This summer, chief economists from major industry associations offered a high-level analysis of the U.S. construction industry. Their bottom line: It’s getting better, but slowly.
According to David Crowe, economist with the National Association of Home Builders, home prices have risen 10% in 2013, and he expects 673,000 new homes to be built by the end of this year. Construction of single-family homes has bounced “halfway back;” multifamily is “almost back,” Crowe says.
Kermit Baker, with the American Institute of Architects, notes the group’s Architecture Billings Index, which leads construction activity by nine to 12 months, is “as healthy as it has been in years.”
Anirban Basu, of the Associated Builders & Contractors, says the construction industry has added 189,000 new jobs in the past year (nearly 2 million below December 2007). “No industry was hit as hard as construction,” he says. “Conditions are ripe for recovery, but it will be gradual.”
In his September forecast, Ed Sullivan, the PCA’s famously conservative chief economist, predicted strong construction growth in 2014 with the release of pent-up demand for construction—particularly housing—during the recession.
Concrete producers echoed these experts’ opinions in our exclusive 2013 TCP Survey. Readers shared the challenges they have faced in every region of North America, but also expressed a sense of optimism about what’s to come.
When asked what changes they expect for the coming year, producers’ answers included: better volume and better prices, possible expansion, modest growth for ready-mix in the second half of 2013 and into 2014, increased demand, and increased production. “We anticipate a much more profitable year with cutting costs and looking for efficiencies in operations with our smaller size,” said Rick Metheny of Metheny Concrete Products, a producer of ready-mix, precast, and prestressed products in Oklahoma City.
Some are more cautious, expecting markets to remain the same or flatten. Ray Cantelli, of Cantelli Block & Brick in Huron, Ohio, sums up the uncertainty: “Better economy?”
Producers have struggled through slow markets ranging from commercial (in Indiana), mixed-use (New York), and industrial (Kentucky). This year, U.S. producers anticipate growth in single-family and high-rise residential construction, as well as infrastructure.
In many areas, concrete prices reflect the strengthening market. A vast majority of respondents (79%) say their prices have increased since 2012, and almost as many (75%) expect they will rise again in 2014. Only 18% have kept prices the same.
Precast: A mixed report
The National Precast Concrete Association’s (NPCA) August Benchmarking Report shows, precast sales were up 2% in 2012—similar to 2000. “Growth in the precast sector typically trails the rest of the construction industry by about a year,” says Ty Gable, NPCA president. “Based on history and anecdotal evidence from the first half of 2013, we are confident the upward trend is continuing. But we won’t see sales volumes that approach the peak years of 2006 and 2007 any time soon.”
Survey Results
Precasters who responded to the TCP survey shared Gable’s optimism. Although operations have become leaner, most say revenues should be higher this year than last. But the outlook depends on your location, cautions Scott Szwejbka, senior vice president of Hanson Pipe & Precast based in Irving, Texas.
For example, he says, large infrastructure projects are underway in Texas and California, while markets such as the Midwest, Northeast, and Southeast are flat or shrinking.
Szwejbka sees the residential market as the key driver of precast growth in the U.S. “Much of the demand for precast drainage products involves subdivisions and surrounding commercial growth,” he says. “There are signs of life, but whether this is a short uptick or a move to steady improvement is still unclear.”
Hanson’s parent company, German-owned HeidelbergCement, reported a significant drop in precast sales for 2012, and has stopped producing paving block in order to “reduce liabilities.”
Other precast producers had mixed results in 2012 as well. Oldcastle’s Building Products group saw growth in the energy and environment-related markets, while commercial and infrastructure construction were subdued. The producer’s traditional precast product sales were 19% higher than 2011.
U.S. Concrete, based in Euless, Texas, sold six of its seven precast plants in 2012, to focus on ready-mix and aggregates. (The company did not report financial results for this segment.)
“The downturn taught the industry that too much reliance on any one sector can cause difficulties,” says Szwejbka.
Creating new opportunities
To keep the trucks running, concrete producers have become leaner, smarter, and more creative. Marcia Salsbury of J.J. Kennedy Inc. in Fombell, Pa., says her company relies on “out-of-the-box thinking to stay competitive without lowering prices.”
Some have focused on internal improvements. “The recession helped us hone our business skills. We had to slice everything to maintain the company,” says Mitch Jorgensen of Molalla Redi-Mix & Rock Products in Molalla, Ore.
Survey Map
Converting pavements from asphalt to concrete, although not a new concept, is gaining ground in many areas now that material prices have essentially leveled. Silvi Group Companies, based in Fairless Hills, Pa., works with contractors to “aggressively change parking areas from asphalt to concrete;” they’ve already converted 1 million square feet this year.
Recently, Buzzi Unicem USA supplied cement for a school parking lot in Livingston County, Ill., that was originally planned as asphalt with an alternate bid for concrete in high-traffic areas. The contractor bid the entire job as concrete, resulting in a nearly 2800-yard project and a lasting investment for the school district. (For the full story and photos, visit www.theconcreteproducer.com.)
Further upstate, Bridgeview, Ill.-based Prairie Material (owned by Brazilian Votorantim Cement) is educating state and local public officials about concrete pavement. “By reaching out to decision-makers responsible for city streets, tollways, and airports, we’re creating a niche market for concrete that didn’t exist before,” says Theron Tobolski, Prairie’s marketing product specialist.
Tobolski asks engineers to consider alternative bids such as whitetopping, roller-compacted concrete (RCC), or pervious concrete for their paving projects. “Sometimes you have to create a market for these products,” he says. “You can’t wait for jobs to come to you.
In the process, Prairie has formed some unusual partnerships with asphalt contractors who place RCC with asphalt paving equipment and add a thin asphalt overlay, instead of full-depth asphalt.
Prairie is helping the Illinois DOT identify a test project—a requirement for adding roller-compacted concrete to state paving specifications. This will open the door for municipalities to get federal funding for RCC projects: a big step forward for concrete paving.
“In this economy, you have to try new things,” says Tobolski. “You can’t just do what you did before.”
Spending money to make money
Producers are projecting higher profits, and are spending accordingly.
According to the most recent U.S. Census Bureau data, the U.S. construction industry spent $21.8 billion on capital expenditures in 2011, up from almost $18 billion in 2010.
For the first time in years, TCP readers report their capital expenditures will be higher than the previous year. Eighty-six percent expect to spend more or the same amount on fleets and plant equipment in 2013; 13% will spend less. That’s a complete reversal from recent years.“To survive the economic downturn, like most companies, we didn’t hire as often, watched our overtime, and cut back on our equipment expenses,” says John Tesiero of Cranesville Block Co. of Amsterdam, N.Y. But this year, the producer will invest significantly in new ready-mix trucks and aggregate equipment.Trucks are the most popular item on producers’ lists, followed by plant equipment and general purpose vehicles. Some will improve or upgrade plants and electrical/software systems; others will invest in material handling and aggregate equipment.
