SUMMARY OF REPORT CONTENTS

There are various interpretations of the definition of the UK Construction Equipment Rental Market.  The focus of this report is on equipment generally used in construction, repair maintenance and improvement (RMI), and DIY applications, but there are significant areas of overlap with equipment which is also used for ‘non-construction’ purposes – for example, skips, generators and portable accommodation, etc.

The construction equipment rental market is primarily driven by niche sector construction growth , health and safety and environmental legislation, repair maintenance and improvement operations, and the sound performance of the UK economy.  It is forecast that all these factors will contribute to positive long term growth, with the impact also of product innovation and the development of new market sectors.

Given the difficulties of market definition, the total market in 2006 is estimated to be worth around £4.4 billion at hire market prices, which represents positive growth of around 6% compared to 2005.

In overall terms, the solid performance of the UK economy has underpinned a degree of stability to many hire market sectors.  From 2003-2005, higher government spending sustained construction growth, although the manufacturing and industrial sector remained relatively stable, with underlying motivation from waste management operations and legislation, in particular the ‘Work at Height Regulations 2005’.

More recently, during 2004/2006, activity levels in commercial construction have remained relatively stable but in overall terms the construction market has been stimulated by substantial increases in health, education, defence and infrastructure funding, also an increasing awareness of the need to alleviate the housing shortage.  However, the retail/home improvement/DIY sector is in relatively poor shape, reflecting a decline in the housing market and consumer confidence.  The manufacturing sector has also experienced relatively lacklustre conditions but there are signs of a modest improvement.

The largest sector of the construction equipment rental market is earth-moving equipment, estimated to account for over 27% of the overall market.  Lifting equipment, including material handlers and cranes, accounts for an estimated 14%, while skips and rubbish chutes account for over 11% of the overall hire market value.  Powered access and portable accommodation hire are demonstrating strong growth, while tower cranes, crawler cranes, excavators and telehandlers are also growing significantly, with generally positive forecasts for sectors allied to construction – for example, falsework/form work/shoring/propping/ ground support/scaffolding/piling, etc.

Adverse influences impacting on the hire market include skills shortages, in particular drivers and fitters, the rising cost of health and safety compliances (which are particularly exacting in the road/ rail sector), and also rising fuel and energy costs.

The construction equipment rental market remains relatively fragmented, despite continuing concentration in the specialist sector. Construction equipment rental companies include companies primarily operating either in plant hire, tool hire, or specialist hire, defined as rental companies focussing on one, or a relatively narrow range, of product sectors – for example, cranes and powered access. Hewden /Finning are the market leaders with an estimated 8% share, followed by Speedy Hire, with a 7% share, A-Plant 4%, HSS and SGB 2-3%, and Hydrex, VP Plc, Lavendon,  Aggreko, Andrews Sykes, Longville Group, Ainscough and Gap Group with around 1-2% share. It should be added that Hydrex have achieved high sustained annual growth rates, and are regarded as a major player in the UK hire market, while Speedy, market leaders in the UK tool hire market, have developed rapidly in ‘equipment hire’, and have become the second largest player in the hire market.

There are estimated to be around 4500-5000 outlets currently offering construction equipment rental services in the UK.  In addition, there are estimated to be a further 2000 outlets offering specialist rental services, e.g. skip hire, portable accommodation hire, primary construction equipment hire, tippers, sweepers, bowsers, etc. Product development includes innovative equipment designed to increase productivity, for example the further extension of the ‘tool carrier’ concept, and ‘compact’ plant.

Long term prospects for the construction equipment rental industry are viewed as positive, driven by legislative and environmental trends, also niche sector construction growth, with more specialist sectors including prefabrication and the clean-up of nuclear sites.  In overall terms, our forecast is for annual growth rates of 4-6% from 2007-2010, though there will be significant regional variations reflecting the influences of location of the extractive industries, waste management operations, the petro chemical industries, housebuilding projects,  renewables, seasonal/ climate factors, and the periodic impact of entertainments and events.

Construction generally remains a positive sector of the economy.  Housebuilding is set to rise steadily to meet demand levels – particularly  in Southern England – while education, health and infrastructure are all subject to high levels of Government investment which should underpin growth over the next 3-5 years. Equipment rental remains a favoured option for contractors in all sectors and, therefore, should result in steady market growth in the medium term future.

