In the latest in a series of monthly articles assessing the short-term prospects of the industry, we considers how things are looking for the increasingly volatile building materials sector
Building materials firms are a bit unlucky compared with their brethren in the contracting and housebuilding sectors. Although many materials firms have billion-pound turnovers, they operate in many more countries, and are therefore more exposed to fluctuations in overseas markets.

In the next six months, poor market conditions across Europe and the USA could adversely affect glass makers. So, although Pilkington's trading statement in September said first-half pre-tax profit was likely to be 10% up on the same period in 2002, there are whispers that glass sales in Europe are down as much as 13%. Last year they slipped 12%.

The housing market in the USA is weak, and the UK could see the market dampen if steep hikes in interest rates take place before Christmas. The glass market is largely dependant on activity in the car and housing sectors, so if one of these slips, so too will the glass makers' profits.

Similarly, the plasterboard market relies on housebuilding, and BPB, which is heavily exposed to the North American market, could be harmed by any slowdown there. Pilkington and BPB have been given "underperform" ratings recently by Mike Betts, an analyst with JP Morgan Chase.

But Betts believes that most building materials firms are in line to outperform the market over the next six months. Cement giant RMC might particularly benefit from its presence in Germany.

There are whispers that glass sales in Europe are down as much as 13%

Cement sells for about *37.5 a tonne in Germany, but the next lowest price in Europe is in Poland at *55. This indicates that there is room for a considerable increase in price, which will probably show up in contractors' tenders.

In the UK, RMC's director of the building products division Peter Hooson, says that the government's public spending is creating a stable situation for the company.

A strong public sector and a weakening commercial market means a refocusing of business for some firms. Laurence Maguire, chief executive of structural glazing firm HansenGroup, says: "It's a confused situation, we're switching from large retail projects to public spending work."

Public sector work is often done by smaller, local materials firms with short build times. To compete, larger firms must get more efficient.

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