Construction Materials Industry Composite Index Results Announced for December

Construction Materials Industry Closes 2019 with Increased Confidence and Expectations According to the December results of Turkey İMSAD Construction Materials Industry Composite Index, confidence and expectations continued to rise despite activity declining due to seasonality. Thus, the Composite Index closed 2019 with increased confidence and expectations. The Composite Index contained the following information: The three-month increase in the Composite Index following August was interrupted in the final month of the year. The Composite Index, which declined 0.40 points in December, paused in its recovery from low levels due to seasonality effects. Thus, despite activity declining in December, confidence and expectations continued to rise.

Activity Declined

Following the recovery in September and October in the Activity Index, decline continued in December after November. In December, activity was negatively affected particularly as seasonality conditions began to take effect, and the Activity Index declined 2.2 points compared to the previous month. Domestic sales experienced a significant drop in December. Exports declined for the first time in December. Production also contracted. Revenues declined in December due to falls in domestic sales and exports. Construction materials industry activities have stagnated again over the past two months. The restrictive effect of seasonality on activity was felt more strongly. Additionally, structural problems in the construction sector continued to negatively affect construction materials industry activities.

Limited Growth in Confidence Continued

The Confidence Index experienced limited growth in December as well. Thus, the slow recovery of the Confidence Index from low levels entered its fourth month. Despite activity declining in December, confidence levels maintained their limited and cautious growth. Confidence levels increased 0.21 points in December compared to the previous month. The Confidence Index is experiencing fragile recovery in recent months. Conditions necessary for sustained confidence growth have not yet sufficiently materialized. While confidence regarding Turkey's economy showed limited growth, confidence in the construction sector remained unchanged. For the construction materials industry, there were limited increases in confidence. Confidence in domestic markets showed limited growth in December. Confidence in export markets also achieved significant growth. Improvement is spreading across all elements of the Confidence Index, but the improvement is largely driven by exports. Problems arising from the construction sector in the domestic market and stemming from its own dynamics continue to limit confidence.

Growth in Export Orders Supported Expectations

The Expectations Index also experienced limited growth in December. Expectations continued their upward trend despite the decline in activity. Despite the difficulties in the construction sector and the fact that risks have not been completely eliminated, the year ending with growth in expectations was assessed positively. The Expectations Index, which increased 0.3 points in December compared to the previous month, was 5.3 points below the expectations for December of the previous year. Expectations regarding Turkey's economy increased to a limited extent. While domestic orders received for the coming three months experienced limited decline, export orders received continued their growth in December. Production expectations for the coming three months also increased. Despite the seasonal slowdown in domestic orders, rising export orders supported production expectations. While a gradual and slow improvement trend is forming in expectations, confidence in the economy is gradually improving. Problems in the construction sector continue to have limiting effects on expectations. Exports and, accordingly, production stand out as the two factors driving the improvement in expectations. Particularly, the growth in export orders is supporting expectations.

Recovery in Recent Months Could Not Offset 2019 Losses

The construction materials industry experienced significant losses in 2019. Losses were concentrated particularly in the first three quarters of the year. The recovery in the final quarter of the year was insufficient to offset the losses. In 2019, the Activity Index declined 15.7 percent compared to 2018. In other words, the construction materials industry experienced significant contraction. In 2019, while the domestic sales index fell 20 percent, the export index increased 3.2 percent. Exports were the savior for the industry in 2019. However, this growth in exports could not compensate for the contraction in domestic sales. Indeed, the production index also fell 19.4 percent in 2019 compared to the previous year. Revenues, which determine the financial structure of the construction materials industry, declined nominally 16.9 percent in 2019. The construction materials industry hopes to partially offset these significant 2019 losses in 2020.

More Barter Offers Encountered in Fourth Quarter of 2019

The Composite Index also included results of barter application for the fourth quarter of 2019 between 'construction materials producers and contractors' and 'sales channels and contractors'. The findings related to barter application were listed in the index report as follows: Among construction materials producers and contractors, four trends stand out in barter applications: 25.9 percent of construction materials producers encountered barter offers in material sales in the fourth quarter of 2019. The barter offer ratio increased again in the final quarter of the year. 5.6 percent of construction materials producers used the barter method in their fourth quarter 2019 sales. In the fourth quarter of 2019, 90 percent of construction materials producers conducting barter transactions stated that the share of barter sales in their total sales occurred in the 1-9 percent range. 46.9 percent of producers lost business due to barter offers they rejected. The business loss ratio showed significant growth in the fourth quarter of 2019. Among sales channels (dealers and building material retailers) and contractors, according to barter application results, 62.5 percent of sales channels encountered barter offers in material sales in the fourth quarter of 2019. In the fourth quarter of the year, the barter offer ratio decreased 5.7 points compared to the third quarter. 18.8 percent of sales channels used the barter method in their final quarter sales. In the fourth quarter, the ratio of those conducting barter decreased compared to the third quarter. Among sales channels that stated they used the barter method in their sales, 33.3 percent indicated that the share of barter sales in their total sales occurred in the 10-24 percent range, while 66.2 percent stated that the share of barter sales in their total sales remained in the 25-49 percent range. 76.9 percent of sales channels lost business due to barter offers they rejected. The business loss ratio decreased compared to the third quarter but this ratio is still considered very high.