A new report on the builders’ merchant market from MTW Research has found that 70% of merchants are experiencing growth in revenue and profitability in 2015, with sales set to rise above inflation in 2016.

Based on industry sales, the research uncovered sustained growth in heavyside sales during 2015, providing welcome news for building product suppliers. The report states that since 2014, key growth sectors have included domestic newbuild and commercial refurbishment, with these continuing to underpin volume and value growth in late 2015.

Despite growth slowing slightly in 2015, demand for building materials remains healthy according to MTW Research. An easing of price sensitivity is set to continue in 2016 due to low oil prices, strengthening volume demand and lower global demand for raw materials, particularly from China.

The report forecasts market sales growth to 2019, and while there are variations across different markets, the tone is of general optimism for most building product sectors.

The rebalancing of the builders’ merchants market continued in 2015, with growth in the heavyside sector forecast to slightly outpace lightside products in 2016. While inflation is forecast to increase steadily next year, MTW Research indicates that real-term growth is still likely across most product sectors, though some end use markets will fare better than others.

Contractors’ expenditure on tools and equipment should also boost the merchants sector in 2016, in addition to rising demand for building materials.

Following sustained ‘buying abstinence’ on behalf of many contractors in recent years, the market is set to receive a boost in relation to rising capital equipment purchase, which should underpin continued buoyancy in the builders’ merchants market.

Commenting on the findings, Mark Waddy, director at MTW Research, said: “There are clear indications of strengthening profitability for most merchants, tempered to some extent by rising debt levels. Nevertheless, our forecast models indicate that merchants profitability will rise by around 30% in the next few years, underlining a fundamental strength in the market for 2016 and beyond.”

Prospects are for builders’ merchants to benefit from growth in several end use sectors, notably the private house building market and private refurbishment within housing and non-housing applications.

While public expenditure will decline in the current Parliament, MTW Research indicates that this ‘slack’ will be more than accounted for by growth in the private sector refurbishment and newbuild sectors.

The report also points to an increase in demand from the industrial construction and refurbishment sector as business confidence strengthens, sustaining demand growth for builders’ merchants.

The report forecasts relatively healthy sales growth for the next few years to 2019 and indicates that profitability has now fully recovered from the legacy of the recession when income troughed at 60% of current levels. While there remains turbulence for some sectors in the builders’ merchants market, MTW Research’s report presents a generally positive view of current trading conditions, identifies several opportunities for growth and forecasts positive future prospects for builders’ merchants and their suppliers.