Mexico’s Cemex, one of the top three cement producers in the world, has reported disappointing H1 2010 results, posting a net loss of US$642mn for the period. Although the results offer little in the way of optimism for the performance of the construction industry, they do align well with the BMI infrastructure team’s core views on the relative performance of construction industries.

Cemex’s substantial loss can be traced to falling revenues in both Europe and the US. On the other hand, revenues increased in Asia and Mexico, and were flat in the Middle East and Africa. Regional highlights include Egypt, the Philippines and the home market, Mexico. These three countries are high on BMI’s list of anticipated strong performers in terms of construction sector expansion over the next five years. Egypt’s construction industry is booming, fuelled by long-term sustainable demand for infrastructure and housing and the Philippines is a frontier market with a clear focus on substantially raising infrastructure investment and creating the right environment to do so.

Cemex’s relative outperformance in emerging markets illustrates BMI’s long held view that exposure to EM should offset, or at least cushion the blow from developed markets – a view that is especially true in the construction sector, where brief signs of revival in mostly stagnant construction industries due to stimulus packages are now disappearing. This view gives little hope for Europe, which BMI does not expect to contribute much to global construction industry growth over the short term – a view echoed by many construction companies and materials and equipment providers in the industry.

The other interesting point to note is Cemex’s performance in the US. The US is the company’s third-biggest market following the acquisition of Rinker in 2007, which substantially increased its exposure to the US, just as it was about to enter a deep recession in construction activity. Despite a five-year decline (2005-2009) in construction net output, BMI is optimistic that 2010 will be the year the industry returns to growth (2.2% y-o-y real growth projected). The stimulus package should finally start showing fruit in 2010, as construction projects become the key focus. Federal loan mechanisms are successfully leveraging private financing into infrastructure, and residential construction – albeit affordable, government sponsored housing – appears to be emerging from the quagmire of recent years.

Cemex noted some signs of life in demand for certain types of cement from the US. At the same time, some of the world’s largest construction companies (Skanska/Vinci/Ferrovial) are citing opportunities in the US and potential order bookings from the country as a cause for optimism over the next 12 to 18 months. While the US economy appears to be slowing, the construction industry seems to have finally starting showing signs of life.