Market expectations for the months ahead

The following transcripts were edited from two concurrent discussions at this year’s Pit & Quarry Roundtable & Conference.

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P&Q: Producers: What are your sales expectations for 2018 and beyond? Tell us about the dynamics at play in your state or region that will drive demand. Do you expect a drastic shift in demand compared with 2017, or a continuation of last year’s demand? Manufacturers: What are your expectations in terms of aggregate production for 2018, and how are you forecasting equipment sales to the aggregate industry to be?

Dan Johnson (Anderson Columbia): It’s just been a real rough start because of the cold weather in Florida and Texas. I grew up in Wisconsin where they’re used to the cold and they don’t plan on doing a lot of work in January or February. But we plan on doing work, and you can’t put asphalt down unless it’s 40 degrees and rising. Our volumes in January are going to hurt.

It’s kind of like the storms last year. You lose a big chunk. It’s hard to make up for it because you’ve just got things scheduled and things move at a certain pace.

Karen Hubacz-Kiley (Bond Construction Corp.): Right now with the layout of our aggregates, we have multiple rock pits. So during the wintertime, when it’s warm enough to haul, we haul in raw materials to our main plant.

We do have some reserves, which we just kind of save at our main plant. So we’ll haul in all winter long in anticipation of being exceptionally busy, and then all I’ll need is one truck to keep your plant going. That’s our big thing over the winter along with anticipating price structure, whether it’s fuel and deciding if we want to buy more now with the pricing the way it is or wait. Once temperatures moderate a little bit, we’ll be doing upgrades or doing fixes before we’re ready to go.

Jarrod Felton (Superior Industries): We’ve forecasted this recovery. A lot of the industry experts have been talking about it for years.

Manufacturers are adding capacity. We did a bunch of product development in the last year and continue to unveil new products in 2018. We’ve added capacity across the board in crushing, washing, screening and conveying products. We’ve added capacity in all of those categories in anticipation of strong demands in 2018.

Matt Lepp (Van der Graaf): We’re the same way. We’re investing heavily in our manufacturing capabilities so we can build more motors and get them to the customer faster. We’re investing a lot more in our U.S. production facility, as well. So we’re pretty excited.

Oliver Nobels (Schurco Slurry): We’re ramping up, expecting 2018 to be up to the point where customers are saying ‘we needed that yesterday.’ I’m seeing our shelves are stocking more than they used to be. That’s hopefully going to continue in 2018.

Jeff Carlisle (Douglas Manufacturing): We are also anticipating growth. Everybody was talking about ConExpo-Con/Agg, so we’ve made sure that we keep stocking the shelf because the customer wants it yesterday.

We see frac sand coming up. Those guys really are here today, gone today. So you really want to jump on that when it’s hot. We make sure we’re keeping our stock levels up. We have hired new employees to keep up with the demand. Around the late second quarter we saw a pickup in sales, and it carried right through November, December. It’s carried already into 2018. There’s been no slowdown.

Jordan Russell (Belt Tech Industrial): We started ramping up inventory. We operate from the Midwest. The last 12 months, it’s been interesting to see a shift in thinking. People have more funds to do capital projects instead of just fixing something and maintaining it to get by. From what we’re hearing from our

customer base, that should continue into 2018.

Brad Hrbek (Weir Minerals): As a manufacturer, we saw a lot of business increase in 2017. The brownfield and greenfield bid opportunities were continuing to get higher. And that’s an indicator for us that everybody is looking to spend some money.

We spent time and effort to find and locate other manufacturers that can support us and some of the equipment that we need built, along with what we build ourselves in Mexico and the U.S. For 2018, we see a good increase in sales along with 2019.

P&Q: Do manufacturers have the manpower to be able to satisfy orders?

Carlisle: We’ve hired on probably four or five welders and other people

in the plant, and you’re constantly looking at your flow, making sure you keep up with that, putting on other shifts, running later. We’ve had to work some Saturdays. Now, we’re looking at putting a second shift in to keep up with demand. So you are having to hire people and trying to find good people – people who show up consistently.

George Reddin (FMI Capital Advisors): I think we may have two different issues and drivers going on here. From a producer side, especially if you were vertically integrated, in many markets due to weather, storms and different things, you enter 2018 with a good backlog. That’s a plus.

But funding really hasn’t changed. We’re not seeing a big impact with that. Many states are trying to do things, but we’re getting into a midterm election year so there’s concern that doesn’t happen.

On the producers’ side there is optimism. But I’m not sure more than backlog backs it. It’s not supported, necessarily, in many markets by funding.

Will Pierce (Schurco Slurry): Looking into the crystal ball a little bit for the year ahead, we expect a similar year to 2017 when we look beyond the [uncertainty] of federal dollars still hanging over everybody’s head. Private and commercial investment is going to drive a lot of that. Private companies are investing and growing. There’s regional growth. It’s mostly in the states that are putting state money in and investing heavily, like Texas, Florida and the manufacturing sectors where we’re starting to see regrowth, like Ohio, Indiana and Illinois.

