Posted by Henry | HOUSING DEMAND,INTEREST RATES,REAL ESTATE PROPERTY | Monday 6 May 2013 10:56 pm


Demand for new housing might be going backwards despite historically low interest rates, according to Boral, prompting the building products supplier to slash its profit forecast and flag more manufacturing job cuts.

Boral chief executive Mike Kane said the Reserve Bank’s round of interest rate cuts over the past year or so had done little to improve demand for housing or for his company’s bricks, cement and roof tiles. ”I’ve seen articles suggesting that at these low interest rates, house prices should improve,” Mr Kane said.

”But we just haven’t seen any green shoots in terms of demand.”

Boral’s move comes as expectations of an interest rate cut by the Reserve Bank remain finely poised, despite persistent concerns in the slowing mining sector and a subdued broader economy – evidenced in fresh retail and inflation data that underwhelmed.

Other big companies providing updates on Monday also sounded a cautious note. Australia’s largest construction and mining contractor, Leighton Holdings, also warned of a ”challenging macro-economic environment”, especially in contract mining. Explosives and farm chemicals supplier Orica said demand was shrinking for its mining equipment ”across all its regions”.

And with the RBA meeting on Tuesday to decide whether to cut interest rates for the first time this year, Mr Kane joined a chorus of building industry leaders in calling for the bank to act.

”To the extent that rate cuts could help the housing industry, this industry needs some help,” Mr Kane said. ”It’s not improving at all. And as we get through the next quarter, we’ll determine whether it’s going backwards or not – but it’s been stuck for some time.

”The continued weakness in the Victorian market especially suggests that housing demand in Australia is directionally challenged.”

Boral has been on a cost-cutting drive since Mr Kane’s predecessor, Mark Selway, took the helm three years ago. It sacked 700 workers in January and Mr Kane did not rule out further cuts, while declining to estimate the number of jobs that would need to go.

”[There’s] always a possibility of more job cuts,” he said, adding the building products division was under a lot of pressure.

Boral said its construction materials and cement division’s third-quarter earnings were affected by declining residential construction activity in Victoria, project delays in Victoria and South Australia and poor weather in south-east Queensland.

It now expects net profit before significant items for the year to be in the range of $90 million to $105 million. Construction materials and cement third-quarter earnings were $19 million below forecast.

Mr Kane said the trend in capital cities towards medium-density housing had also contributed to lower demand due to its lower use of Boral’s more traditional suite of building products, such as brick and tile.

”That means Boral’s building products division has to shrink,” he said.

Monday’s profit write-down contrasts with an announcement in January where it had a ”stronger than expected” December quarter and upgraded its expected profit.

Mr Kane said the inconsistency in profit forecasting was partly down to the unpredictable weather, particularly in Queensland.

Boral said its Australian building products, while benefiting from restructuring and cost-cutting, had reported a further dip in earnings from its timber operations due to a high Australian dollar and overseas competition. It said the improvement in the US housing market – where it had been making a loss since the financial crisis, – did not offset the downturn in its domestic market.

Henry Sapiecha
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