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Construction industry index sinks to lowest ever results

 

The Australian Industry Group’s (Ai Group) Performance of Construction Index (Australian PCI) has reported a 16.3-point drop in April (seasonally adjusted), marking the lowest result and single-month fall on record.

The April 2020 Australian PCI saw record lows in all four of its construction sectors. Image courtesy of Ai Group.

Coming off months of pre-existing contraction, the Australian PCI has suffered a huge blow in April due to COVID-19’s effects of economic uncertainty and a lack of client confidence. This caused the construction industry to stumble from 37.9 in March to 21.6.

Deterioration across the entire construction industry was reported by respondents, with the Australian PCI also recording its largest falls on record for activity (18.0), new orders (15.7), employment (25.6) and average wages (43.7). Delays within supply chains, increased costs, and raw material shortages were also to blame for the poor results.

All four construction sectors – house, apartment, engineering and commercial – experienced record lows , with apartment building at the lowest of the four in April (22.1, trend). House building saw the largest change out of the four sectors with a drop of 5.3 points (37.1).

According to the Ai Group, April is “just the beginning” of COVID-19 activity restrictions for the construction industry. A telling sign, however, is that Australia’s federal and state governments have allowed the construction sector to continue operations, unlike other major industries such as hospitality.

Local companies buck trend

Surprisingly, some of Australia’s major construction materials firms have also enjoyed positive returns for the 12-month period leading up to 1 May 2020.

Despite facing losses in the year to date, James Hardie recorded returns of eight per cent.The company has followed on by narrowing its profit guidance and closing three of its global manufacturing facilities – one of which is located in Queensland, which has led to more job cuts across the nation. The Australian PCI also saw employment decrease in April by 10.8 points to 25.6.

CSR also reported positive returns of seven per cent, despite a loss of 21 per cent in the year to 1 May, 2020.

However, neither company experienced the heavy losses of Boral and Adelaide Brighton, which lost 41.7 per cent and 40 per cent respectively. [Sub-head] Boral, Adelaide Brighton bear brunt of losses

With Boral’s focus on the Australian property market, and the record lows for house building in the construction industry in April’s Australian PCI, the company has suffered in the wake of COVID-19.

“Demand is declining in most markets and is expected to continue to decline, particularly in residential construction markets where the pipeline of work is substantially reducing in all geographies,” the company stated in an ASX media release.

“As a result, where we have sufficient inventory levels to supply customers, production curtailments are planned and are taking place, including shift reductions and temporary plant closures.”

Meanwhile, cement manufacturer Adelaide Brighton has cut costs and withdrawn its earning guidance for 2020 after recording a huge drop in its 2019 net profits of $47 million – from $185 million for the same period in FY2019.

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