With 2020 in the rearview mirror, most of us are looking ahead to the promise of a new year. Covid-19 left its mark on every industry worldwide, and the construction aggregates industry was no exception. This industry takes into its scope crushed stone and construction sand and gravel. While the industry was certainly impacted due to financing, budget short-falls, or market pressure, anecdotal data from state aggregate associations suggest that excessive damages were largely subdued as most states deemed construction an essential business.
Several states’ aggregate producers fared well during the pandemic due to rainy-day funds, which kept construction projects on track regarding state-funded construction projects. New Jersey reported that in recent years the governor passed an increase in fuel tax and an automatic year-over-year cost of living adjustment. Per Bill Layton, the Executive Director of New Jersey Concrete and Aggregate Association, “these changes put the Transportation Trust Fund on good footing, providing funding for essential projects that have made the public side of construction extremely vibrant.”
However, construction in a handful of other states did not fare so well as projects were halted or substantially delayed. California construction projects were initially impacted by start and stop orders during the pandemic, but by June, producers began to see demand for their rock products level-out.
While the USGS aggregate production data for 2020 has not yet been compiled and published to determine the true effect Covid had on the industry, Burgex Mining Consultants estimates only a 5% overall drop in production from 2019. Our estimate is guided by analyzing financial statements and press releases of aggregate producers and running internal models.
Looking forward to 2021, most states are cautiously optimistic that construction will get back on track, bringing aggregate production with it. With the circulation of the Covid-19 vaccine, social distancing protocols in place, and decreased appetites for shuttering economies, most state aggregate associations are encouraged by the future. Many states’ highway and road construction budgets are well funded and positioned to begin a flurry of infrastructure upgrades; however, not all states are financially prepared for planned building activity. Nicholas Rodgers of Kentucky Crushed Stone Association explains that the state has a $900 million shortfall to meet its transportation construction needs; therefore, a higher fuel tax may need to be approved during the state’s legislative session this month.
States like Kentucky may be buoyed by federal help, though. In his first week in office, President Biden stated he would soon unveil his Build Back Better Recovery Program. From a high level, the plan will enact a long-term revenue solution for the Highway Trust Fund to provide multi-year federal funding stability and support state transportation investment needs. Many insiders expect the plan will call for $1.5 – $2 trillion to be made available for infrastructure investments. Gautam Khanna, portfolio manager with Insight Investment, speculates, “with the slim majority the Democrats have in the Senate, infrastructure spending is probably going to be one of the less controversial measures and could realistically be implemented.” Many analysts expect a bipartisan path for the bill and expect an agreement could be an easy, early win for Biden and a net positive for the economy. Such an investment would certainly benefit companies that produce aggregates as well as construction companies.
Pivoting to the next 5 years through 2025, Burgex projects an average annual production increase of about 3% year over year, with a significant jump of 6.74% in 2021 due to a recovery response to 2020. Based on statistical analysis and time-series forecasting, we project that the US’s construction aggregates industry will expand by 34% from 2020 to 2025, based on revenues, and 16% based on aggregate production.
Burgex Mining Consultants is experienced in aggregate market research, having produced several bankable feasibility studies for our clients. Let us know how we can help advance your aggregate mining project toward production. Visit our website today for more information!