S&P Global – Building Materials Credit Outlook, 2024

According to the S&P Global Building Materials Credit Outlook, the residential building construction sector is currently facing a difficult environment due to higher interest rates, which have weakened consumer demand. It is not expected that there will be a recovery in volume before 2025. On the other hand, the industrial construction and civil engineering sectors are showing improvement. This is due to investments in low-carbon energy, infrastructure renovations, and government spending. However, companies with high levels of debt are facing challenges due to increased interest rates. The higher debt service costs are starting to impact their cash flows. In terms of credit quality, it is anticipated that it will remain stable overall. This is supported by decent rating headroom and balanced capital allocation. However, there are some areas of weakness in the 'B' category. Margins are expected to stabilize as companies reach their limit in increasing selling prices. Despite this, it is expected that pricing discipline will continue, even with lower cost inflation. Capital allocation will continue to be driven by climate transition risk. Although business confidence has weakened, most companies are maintaining or increasing their capital expenditure (capex). There are some risks to the baseline outlook. More aggressive financial policies, particularly if shareholder remuneration remains high while volume declines, could lead to negative rating actions. Geopolitical tensions or local property crises, such as in China, could also undermine volume recovery in 2024 and constrain companies with limited rating headroom. Stricter carbon regulations may also impact high-emitting companies, although larger and more sophisticated companies could benefit from market consolidation.