John Garrison (Superior Industries): I think 2018 is going to have significant growth over 2017. There are potential risks with the growth coming back as fast as it has. Everybody’s kind of cut back – and not just manufacturers but producers and the suppliers of the manufacturers for things like bearings and gearboxes.

If there’s a big spike in demand as business picks back up, there might be a gap in product availability. We’re already seeing that a lot just because the demand has come back quicker than we expected.

I have a very positive outlook for 2018. If the growth continues, we might have a little bit of an issue keeping up with the demand. But that’s a better problem to have than what we had a few years ago.

Paul Ross (Douglas Manufacturing): We’ve been seeing that. I think it’s just the fact that we’ve all been through the cycles before and people are trying to adjust. Personnel availability is one significant issue the cost embodies. The question becomes how fast can we move it?

Pierce: We made the decision to double our bearings in total that we keep in stock because we’ve seen lead times on bearings that we used to be able to get in two weeks going up to 16 weeks. And then they tell us, ‘Well, we might have that scheduled for production in the second half of the year.’ Inventory availability is stretching out everywhere.

Alexander Kanaris (Van der Graaf): We said the same thing in our industry as well, just in the bearings schedule. We didn’t have a hard time getting bearings, but we’re manufacturing gears and the amount on the high-end products right now, the high-power drum motor that we provide just goes so high that our gear machines cannot keep up. We used to be able to get a gear hopper received with a delivery time of approximately 34 months. Now, our lead time is close to a year.

Gary Hirsch (Bramco-MPS): We’re adding in other segments besides aggregates. One of those segments is scrapping and recycling with equipment supply to that industry. We’ve already seen lead times stretching out into fall as far as getting the equipment. There are shortages that we’re seeing because the manufacturers can’t get the component parts. They seem to have the labor at the manufacturers we deal with, but it’s a matter of getting the component parts and instructions. We’re already seeing it in the scrapping and recycling products.

Dave Ciszczon (Polydeck): I think it’s going to be a great year. There’s so much optimism. In the last year I’m amazed how much you’ve heard the word ‘infrastructure.’ This is a really good sign overall.

One of the things right now is communication. I’m on the sales end, but we have to communicate. It is imperative that we communicate with our operations group. If we see only significant projects coming through, we need to get three months’ warning. We want to start getting things ordered and prepared.

That’s how busy things are, and I think it could easily get a lot busier. That’s why I use the word ‘avalanche.’ I really believe it’s going to be a great year and there could be a gap because of actual producing.

P&Q: What other opportunities are you looking at for 2018?

Pat Jacomet (Ohio Aggregates & Industrial Minerals Association): One of the things we’re working on right now is putting together a broad-based coalition to push for a user fee increase in Ohio. We’re envious of those states that have already taken that step. We do have a Republican general assembly with a heavy majority. Our big challenge is to change the perception of the user. Interestingly, the last time we increased the gas tax in Ohio was 2003, and we had the same situation with all Republicans statewide. And nobody lost their job. Everybody retained their seats and we were able to beef up the infrastructure in Ohio.

In Ohio, we’ve got potholes with their own zip code. They’ve actually shut done the outer belt around Columbus to repair a pothole that was eating cars and tires. Everybody was having trouble with alignments. That’s a bad thing. At the same time, it may accelerate this conversation. We really need to make that happen. We can’t depend on the feds to get this thing done anymore. We’re going to have to take the bull by the horns and make it happen.

Brian Hollrah (Alleyton Resource): In Texas, we’re still on the UTP (Unified Transportation Program) plan that’s $70 [billion] over 10 years. We’ve got [another] glue in the Grand Parkway in Houston that’s going to be 183 miles when it’s all said and done. They’re about 50 percent complete. But that is a massive project that keeps our economy going well.

Scott Alexander (ACG Materials): One of the segments we saw a lot of growth in in 2017 – and we expect more in in 2018 – is the energy side. Wind farms create demand for aggregates, and in our areas we’ve seen more than usual coming about.

On the oil and gas side, the fracking oil leaves a demand for the frac sand products. But a tremendous amount of material goes into roads and paths – not only in the oil and gas industry, but if you go out to West Texas and see the trucks traveling, it’s crazy out there.

They’re tearing up roads right and left. Fortunately, Texas has a lot of funding. So those roads are getting rebuilt right behind them. There’s a lot of highway work going on, as well as what’s happening in the oil and gas segment. So energy overall is quite a positive for our industry.

Ross Duff (Duff Quarry): We actually just started a solar array. And we have the topography or the land for wind turbines. At the federal level, a lot of the renewable energy is subsidized heavily. There is some uncertainty with these projects that would have enormous concrete and aggregate demand and if that funding will be there. We would like to see a go with this. It’s a lot of stone. But again, the energy is a big one.

James Cox (Cemex): Florida has always had – and will continue to have – a robust transportation [system] and a budget. The Fort Lauderdale airport expansion added an additional runway over a major highway. Also, there’s I-4. These are very good projects for our kind of industry – aggregates, ready-mix, cement, construction. We see that continuing.