Concrete Batch Plants & Equipment
COVID-19 INDUSTRY BRIEF
EFFECTS OF THE CORONAVIRUS ON THE Concrete Batch Plants & Equipment INDUSTRY March 30, 2020
- Market Dynamics: The primary external factor affecting concrete batch plants and equipment is commercial construction and highway spending, with steel prices also having a material impact.
- COVID-19 Impacts: As of March 25, 2020, construction had been considered an essential service in roughly 45 of 50 states, but labor, travel, and supply issues have slowed activity in the sector. A survey released by the Associated General Contractors of America on March 22, 2020, in response to the COVID-19 outbreak noted that 28 percent of member firms in the United States had already halted or delayed work on projects due to COVID-19, with a further 11 percent of respondents noting possible delays in jobs scheduled to start a month or more out. The cause of the delays was related to a shortage of government inspectors (20 percent), lack of job supplies and equipment including personal protective equipment (16 percent), and labor shortages (11 percent), among other factors. An increase in the number of delayed projects was expected in April.
- Valuation Outlook: From a valuation perspective, the impact on batch plants and related equipment will depend on how the construction marketplace weathers the current crisis in the medium term. In the short term, the market would likely be uncertain. However, construction fundamentals and demand for batch plants will likely be stable in the aftermath of the crisis, as there is an expectation that there will be a quick snapback in this industry in all regions except the oil patch once the COVID-19 pandemic passes. In addition, it is possible that a long-awaited infrastructure bill may be part of the multiple stimulus packages being considered in Congress to alleviate the economic impacts of the crisis, which if passed would likely have a positive impact on secondary equipment market fundamentals.
Date August 2019
- Growth and stability in the overall economy should help to further construction growth, particularly on the commercial side, which will have a positive influence on equipment values
- Infrastructure investment should continue to grow at an uneven pace due to questions over additional federal infrastructure spending bills and hurdles at the local level
- A cooling effect may arise out of questions regarding how the Federal Reserve Board will act on interest rates in the next six to twelve months given the current macro-economic effect of tariffs and other geopolitical issues
By the numbers
Residential permits down, highway and street construction spending up: Concrete has a wide variety of commercial applications including roads, parking lots, parking garages, sidewalks, and building construction. A significant portion of construction funding comes from the federal government. At the end of 2015, President Barack Obama signed the Fixing America’s Surface Transportation (FAST) Act, a five-year, $305 billion highway-improvement law demonstrating a longer-term investment in infrastructure. The legislation provided state and local governments with more confidence to plan major projects. Prior to its passage, Congress had not passed more than a two-year transportation funding bill since 2005. Despite negative growth in the first two months of 2018, highway and street construction spending has trended up since March 2018. For the rolling 12 months ended June 2019, total highway and street construction spending was up over $100 million, or 9.3 percent, over last year. To the extent that this trend continues, the industry should benefit; however, infrastructure investment is expected to grow at an uneven pace due to questions over additional federal infrastructure spending bills and hurdles at the local level.
In terms of residential construction, concrete is used in a variety of applications including foundations, basements, patios, and driveways. As with the projections for residential and road projects, the projections for housing, while generally positive for the next five years, will experience some volatility in the near term. In the most recent Census Bureau reporting, total new private housing unit starts decreased slightly at 0.9 percent from May to June 2019, but increased 6.8 percent year-over-year for June 2019. Conversely, the number of privately-owned housing units authorized by building permits decreased 6.6 percent year-over-year for June 2019. Seasonally adjusted units currently under construction and total units completed increased 1.2 percent and decreased 3.7 percent, respectively, for the same period, indicating a still volatile market.
The annualized growth in the residential construction market, which has been the largest positive industry driver, reached 3.9% over the past five years; however, the non-residential construction market is expected to have a much lower growth rate of just 0.3% based on research firm IBISWorld projections.
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. Stationary 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, hoppers, weight 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- to 12-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 occuring 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 of these forms can be quite valuable. For example, concrete pipe, which is used in applications such as waste management systems, storm water management, drainage, telecommunications cabling, and electrical cabling 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.
Conversely, 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.