial material in construction machinery and dump trucks, is closely tied to the real estate market. With China's construction market experiencing a two-year decline, many real estate-related enterprises, including steel traders, have turned their attention overseas, looking towards countries like India, Southeast Asia, and Europe. Let's take a closer look at the current state of the real estate market in Europe, focusing on this year's situation.
Throughout the Eurozone, including major economies such as Germany, Italy, and France, construction activities have declined during what should be one of the busiest periods for the industry. In contrast, the UK's construction sector has shown a robust increase in demand, marking the most significant growth in 26 months.
In July 2024, the Eurozone Construction Purchasing Managers' Index (PMI) released by the Hamburg Commercial Bank (HCOB) indicated a score of 41.4. Anything below 50.0 signifies a decrease in economic activity, while anything above suggests growth. The July figures showed a slight decline from June's 41.8, indicating a sharp reduction in construction activities in the second half of the year.
Residential construction emerged as the weakest link, with a lack of housing demand contributing to the overall economic downturn. S&P Global reports that European construction companies are pessimistic about the coming year, with sentiment worsening in July compared to June.
Hamburg Commercial Bank economist Norman Liebke described the downturn as "broad-based," stating, "The real estate sector is once again dragging down overall construction activity. In July, the housing construction rate fell due to weak demand, leading to new rounds of layoffs and a deterioration in employment conditions. Meanwhile, the downturn in civil engineering also led to a reduction in commercial activities, which slowed compared to June, mainly influenced by France."
In July, the overall PMI data for Germany released by HCOB was 40.0, indicating that the construction industry is still in a deep contraction. However, the data improved slightly from June's 39.7, and the decline has been slowing for three consecutive months.
Since 2022, Germany has been in a real estate crisis, with soaring inflation reducing the affordability of housing and prompting the European Central Bank to raise interest rates, making borrowing more expensive.
Notably, the residential construction sub-sector in Germany saw the largest decline in July, continuing to worsen compared to June. Commercial engineering and civil engineering activities also decreased, marking the lowest in three and nine months, respectively.
New orders in July continued the downward trend of the past two and a half years. Despite a slowdown in the decline in June to the lowest level since early 2023, July saw a reversal. This aligns with the pessimistic outlook of German construction companies, with some declaring themselves more pessimistic in July than in June. About 41% of companies expect construction volumes to continue to decrease next year, while only 9% are optimistic about expanding construction scales.
German construction companies also reported a reduction in staff and material purchases in July. However, the pace of layoffs has slowed for two consecutive months, reaching the lowest level since February 2024.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented on these figures, saying, "The most positive aspect of these data is that the downturn in the construction industry has recently slowed down. This is especially true for commercial construction activities and civil engineering projects, while the impact on residential construction in July was even greater than in June."
He also mentioned that from mid-July, Germany's plan to renovate 40 railway lines by 2030 could bring some momentum to civil engineering.
France is facing a severe downturn in construction activities, with the downturn in residential construction being the main culprit—the decline in housing construction is the most significant since data collection began in September 2000. Commercial projects and civil engineering projects also saw a decrease, but the decline was less than in June.
In July, the overall PMI data for France released by HCOB was 39.7, lower than June's 41.0, marking the most drastic decline since the beginning of 2024.
Meanwhile, French construction buyers reported the largest decline in new projects in nearly three and a half years. As a result, companies have reduced procurement activities and staffing levels for three consecutive months. Over a third of the surveyed experts expect the volume of work to continue to decrease in the coming year.
Economist Norman Liebke of Hamburg Commercial Bank commented on these data, saying, "The situation is not optimistic at all. Overall, demand has further weakened, and the new orders index has turned down again, reportedly due to customers facing some difficulties in obtaining loans. Although we expect the European Central Bank to cut interest rates again in September, it is difficult to revitalize the French construction industry."
"Therefore, we expect the construction industry to remain in recession this year."
In July, the PMI released by HCOB for Italy fell from 46.0 in June to 45.0, indicating a decrease in demand, which was most evident in the decline of new orders—July saw the largest decline in new orders in nearly two years.
Looking at the trend, Italy has shown some resilience in the European economic downturn, partly due to government subsidies worth tens of billions of euros, including the "Super bonus" plan, which provided financial incentives for home renovations. However, this plan has now ended, and all three sub-sectors saw a decrease in activity in July, with residential construction again being the main drag.
A quarter of the surveyed companies reported a decline in new orders, while 16% reported an improvement. Opinions on the development trend of the construction industry seem to be divided. Some companies believe that the situation will improve, while others express doubt. Overall, the level of optimism is at its lowest in nearly two years.
Jonas Feldhusen, a junior economist at Hamburg Commercial Bank, said, "The main factor leading to this downturn is the collapse of demand. July has been the fourth consecutive month of declining demand, and the new orders index shows that the decline has increased for two consecutive months."
"After the 'Superbonus' plan ended, the situation in Italy's construction industry is deteriorating. Although we expect the European Central Bank to cut interest rates again in September, which will naturally benefit the construction industry, it is doubtful whether this decision will provide a significant boost."
As a former EU member and a close neighbor of the Eurozone, the UK has shown an upward trend in July.
In the UK, the S&P Global UK Construction PMI rose from 52.2 in June to 55.3 in July, due to a rebound in new orders after the general election led by Sir Keir Starmer's Labour government.
This growth rate is the fastest since May 2022, and the growth momentum has continued for five consecutive months, showing a strong demand increase. In July, all three sub-sectors of the construction industry achieved growth, with the civil industry growing the fastest.
In addition, the demand for new orders has been growing for six consecutive months. Construction buyers reported that increased consumer confidence has played a positive role in resuming suspended construction projects, and the activity level of subcontractors has also been rising for four consecutive months.
While demand improves, the inflation rate of input costs has also shown signs of rebounding.
Andrew Harker, Director of Economic Intelligence at S&P Global, said, "The slowdown in growth related to the election in June proved to be temporary, and the pace of expansion in July was rapid. With the release of reports on improved customer confidence, both the volume of new orders and the start of projects have seen the strongest growth since 2022."
"The surge in demand has brought the industry closer to capacity, ending a recent period of improved supplier performance. There are also signs that inflationary pressures are rising, and if demand growth continues at this pace in the coming months, it will need to be closely monitored."
From the analysis, it is evident that Europe's real estate market is slowly recovering after the pandemic, and the expected rebound has not arrived as anticipated. The UK's performance stands out among them. This is why Baohui Steel Limited has recently received a large number of inquiries from the UK and Turkey. As a transit country between China and EU countries, Turkey has also taken on a large number of orders. Baohui Steel Limited specializes in supplying wear-resistant steel to global engineering machinery, dump trucks, mining machinery, and other terminal markets. For more detailed product pricing and specifications, please contact us. We have rich experience in exporting to high-tariff regions such as Europe and the United States.