Wood-based panels are a part of the general timber industry, one of the UK’s largest and most diverse business sectors. The increasing globalisation of key industry sectors such as the timber industry means that they are more easily affected by a wide range of influences including:
 

• Over-capacity in some regions and under-supply in others;

• Consolidation of supplier networks;

• Raw material shortages; and

• Increases in input costs such as energy and labour.
   

The wood-based panels market grew by 26% in value terms between 2000 and 2006, showing moderate but consistent growth of between 2 and 4% per annum, apart from 2003/4 when growth reached 11%. 

The 11% growth in 2004 was encouraged, in part, by a general upturn in the economy after a few years of recession, but was also due to a number of other factors, including a strengthening of demand for particleboard, which peaked in the last quarter of 2004 with some manufacturers reporting up to 10-week lead times. MDF and OSB also enjoyed strong demand as well as record output throughout the European market as well as within the UK, and the cost of plywood is also reported to have “skyrocketed” during 2004, further increasing market value. Good growth therefore occurred in 2004 despite a slowdown in the furniture sector which was experiencing a drop in demand, consolidation and some loss of production to offshore locations.

Demand for wood-based panels in the UK varies according to panel type, relying on differing levels of demand from diverse end-use sectors:-

• Demand for particleboard remained stable for most of 2004, but fell in 2005 as a result of the slump in consumer spending and reduced demand from furniture manufacturers. Market value peaked in 2003/04 at £660m, however has since declined to an estimated £643m in 2006.

• The MDF market stagnated during 2004 and 2005, with growth constrained by energy price increases affecting the product’s competitiveness.

• The market for fibreboard has grown substantially since 2000 however – some 40% - reaching £320m in 2006.

• Late 2003 and 2004 saw the beginning of a relatively buoyant period for OSB, with a shortage of plywood helping to boost sales. This continued into 2005 and 2006 and had a stabilising effect on prices and margins, further increasing confidence in the market and proving beneficial for manufacturers. The OSB market was valued at around £85m in 2006, up from £50m in 2000.

• The performance of the plywood market in the UK has followed a somewhat erratic path, as a result not only of the ups and downs of the construction sector, but also the decline in UK-based production. 100% of the plywood used within the UK is now imported and this situation is unlikely to change. The market for plywood is currently thought to be in the region of £347m, up from £285m in 2000.

• The market for decorative panels is difficult to estimate with any accuracy as there is considerable overlap between this and the particleboard, plywood and fibreboard categories. Decorative panels include melamine-faced and veneered fibreboard, plywood and particleboard; high pressure decorative laminated boards and painted surface boards. The market is valued at approximately £749m in 2006, representing an increase of some 38% from 2000.

Overall wood panel production volumes, reflecting trends within the wider timber and sawmilling sector, have remained relatively healthy, despite falling demand from some key markets such as furniture manufacture. Demand from the construction sector, in spite of a fall in output and the failure of public sector activities to reach expected levels, has remained relatively constant, although a decline was noted toward the end of 2005. 2006 has shown a slight improvement in construction activity, however, the overall decline has affected panel manufacturers who have also been struggling with increasing energy costs and more expensive raw materials – in particular resin. 

Substitution of one material for another is an ongoing trend affecting the market share of individual panel types. The use of OSB for example has been boosted by a shortage of plywood, and OSB is also increasingly replacing particleboard in the soft-furnishing framing sector.

In terms of supply the wood-based panels sector remains dominated by large international players, many having head offices in the UK or Europe. Around a third of all panels consumed locally (around 6.5m m³) are imported (excluding plywood which is 100% imported).

UK producers of wood panel products turn over an estimated £650m.  There are eight wood panel manufacturing plants in the UK. The industry employs over 2,500 people on a direct basis, and supports a further13,000 contract and maintenance workers. Existing production facilities are being utilised to full capacity and, apart from Egger UK’s recent £100m investment to expand facilities at their Hexham plant (to be completed in 2007), there is little expansion taking place or planned for the near future.

Imports of wood panels including plywood as well as a number of other fibreboard types are imported primarily from Europe, but also North and South America as well as – and increasingly - China.