CHELTENHAM: Merchants divided into two camps in the face of price inflation: those willing to operate at lower margins and those avoiding less profitable contracts, said a report from MTW Research.
The report said the trend if for smaller local and regional merchants to position themselves at the lower-value end of the market, unlike larger nationals that have withstood rising pricing pressure to the extent where they are less inclined to supply to contracts which offer lower margins.
The report said product prices rose on average 4% in 2009 as manufacturers sought to protect margins.
The report predicts a brighter future for the builders' merchants market, with business and consumer confidence slowly returning in a number of key sectors: public sector projects, domestic RMI activity and house building.
But there is little prospect of rapid value growth, particularly given the likelihood of a cut in public capital expenditure in the near term the report said. It places around 8% of builders' merchants in the 'at risk' category, underlining the fragility of the market.
During 2009, demand shifted toward light side building products as the market became more reliant on the domestic and smaller scale commercial RMI sector.
With house builders now opening up 'mothballed' sites, MTW point to the likelihood of a relatively rapid return to growth for heavy side products given that many house builders ran down their inventories during the latter half of 2008 and will therefore have immediate requirements for replenishing materials.
According to the report, pricing pressures should ease in the near term as average product inflation falls from current levels of 4% to around 2-3% by early 2010, although profitability is likely to decline by around 25% over the full year.
However, much of this contraction derived from lower performance in the first 3 quarters of the year, with a much-improved trading environment likely in Q4 2009 as volume demand returns from some key end use sectors such as house building and RMI.
