April 5 - Fitch Ratings says that recovery prospects for mature markets, particularly the US, and the profitability trend in emerging markets, were the key themes in the agency's recent building materials tour. Fitch believes that the outlook for mature markets remains difficult for 2012. In particular, under its conservative assumption Fitch does not anticipate any recovery in the US cement market in 2012, despite most cement producers being confident of passing price hikes and improving profitability. However, Fitch notes that for most of the Western European cement producers, the US represents a relatively low share of consolidated EBITDA. Thus, a moderate improvement in the North American market situation would be rating neutral. A strong recovery in the US market, leading to a solid profitability improvement, could be rating positive, but Fitch considers this scenario unlikely in the current macroeconomic situation. Similarly, Fitch does not anticipate a significant improvement in the outlook in Europe, where a weak recovery in Northern countries should be counterbalanced by a still significant decline in Southern markets. Major European cement producers Holcim Ltd ('BBB'/Stable), Lafarge SA ('BB+'/Stable) and HeidelbergCement AG ('BB+'/Stable) face margin pressure in emerging countries, due to on-going high cost inflation. In particular, energy cost increases will remain an issue in 2012, although Fitch expects cost inflation to be weaker in 2012 than in 2011. In addition, overcapacity and strong competition in some regions, namely India and Middle East, could prevent producers from increasing prices at the same pace as cost inflation and therefore squeezing profitability. Investors were particularly interested in M&A prospects in the sector, with Holcim, Compagnie de Saint-Gobain ('BBB+'/Stable), and CRH Plc ('BBB'/Stable) considered to be potential buyers of assets. Fitch believes that all the rated issuers will maintain a prudent stance toward acquisitions and will continue in their current tight financial and leverage discipline. In the agency's view, some issuers, such as CRH and Saint Gobain, will continue in their current policy of minor acquisitions, aimed at optimizing the assets portfolio. However, these acquisitions have limited impact on credit metrics. By contrast, Fitch believes Lafarge will continue in its programme of non-core assets disposals with the aim of reducing leverage. Investors have also raised the question of whether HeidelbergCement and Lafarge could return to an investment grade rating. In Fitch's view, the business profile of both companies, in terms of market positioning and geographical diversification, is still compatible with an investment grade rating. The current rating is however constrained by the high leverage and debt reduction is therefore key for a potential positive rating action. However, given the current market outlook, Fitch does not expect credit metrics to improve significantly in 2012 for the two companies. A potential rating upgrade is therefore subject to a more solid recovery in 2013 in mature markets, on which however visibility currently remains poor, and to the ability of the companies in preserving profitability in emerging countries. As for Lafarge, Fitch believes that the successful execution of the disposal plan is also a key factor for deleveraging and improving credit metrics. Fitch's EMEA building materials investor round tables and one-to-one meetings took place in late March in London, Paris, Frankfurt and Munich. Additional information is available at www.fitchratings.com.