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What dynamics are driving construction materials right now

By |  October 25, 2022

FMI Capital Advisors’ George Reddin and Rob Mineo paid P&Q a video visit partway into October, offering market reflections on the first three-quarters of the year while previewing what’s expected for the remainder of 2022 and 2023.

While a complete recap of their insights will be available in December when Pit & Quarry publishes its annual State of the Industry Report, I wanted to pass along some timely comments from Reddin and Mineo related to the construction materials market.

As I combed through the transcript of our 15-minute interview, the word “uncertainty” appeared nine times. As Reddin shared, the term is a particularly fitting one today because of a variety of dynamics that are present in the market. Still, despite market uncertainty, he points out that business isn’t necessarily bad for construction materials producers.

“You could argue we actually had more uncertainty to start 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 a global energy crisis, to name the major ones,” Reddin says. “And yet, at the same time, the economy looks pretty strong, as witnessed by the recent September jobs report.”

A closer look at the construction materials market shows that activity remains healthy. While demand for materials is high, pricing emerged in 2022 as a dynamic that arguably provided an edge to public producers. 

“Major players like Martin [Marietta] and Vulcan [Materials] have actually been able to protect and even widen profit margins by having timely price increases,” Mineo says. “It’s easier for a major public company to push through the local private player. So 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.”

The rollout of Infrastructure Investment & Jobs Act (IIJA) funds is another dynamic FMI is watching, along with the approaches being taken by Departments of Transportation (DOTs) across the U.S.

“The DOTs are challenged, like many people, with labor shortages,” Reddin says. “They’re trying to get work out and get it bid. Compounding that, on some of the major projects with long-term timelines, we’re seeing bids coming in well north of engineers’ estimates. That’s an impact of inflation.

“That’s resulting in project delays and, in some cases, projects being pulled totally,” he adds. “The good news is resurfacing projects – good consumers of construction aggregates – don’t have those long-term time horizons and don’t have the same risk. So I think that will bode well. But until we get this letting/bidding dynamic to an equilibrium, we won’t feel the real, full impact of the IIJA.”

Featured photo: The Frazier Quarry

Kevin Yanik

About the Author:

Kevin Yanik is editor-in-chief of Pit & Quarry. He can be reached at 216-706-3724 or kyanik@northcoastmedia.net.

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