Bottom Line: Builders have the edge

YESTERDAY'S forecasts from the National Council of Building Material Producers will have come as a disappointment to anyone who thought the buoyancy of the building materials and construction sectors on the stock market since White Wednesday meant recovery was imminent.

Stripping out inflation, total construction output is expected to fall by 1.5 per cent this year after more dramatic declines of 9 and 5.5 per cent in the past two years. Worse, 1994 and 1995 are unlikely to show real growth of more than 1 and 2 per cent respectively.

Against that background a doubling of the construction index and 75 per cent rise for materials shares looks to be over-egging it. The two sectors have outperformed the rest of the market by 49 and 33 per cent respectively in the past 11 months.

A close look at the figures shows how important selectivity will be in negotiating an uneven recovery. Companies exposed to commercial new building, for example, will have to contend with a 20 per cent fall in output this year after last year's 23 per cent slump. Next year a further 10 per cent decline is expected.

In housing, the private sector is beginning to bubble but public sector work could decline for another two years as the government tightens its belt.

For the same reason building programmes on hospitals, schools and roads are likely to be under pressure.

What that means in practical terms is that demand for concrete is likely to lag consumption of bricks and timber. Put another way, pure housebuilders, and the lighter end of the materials market which serves them, have the edge over cash- strapped contractors.