Fletcher Building's margins are under pressure from rising competition in its home base of New Zealand as the strong Kiwi dollar and low shipping costs allow smaller groups to import building materials rather than buy them from local suppliers.
In the past 12 months, a New Zealand cement collective has built a 50,000 tonne-a-year clinking grinding facility in Tauranga which recently began production.
The collective, which distributes mainly to its own Readymix concrete operations, is importing and selling clinker - a key component of cement - at a discount of between 10 and 20 per cent to locally made product.
"With the New Zealand dollar remaining strong, the threat of imports remains a prominent risk for Fletcher Building," said JPMorgan analyst Jason Steed.
While the new entrant's capacity represents a small portion of the New Zealand clinker market, which measures just over one million tonnes a year, it is expected to put pressure on the margins of Fletcher Building's concrete divisions Firth Industries, Golden Bay Cement and Winston Aggregates.
Clinker is not the only example of import competition for the company, however.
German conglomerate Knauf, which bought the Australian gypsum operations of Lafarge for A$164.4 million (NZ$205m) in 2011, has begun importing insulation into New Zealand. Knauf is also said to be shipping excess insulation from its Californian operations to Queensland and then across the Tasman.
And now it appears it has become government policy to facilitate increased competition with a dominating Fletcher Building.
Last week, Knauf was given a chunk of a $40m plasterboard supply deal for the Christchurch rebuild with Economic Development Minister Steven Joyce welcoming the arrival of a global building supplies giant into the market.
Knauf was awarded the contract alongside Fletcher Building subsidiary Winstone Wallboards.
"The introduction of Knauf into the New Zealand market will not only save the Government up to 6 per cent in plasterboard system costs for the residential rebuild, it also has the potential to provide benefits to New Zealanders over the longer term," Joyce said.
"Having Knauf set up shop in New Zealand will see increased industry competition that will provide consumers with more choice and could potentially drive down prices.
"Additionally, if Knauf is successful in penetrating the market, the savings could even be higher."
The contracts cover plasterboard and associated fasteners, adhesives, and jointing compounds being used in the Earthquake Commission and Southern Response Earthquake Services Limited reconstruction programmes.
The two companies were selected over seven other bids.
Last April, Knauf Insulation's general manager for Australia and New Zealand, Stuart Dunbar, said his company was selling its insulation for half the price Fletcher was charging.
"The cost of building a house in New Zealand is among the highest in the world because components to make houses are more expensive," he said.
"With companies in a monopoly or duopoly, consumers tend to pay higher prices and that's happening in the New Zealand market."
Around the same time, former Fletcher Building chief executive Jonathan Ling told analysts the company was taking the threats "very seriously".
One sign of the heightened competition came in August when it emerged Fletcher Building subsidiary Tasman Insulation was suing Knauf for allegedly violating its trademark on the term "Batts". Knauf's lawyers will argue the term has become generic in what is expected to be a test case when it is heard in September.
The increased competition comes when the New Zealand housing market is showing signs of a sustained recovery. New Zealand housing consents fell from more than 25,000 in November 2007 to about 14,000 in November 2011 but gradually increased to about 16,000 in November 2012.
- Sunday Star Times