Concrete Batch Plants
Date August 2016
By the numbers
- Stable growth in residential and commercial construction has improved demand for portable batch plants
- Shares of Cemex, the largest ready-mix producer in the U.S., rose nearly 18 percent during the first half of 2016
- Industry revenues: $28.1 billion (ready-mix concrete manufacturing)
- Major types of batch plants: Stationery, Portable
- Significant manufacturers: CON-E-CO, Vince Hagan Company, RexCon LLC, Cemco
- Recent sales trends: Revenue from the production and distribution of concrete is expected to grow at an annualized rate of 5.7 percent in the five years to 2016 (IBISWorld)
Residential and road projects on the rise: Concrete has a wide variety of commercial applications including roads, parking lots, parking garages, sidewalks and in the construction of high and low rise buildings. A significant portion of funding comes from the federal government. At the end of 2015, President Obama signed a five-year, $305 billion highway bill demonstrating a longer term investment in infrastructure. The bill provided state and local governments more confidence to plan major projects. Prior to that, Congress had not passed more than a two-year transportation funding bill since 2005. Highway and street spending were off to a robust start in 2016, trending well above year-ago levels, but fell behind in May. Total nonresidential construction spending on the whole was up for the first five months of the year as well.
Concrete is also used in a variety of residential applications including foundations, basements, patios, driveways and even to build homes themselves. Total housing starts are up for the first five months of the year. April saw a small decline in year-over-year change, but numbers rebounded in May. Near historic low interest rates continue to create favorable conditions for home building; in turn, concrete demand from the residential sector is likely to remain steady.
Portable batch plants most marketable: Batch plants combine various ingredients to form concrete. Dry plants measure, mix and load dry ingredients such as sand, crushed rocks, fly ash and cement onto mixer trucks where water is added and concrete is made en route to a job site. This approach is common when smaller quantities are needed or job sites are further away. Wet plants have a central mixer where wet and dry ingredients are combined on site, creating a more consistent texture. These plants are preferred for larger projects within close proximity.
Batch plants can be stationery or portable. Stationery plants typically have extensive mezzanine steel supports and are difficult to move. Those in use are typically older plants from before portable plants gained popularity. There is not a wide market for stationery plants, and they often are sold only for components that are easy to remove. The right of abandonment for liquidation sales is always necessary. Mixers are typically the most valuable machinery, but other common components include silos, bins, and hoppers, weigh scales and boilers. Portable batch plants, which are erected and taken down relatively quickly and are pulled behind a tractor, are widely salable.
Batch plants are typically sized in cubic yards per batch. The most desirable plants fill the 10 to12 cubic yard capacity of a truck in a single batch. Smaller capacity plants are less marketable. Operators may also own fleets of trucks. Mixer trucks are commonly transacted in the marketplace and can be good collateral depending upon age, mileage, capacity, and condition.
Regional considerations: Seasonality and geography factor into the marketability of batch plants. A longer construction season in warmer parts of the country creates more stable demand in those regions. Elsewhere, demand is seasonal with major purchasing of equipment happening in late winter and early spring after builders have contracts lined up. Because of these factors, lenders may consider a more conservative advance rate on equipment located in the Midwest or Northeast.
Forms may add value: Pre-cast concrete manufacturers fill reusable forms with concrete to make shapes such as slabs, beams, girders, walls and pipe. Some can be quite valuable. For example, concrete pipe, which is used in applications such as waste management systems, storm water management, drainage, telecommunications cabling, electrical cabling, and waste water management, is made with metal pipe forms. Standard size pipe forms are commonly transacted on the secondary equipment marketplace. Lenders may overlook these forms as a potential source of value. On the other hand, casting beds, which are built into the ground and are used to make large products such as beams, typically have no removal value. Appraising these assets on an “in-place” basis will likely result in a higher valuation.