Monday, June 30, 2008

Four trends to watch


FMI, management consultants and investment bankers to the construction industry, identifies four major themes the industry will face in the coming decade:

1. Significant changes in the funding for infrastructure. Current funding will not meet expected needs. The Highway Transit Fund will have a $4.3B deficit by FY 2009, resulting in a $27.3B highway program. The primary funding vehicle (gas tax) is losing purchasing power. Highway construction materials prices are currently up 43% from 2003 and total highway costs, labor and overhead are up 27%.

2. Demand driven by demographics. Growth and congestion are becoming issues of national priority. The cost of travel delays and wasted fuel is currently estimated at more than $67 billion annually. System capacity is considered imperative to remain competitive in the global marketplace – China and India are making tremendous investment in their transportation infrastructure.

3. Competition for scarce resources creating “hyper-competitive” markets. Topping the list of scarce resources is labor shortages. The pool of skilled labor/field management/project managers is shrinking. This is the top issue identified by contractors. In 2008 alone, there were 6 million more jobs than employees and this number is expected to exceed 10 million by 2012. Basic materials such as cement, aggregates, hot mixed asphalt and ready mixed concrete are becoming scarce commodities as well.

4. Technology infiltrating construction in ways that matter to contractors. How will this look? Technology will play a larger role in mitigating workforce shortages, attracting “techno-wonks” to the industry, solving interoperability, construction conflicts, flattening hierarchical organization and changing management from art to science. Your comment?

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Friday, June 27, 2008

Highway Trust Fund woes


According to NSSGA, the House of Representatives passed legislation (H.R. 6327) on June 24 that provides a three-month extension of taxes and spending authority for Federal Aviation Administration (FAA) programs, but dropped from the bill a provision that would have provided an $8 billion fix to restore solvency to the Highway Trust Fund's (HTF). The $8 billion in revenue is needed to ensure that there will not be a 34 percent or higher reduction in highway funds to states below SAFETEA-LU's authorized funding levels in FY 2009 and a loss of 380,000 jobs.

"We are extremely disappointed that Congress did not seize the opportunity to ensure solvency of the Highway Trust Fund," said NSSGA Chairman Steve Sloan, president and CEO of Midwest Minerals, Inc. "We encourage, in fact urge, ourmembers to contact their legislators during the July 4th congressional recess and ask them to take action on the HTF funding deficit or risk the delay, postponement, or cancellation of needed highway projects and the accompanying job losses."

The HTF provision was dropped from the House bill following opposition of Rep. Jerry Lewis (Calif.), the senior Republican on the House Appropriations Committee, and Rep. Paul Ryan (Wis.), the senior Republican on the House Budget Committee. They announced their opposition to the HTF fix in a joint press release which quoted Rep. Lewis as saying, "This bill just exacerbates our transportation funding problem by using an $8 billion taxpayer-funded band-aid on the terminally ill Highway Trust Fund. We need real reform and practical solutions, not more buck passing."

A final attempt in the Senate to pass the FAA extension by unanimous consent with the HTF fix failed when Sen. Jim DeMint (R-S.C.) continued to object.

NSSGA is asking its members to continue to contact their senators and members of the House to restore solvency to the HTF. Your comment?

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Wednesday, June 25, 2008

FasterBetterSafer


The Association of Equipment Manufacturers (AEM) has been a strong advocate for infrastructure investment, and the organization has announced its support for the FasterBetterSafer campaign of the Americans for Transportation Mobility coalition. The campaign is intended to be a wake-up alarm to urge Congress and the next Administration to increase federal investment in the nation’s aging and overburdened transportation system.

“The business community must intensify its efforts now to educate elected officials on critical transportation needs as Congress prepares to reauthorize the surface transportation program next year,” said Dennis J. Slater, AEM President. “Infrastructure improvement is a top priority for our member companies and our industry. We are keenly aware of the investment that is taking place in other regions of the world, and there is widespread alarm at the lack of adequate investment to modernize infrastructure here in the United States.”

