As production continues, producer spending shifts

Major capital projects have largely come to a grinding halt across the industry, but equipment suppliers are still seeing some activity and interest from the market. Photo: P&Q Staff

Aggregate producers entered 2020 with various plans for capex projects, but the economic uncertainty brought on by the coronavirus pandemic forced a number of producers to put their spending on hold.

Equipment manufacturers and dealers across the United States have seen this reaction for some time now.

“Some customer capital budgets have been frozen until we as a country have a better grasp of the pandemic,” says Justin Mellott, inventory manager at Mellott Company. “I believe the industry is waiting for fallout on state infrastructure budgets. There’s an unprecedented number of people on unemployment, as well as reduced gas tax revenues due to states’ stay-at-home orders. It’s become a revenue issue and a cost issue.”

Bill Royce, regional sales manager for the Southwest of Astec’s AggReCon Group, sees a similar inactivity within the industry at the moment.

“I think, number one, right now is that any of your large capex projects – the $1 million to $10 million projects – are having the brakes pumped on them,” says Royce, adding that he is quoting 2021 capex projects. “I don’t know what’s going on, but at the same time [customers] still need to put their wish list down and see where the market is going.”

The market conditions are driving producers and contractors toward renting equipment, which provides more flexibility with present unknowns about the immediate road ahead.

“In the interim, the guy crushing right now might need to make additional 57s,” Royce says. “That’s where the rental piece can come in. Need a bigger cone or a bigger screen? Dealers will rent that to get them through the season, and then [customers] turn that back in.”

Micah Tysver, sales manager at General Equipment & Supplies, has also seen recent improvements in the rental market.

“Our rental business has picked up,” Tysver says. “It gives customers a chance to get into equipment and give it a try. The rental business is definitely improved, and interest rates are like we’ve never seen them before.”

Despite friendlier rates, many producers are still unwilling to take advantage of the financial environment. But it’s other factors that are driving their decision-making.

“The private companies are really taking advantage of that with the promotional deals,” Tysver says. “Large companies typically don’t finance or take advantage of the finance. They’re just hesitant right now.

“Manufacturers had some attractive interest rate loans – zero percent in a lot of the lines we carry,” he adds. “It’s an excellent time for customers to get into equipment.”

Ohio Cat’s Chris Harris, another equipment dealer, has seen customers seize the opportunity presented by the financial environment.

“Financing is changing and interest rates are good,” says Harris, con/agg manager at Ohio Cat. “More guys are leaning toward leasing because they want an out. Or, they’re going to an RPO (rental purchase option) because they want an out. Everybody is scared of what’s going to happen in July, August and September.”

Which is unbelievable to fathom, considering just a few months ago producers and contractors were rather bullish about 2020.

“Earlier this year, guys weren’t even batting an eye,” Harris says. “There was so much work, and [customers] weren’t sure how they were going to do it. Now, [customers] are like: ‘I’m going to go ahead with that, but let’s look at a lease. I want an out.’

“Instead of writing you a check, [it’s become]: ‘How about we do an RPO on that and see how that turns out in the next three months,’” he adds.