How construction materials producers are coping with uncertainty

By |  November 30, 2022
An effective rollout of Infrastructure Investment & Jobs Act funds will have an effect on construction materials demand in 2023 and beyond. Photo: P&Q Staff

An effective rollout of Infrastructure Investment & Jobs Act funds will have an effect on construction materials demand in 2023 and beyond. Photo: P&Q Staff

FMI Capital Advisors’ George Reddin and Rob Mineo paid P&Q a visit to discuss the construction materials space, breaking down the year that was and what’s to come in 2023.

P&Q: From our seat at Pit & Quarry, it seems like aggregate producers continued to do their jobs and put materials on the ground in 2022. That said, the market dynamics right now are a lot different than what we’ve seen in the past. From your seats at FMI, what are the major market drivers making impacts right now – the good and bad?

REDDIN: Let’s look at it first from a macroeconomic point of view, and then we’ll focus more specifically on the construction materials sector.

After COVID in 2020 and ‘21, we certainly were hoping for more visibility and more clarity on global and macroeconomic issues. In 2022, you could argue we actually had more uncertainty to start. We started the year with Russia invading Ukraine, historic levels of inflation, high interest rates to combat that inflation, markets in turmoil, labor shortages continuing, supply chain bottlenecks [and] global energy prices – to name the major ones. And yet, at the same time, the economy looks pretty strong as witnessed by the September jobs report.

The Fed’s determined to combat inflation. They’re going to use interest rates to do that, and that’s going to bring some uncertainty. But what’s the impact of those increased interest rates on the economy next year? Uncertainty makes it challenging, typically, to look at the economic outlook. That’s where we find ourselves on the macro level.

In the construction materials sector, specifically, the theme this year is that demand has been high. We continue to see that. Many of the producers with pricing power got ahead of this inflation and got prices up to avoid margin squeeze. Not all producers did that, and we’ll see that in their results in ‘22. I think many of them, however, will catch up in ‘23, and we’ll also see the impact of that in their ‘23 results.

In general, the market demand remains good but uncertainty does have an impact on parallelizing decision-making – especially around capital items and acquisitions.

Rob Mineo


MINEO: If you look at some of the earnings reports, you’ll see that major players like Martin [Marietta] and Vulcan [Materials] have actually been able to protect and even profit margins by having timely price increases. But it’s very fair to note that it’s easier for a major public company to push through the local private player. I think we’ll see a lot of private guys kind of catching up this year, but it all depends on your pricing power in your individual market.

P&Q: Obviously, the dynamics you’re discussing affect public and private construction a little differently. How are dynamics like inflation and supply chain bottlenecks impacting the various markets?

MINEO: It’s kind of a tale of two markets. As uncertainty rises, it becomes more a dichotomy of seeing how different forces affect the different players.

For the public players, we now have the IIJA (Infrastructure Investment & Jobs Act), which may not be the boon that everyone was hoping it would be coming off the legislation. But it’s going to make the industry strong, and it’s more certain for the next few years.

A lot of that funding is kind of getting pushed down the line and not [emerging] quite as fast as some people thought it might. But I feel the public sector has a good, strong outlook with less uncertainty.

With private: If you look historically at fluctuations, it’s interesting that the growth rate of private construction put-in-place dollars for things like residential has always been faster but far more volatile. When you hit an area of uncertainty, the fluctuations can cause us to have a very careful eye on segments like ready-mixed concrete.

REDDIN: We have to remember, too, that construction is local. Every market is going to have different dynamics.

Eyeballs are going to be on residential. It was a shining star coming out of COVID to many people’s surprise, but it’s obviously being impacted by increased interest rates.

The other thing we’re going to be really paying attention to is the effective rollout of the IIJA and its funding.

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