AEM is prepared to commit resources to support the FasterBetterSafer campaign. “The future economic health of our nation depends on a strong transportation network,” Slater noted. Your comment?

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Friday, June 20, 2008

Flooding may impact stone producers



Longbow Research mining and construction-materials analyst David MacGregor lowered his earnings estimates on Martin Marietta Materials and Vulcan Materials. Mr. MacGregor observed, “Both have significant operations near [midwestern] rivers, with most of VMC’s footprint in the Lower Mississippi region. MLM’s footprint near potential flood sites in Iowa is particularly concerning. While VMC appears to have significantly fewer quarries directly impacted by the flooding than MLM, we anticipate potential freight bottlenecks down the Mississippi will have a negative impact on VMC’s distribution network.”

Vulcan Materials Co.: Reducing Estimates on Weather and Flood Concerns

• We are reducing our estimates for VMC to account for inclement weather and flooding in the Midwest.
• While VMC has minimal operations in the region – mainly limited to southern Wisconsin and Chicago – we anticipate transportation bottlenecks could impact rail and barge transport downstream near the Gulf States.
• We are revising our below consensus estimates to $1.13 (-$0.04) for 2Q08 and $3.46 (-$0.06) for FY08. Our FY09E remains at $4.60.
• We continue to rate VMC a BUY with a $98 price target on a favorable view of VMC’s leading position in the aggregates industry, one which we continue to believe will enjoy attractive fundamentals going forward – particularly in key markets of California and Florida.

Martin Marietta Materials: Reducing Estimates on Weather and Flood Concerns

• We are revising our 2Q08 Street-low estimates to $1.78 (-$0.15) and to $6.25 (-$0.20) for FY08. Our FY09 EPS estimate remains at $7.10. We are concerned about the near-term impact of flooding and wet weather during the quarter in a number of MLM's Midwestern markets.
• Our channel checks in Iowa indicated a number of aggregates operators without power for over a week. While MLM’s extensive network throughout the state will afford the Company opportunities to shift production to non-impacted facilities, increased transportation bottlenecks should increase freight costs. We note that major bottlenecks typically disrupt the entire rail network and estimate, based upon reports from various railroads, that roughly 20 percent of the rail network could experience delays.
• We estimate approximately 12-14 percent of MLM’s shipments come from Iowa, Wisconsin and Indiana. While not all facilities are currently at risk for flood-related closures, we anticipate the near-term impact could extend to rail and barge bottlenecks which could then impact operations along MLM’s long-haul distribution network.
• In the long term, MLM could benefit from a recovery in operations caused by the flooding. MLM is the largest producer of railroad ballast in the country, and 10 percent of the company’s business serves nontraditional markets such as ballast and agricultural lime for the Farm Belt. Together with levee reconstruction and the rebuilding of homes and businesses, MLM is well situated to participate in recovery efforts, although the timing and potential positive at this point is unclear.
• While we like the long-term earnings power associated with attractive industry fundamentals and the company's capacity expansion initiatives, near-term concerns regarding FY08-FY09 demand and rising energy costs continue to weigh on our opinion. As a result, we remain neutral on MLM. Your comment?

