Business sentiment in the construction industry continues to be low
Noticeable intensifying of competition for orders
The pace of recovery from the economic downturn caused by the Covid disaster is slow, and real GDP is not expected to recover to the level of FY2019 until the latter half of FY2022 (Fig. 1). Of the GDP, private-sector capital investment in construction is expected to exceed the FY2019 level in the July-September period of 2022, however, private housing investment is expected to remain at a low level due to lack of resilience.
Business sentiment in the construction industry is expected to deteriorate
The Bank of Japan Tankan (December 2020 survey) business condition index of large manufacturing industry improved by 17 points from the previous September survey to ▲10, and the large non-manufacturing industry improved by 7 points to ▲5, improvement continuing from last June survey (Fig. 2). On the other hand, although the construction industry remains positive, the outlook has fallen by 11 points and pessimistic views on the future continue.
-
Fig.1 Historical change in Real GDP and forecast
Sources: Cabinet Office "Quarterly Estimates of GDP"; JCER "Short-term Economic Forecast"
-
Fig.2 Historical change in Business Condition Judgement
Source: BOJ “TANKAN”
Construction investment expected to decline
As a sign of low business sentiment in the construction industry, private housing investment and private non-residential construction investment (building) are all anticipated to decrease in FY2021 (Fig. 3). The severe order environment is expected to continue causing orders to level off.
Orders received at the lowest level in the last 5 years
Looking at current construction activities, domestic construction orders received by major construction companies in the first half of FY2020 are at the lowest level in the last five years (Fig. 4). Shimizu Corporation only achieved a slight increase compared to the same period of the previous year, but the amount is low. Contract timing has generally been postponed due to the influence of the Covid disaster, they say, and it is expected that orders for large projects will be received in the second half, but in order to secure the remaining 70% of orders to meet their initial target amount, bid competition is likely to intensify. In fact, comments such as "competition is fierce, especially for large-scale construction projects" are becoming more prominent in the financial statements of each company. Competition will be more fierce in 2021 which is highly likely to result in the continuing downward trend in construction prices.
-
Fig.3 Historical and forecast change in Private Non-residential investment
Source: MLIT “Construction Investment Outlook”
JRCE “Investment Forecast in Construction”
-
Fig.4 Historical change in Order Value and Equity Ratio of 5 major construction companies
Source: Financial Report
*Excludes Takenaka which has not announced their quarterly financial results and Haseko
The downward trend up to last term has stopped
Building work has fallen slightly. Although some materials have risen, decline in labor costs continued from the previous term offsets and retains building service works unchanged.
The decline up to last year has stopped and leveled off.
Despite aggressive capital investment in some industries, the demand for office space is still weak and building supply is low. Prices have fallen in structural and finishing works.
Steel prices rise slightly
Fresh concrete price set to rise in the future
Steel prices have risen slightly. This is caused firstly by the price escalation of iron ore and scrap, which are raw materials for steel. Another cause is that the demand for steel products has bottomed out due to the recovery of the manufacturing industry and the inventory level has fallen. The price of fresh concrete has remained flat, but due to the rise in raw material prices and transportation costs, the fresh concrete association in the Tokyo area has announced that it will raise the price by 1000 yen/m3 (7%) from the contract in April 2021, and this escalation will spread to other areas.
Labor supply and demand is flat
The shortage rate increased by 0.1 points in October 2020, however, as it has remained at a low level since April 2020, the labor supply and demand has remained level. Whereas, the increase in number of companies that forecast difficulty to secure labor in the next 3 to 4 months should be paid attention.
-
Figure 7: Trends in steel prices (ordinary steel)
Source: "Construction Materials Price Index," Economic Research Institute
-
Historical changes in ready-mixed concrete price
Source: "Construction Materials Price Index," Economic Research Institute
-
Figure 8: Trends in the excess/shortage ratio of skilled construction workers
Source: MLIT “Construction Labor Supply and Demand Survey (total 8 occupations / nationwide / seasonally adjusted)
NSBPI Trends
% change in NSBPI and contribution of construction and equipment