LONDON: The outlook for European building materials companies remains negative, according to Moody's Investors Service.

Moody's believes that the industry remains under pressure and signs of recovery remain elusive despite volumes stabilising in most markets.

Matthias Hellstern, author of the Moody's report said: "Demand for building materials in 2010 is likely to remain weak, leading to companies posting, at best, only slightly improved results compared with 2009."

Higher energy costs in the second half of the year could also lead to a squeeze in profitability if prices cannot be adjusted accordingly, he said.

The rating agency said economic stimulus programmes are likely to have effect only towards the second half of the year due to seasonality and the time it takes to implement projects. Even then, the stimulus will only partially offset lower demand from non-residential and residential construction, it said.

If recovery in the commercial sector and in mature residential construction markets if not sustained, the industry could see renewed pressure on volumes and prices the report said.

"Moderate pricing pressure will continue, especially due to low volumes in mature markets, such as the US, the UK or Spain, as well as continued volume declines in some markets in Eastern Europe. Prices should remain stable in the consolidated markets of France and Scandinavia," Mr Hellstern said.

"However, we expect the construction industry to continue to struggle this year in the UK and Spain, hence building materials volumes will continue to decline there. Construction activity in other regions, such as Germany and France, is likely to stabilise or decline only slightly, while it should pick up compared to 2009 in other markets, such as Poland, North Africa, South America and Asia," Mr Hellstern said.