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Tuesday, June 17, 2008

Mid-Year Report


McGraw-Hill Construction, part of The McGraw-Hill Companies, has released its annual Construction Outlook Midyear Update, providing insight into the performance of the construction industry through the end of 2008. The major findings of the forecast, authored by Robert Murray, vice president of economic affairs for McGraw-Hill Construction, include:
* New construction starts for 2008 are estimated at $558.5 billion, down 11 percent.
* Single-family housing continues to weaken, with 2008 declines of 28 percent in dollar volume and 31 percent in dwelling units, steeper than what occurred in 2007. The single family market is being adversely affected by falling home prices, mounting inventories, and tight lending conditions.
* Commercial building witnessed further expansion in 2006 and 2007, which carried over into the first quarter of 2008. However, the slower economy and tighter lending conditions are now causing projects to be deferred, and the loss of momentum will take firmer hold as the year proceeds. For 2008, commercial building will retreat 8 percent in dollar volume and 16 peercent in sq. ft. Stores and warehouses are the most vulnerable to decline in the near term, while lesser reductions are anticipated for hotels and office buildings.
* Institutional building in 2008 continues to see a strong amount of educational structures reach groundbreaking, helped in particular by more expansion for colleges and universities. The 2008 forecast for institutional building calls for a 2 percent gain in dollar volume, although square footage will settle back 3 percent.
* Public works construction in 2008 will also rise 2 percent in dollars. The push will come from greater federal funding for transportation projects in fiscal 2008, combined with an elevated focus on infrastructure repair and maintenance. Tighter fiscal conditions at both the federal and state levels of government are an emerging concern for the public works sector, but any restraint on construction is more likely to be experienced next year. Your comment?

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Thursday, June 12, 2008

Construction outlook mixed


According to FMI's most-recent Construction Outlook report, economic indicators are somewhat mixed. Housing, credit tightening, consumer spending and inflation continue to hinder the economy. While the general economy begins to stabilize somewhat, nonresidential construction is expected to falter late in 2008 and into 2009.

“The Fed continues cutting rates to stimulate the economy, but inflation is becoming a threat and a pause is likely,” said Heather Jones, construction economist for FMI’s Research Services.

The Construction Outlook also reports that water is an important concern in our nation. Aging infrastructure, population growth and net migration are fueling demand for new and replacement construction especially in the Sunbelt and Rustbelt regions. Water supply and sewage and waste disposal construction will increase by 2 percent and 3 percent in 2008 and by 2 percent and 4 percent in 2009 despite a decrease in state and federal revenues.

Total construction in 2008 and 2009 will be down 4 percent and 1 percent based upon large decreases in residential construction that will not be offset by gains in nonresidential and nonbuilding construction. The decline in 2009 will be driven by a decrease in nonresidential construction for the first time since 2003. Your Comment?

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Monday, June 09, 2008

Fatality #10


According to MSHA, a 52-year-old truck driver with two years experience was fatally injured at a surface crushed-stone mine. The victim backed a truck to the edge of a stockpile to dump. The truck went over a cliff and fell approximately 30 ft. to the floor below. It was the 10th Metal/Nonmetal fatality of the year. Your comment?

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Wednesday, June 04, 2008

Heavy construction update


According to Reed Construction Data, spending in the heavy construction market is stalled at the September 2007 level, after adjusting for inflation. This is a combination of shortages in many highway trust funds, and a cut back on power facility construction in anticipation of slower expansion of electricity demand during the recession period. Tighter public budgets and the end to more than three years of rising corporate profits also contribute to the stall.

Commercial developers are slowing some ongoing projects and delaying some new project starts until they are more certain that they can lease them for an acceptable rate of return. No significant drop in construction activity is expected because the commercial market is not overbuilt as it was at the onset of recent recessions. A short, shallow recession will not prevent resumed growth later this year.

The institutional building market is stalled at the September 2007 level as the result of very cautious spending budgets adopted by most states for the current fiscal year after three years of booming public spending growth. The budgets are too grim for the recession scenario in the forecast so some relaxation of spending restraints is expected this spring. Your comment?

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Monday, June 02, 2008

Production dips again


U.S. aggregates production has taken another dive. According to the U.S. Geological Survey, an estimated 414 metric tons (Mt) of total aggregates was produced and shipped for consumption in the United States in the first quarter of 2008, a decrease of 16 percent compared with that of the same period of 2007. An estimated 248 million Mt of crushed stone was produced and shipped for consumption in the United States in the first quarter of 2008, a decrease of 14 percent compared with that of the same period of 2007. The estimated U.S. output of construction sand and gravel produced and shipped for consumption in the first quarter of 2008 was 166 Mt, a decrease of 18 percent compared with that of the same period of 2007. Your comment?

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