JOE GRECO JR. SIGHS when asked about the state of the concrete industry. The president of Greco Bros. Ready Mix Concrete in Ozone Park, N.Y., chuckles and says in a thick New York accent, “Oh boy, oh boy. I don't know where it's headed,” his friendly timbre showing only a trace of distress.
The residential sector has been the focus of the Greco Brothers' business since the family-owned company started in 1958, but the past year has forced the Grecos to concentrate elsewhere. As the housing market collapsed, the banks stopped investing money in new residential construction. Greco Bros.' primary source of revenue, residential high rises in New York City, all but disappeared.
“The commercial and residential business has slowed tremendously, but the government work has picked up,” Greco says.
That has helped his company avoid layoffs, an issue every producer in the nation is wrestling with. “I've stopped capital expenditures,” he says. “I'm trying not to lay anyone off.”
Last year was not actually a down year for Greco Bros. Growth slowed considerably, but it wasn't until the first half of 2009 that the company, and the industry as a whole, began to feel the full force of the housing collapse and the big banks' retreat back into their safes.
It's no secret: The TCP100, the concrete industry's most complete listing of the top 100 North American producers (page 30) shows 2008 was an awful year for producers and the U.S. construction industry. According to many producers and analysts, this year and the first half of 2010 will be even worse before the recovery.
Housing, commercial ills
Many believe the sun will shine again by next summer, so don't expect to see an immediate recovery. With commercial projects in a tailspin, and U.S. housing turning from a seller's market to a fleer's market, more tough times and tough choices are coming for producers.
Jim Braselton, senior vice president of marketing and sales for cement at Lafarge North America, doesn't see a turnaround until the second half of 2010. And economist Armine Thompson believes that while the housing market will hit bottom this year, don't expect a protracted recovery until 2011. Thompson analyzes concrete pricing for IHS Global Insight, a multinational economic forecasting firm.
Thompson doesn't expect housing starts to hit 1 million until 2011. Global Insight predicts housing starts will total 560,000 this year, and 870,000 in 2010. Usually, 1 million starts is the threshold of a healthy or struggling housing market.
Also, the record number of U.S. home foreclosures in 2009 means that even as home buying recovers, a glut of foreclosed homes on the market will thwart new home construction even further. An added wrinkle: Unemployment approaching and possibly surpassing 10% will cause still more homeowners to foreclose on their homes in the next several months, adding more inventory to the market.
To make matters worse, the bottom hasn't fallen out of the commercial market yet. “The nonresidential construction market is going to be much weaker in 2010 than it was this year,” Thompson says. Hotels, shopping centers, and office buildings all have excess capacity. Few new ones will be built in the near future.
Gary Graziano, the vice president of marketing for High Concrete, a pre-cast producer in Denver, Pa., agrees with Thompson. “Last year was a record sales year for us. This year, the opportunities are significantly reduced,” says Graziano, who expects sales in 2010 to be 5% to 20% lower than 2009.
Glimmers of light
Not all of the news is bad. A July 2009 study commissioned by BUILDER, TCP's sister magazine, found Americans are much more positive about their own financial situation than they are about the nation's and are much more confident about buying a new home. Of the 686 people polled in BUILDER's online survey, 59% said that it is an “okay” or a “good” time to buy a new home.
Indeed, by the middle of summer, home prices had fallen enough to lure some buyers back into the market. Home prices even showed an uptick in eight major cities, leading many to believe housing had finally bottomed.
On the commercial side, producers are eager to see benefits from the $787 billion American Recovery and Reinvestment Act, or the stimulus bill, Congress passed early this year. They hope public works projects can help fill the gap created by the faltering housing and commercial markets.
While very little of the infrastructure spending allotted so far has been concrete-intensive, many hope that changes in the near future. Some have criticized the plan for spending too little money this year when it is needed the most to ease rising unemployment.
Consolidation on hold
Another fallout from the economy: The giants of concrete have ceased consolidating. Vulcan Materials' acquisition of Florida Rock in 2007 was the last major North American acquisition by any producer with revenue in 2008 over $2 billion. Germany's Heidelberg Cement bought Hanson of the United Kingdom, also in 2007.
Overall, TCP estimates revenue for the top 100 producers fell 7% from 2007 to 2008. But some suffered more. For example, Cemex has been hurt especially bad from the poor housing market in Florida. Its revenue in the fourth quarter 2008 fell 23%.
Analysts believe that concrete pricing should remain relatively consistent throughout the slowdown because global cement prices have stayed level.
Last year, the producer price index for concrete rose by 2.6%. Global Insight predicts it will grow by 2.2% in 2009 before a 0.6% drop in 2010. The U.S. Bureau of Labor and Statistics generates the PPI to track the average change in selling prices received by domestic producers for their product.
“There is some stability in the concrete market because producers have been aggressive in production cuts,” says Thompson.
High Concrete's Graziano believes residential construction will recover faster than commercial business. “It will be 2011 before we start to see a gradual climb out of this ditch,” he says and laughs. “It's not a trough, it's a ditch.”
The TCP100 companies are ranked by their total North American revenue for the previous year (2008). Our goal is to show the large scope of the companies involved in concrete production. Producers are listed by their parent company's name and total revenue.
Revenue figures were acquired through questionnaires, telephone, and e-mail. Revenue for companies that did not provide information was obtained through annual reports, press releases, media sources, and the databases of Hoovers, Manta and the Gale Business, and Company Resource Center.
Visit www.theconcreteproducer.com for the producers we surveyed that did not make it into the TCP100.