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WIKI ANALYSIS
Aggregates are building materials used in construction, including sand, gravel, crushed stone, and recycled concrete. Aggregates are mined and either used in their raw form (for example, as foundations) or serve as composite materials in the production of concrete and asphalt. End markets for aggregates include private residential construction, commercial construction, and publicly-funded infrastructure projects, with the latter consuming the most aggregates, usually for use in highway and road construction. A total of 3.04 billion metric tons of construction aggregates were produced in 2006, valued at $22.4 billion.[1] The aggregates industry is fragmented; markets are localized, and even the five largest aggregates companies in the United States only have a market share of 30%[2], while the top ten account for only 40%.[3]
Top Ten Aggregates Companies, 2006[4]
| Rank | Company | Number of Active Quarries | Description |
| 1 | Vulcan Materials Company (VMC) | 183 | Vulcan Materials Company (VMC) is the largest producer of construction aggregates in the United States by sales, with $3.3 billion of revenues in 2007.[5] VMC is divided into three segments; Aggregates, Cement, and Asphalt and Concrete. |
| 2 (tied) | Martin Marietta Materials (MLM) | 174 | Martin Marietta Materials (MLM) is the second largest construction aggregates company in the United States by sales, with $2.2 billion of revenues in 2007.[6] MLM is divided into five segments; Aggregates, Asphalt, Concrete, Road Paving, and Specialty Products. |
| 2 (tied) | Oldcastle Materials, Inc. | 151 | Oldcastle Materials, Inc. is a subsidiary of Ireland's CRH plc. Oldcastle is divided into two units; Products and Distribution and Materials, the latter of which produces aggregates, asphalt, and ready-mix concrete. |
| 4 | Hanson Building Materials America, Inc. | 115 | Hanson Building Materials is the American subsidiary of Britain's Hanson plc. Hanson Building Materials is divided into two units Hanson Aggregates, which sells aggregates, ready-mixed and precast concrete, and asphalt, and Hanson Pipe & Products which produces buildings products ranging from concrete pipes to clay bricks. |
| 5 | Rinker Materials Corp. | 33 | Rinker Materials Corp. is a subsidiary of Australia's Rinker Group, which is in turn majority-owned by Cemex S.A.B. de C.V. (CX). Rinker Materials produces concrete, aggregates, and heavy building products. |
| 6 | Lafarge North America, Inc. | 52 | Lafarge North America is a subsidiary of France's Lafarge, an industrial company specializing in four major products: cement, construction aggregates, concrete and gypsum wallboard. |
| 7 | Cemex S.A.B. de C.V. (CX) | 32 | Cemex S.A.B. de C.V. (CX) is a Mexican aggregates company. It is the world's largest building materials supplier and third largest cement producer by sales, with $21.6 billion of net sales (worldwide) in FY2007.[7] |
| 8 | Holcim Aggregates Industries | 28 | Holcim Aggregates is a subsidiary of Switzerland's Holcim, which sells aggregates, cement, and concrete worldwide. |
| 9 | MDU Resources Group, Inc. | 47 | MDU produces and sells aggregates, ready-mixed concrete, cement, and asphalt primarily in the central and western United States. |
| 10 | Florida Rock Industries, Inc. | 22 | Florida Rock Industries (FRK) was acquired by Vulcan Materials Company (VMC) in November, 2007. |
Overview
Aggregates are used as base materials in foundations, or as components in the production of concrete and asphalt. The diagram to the left demonstrates how aggregates are used in road construction; aggregates are clearly essential not only as a foundation for the roadbed, but also go into the cement that makes the road itself. While this diagram is certainly not exhaustive in terms of demonstrating how aggregates are used, it shows that when they are used, they are an important part of the construction process.
The aggregates industry has been undergoing consolidation, as larger aggregates producers purchase smaller ones to gain access to quarries and reserves. Although there are only a few truly large aggregates companies remaining, consolidation was visible in the 2007 purchase of Florida Rock Industries by Vulcan Materials Company (VMC). Even with such consolidation, however, aggregates markets remain fragmented and regional due to the difficulty and inherently high cost of transport, discussed in detail below. Total aggregates production has been shrinking since 2006; in the first quarter of 2008, 248 million metric tons (Mt) of crushed stone was produced, down 14% from the same time period in 2007, while 166 Mt of sand and gravel were produced in Q1 2008, down 18% from Q1 2007.[9] Total aggregate production was 414 Mt in the first quarter of 2008, down 16% from the same time period a year before.[10] This production slowdown is due to falling demand for aggregates in the residential housing market and in publicly-funded projects, both discussed in detail below.
Aggregates Trends & Forces
Transport Costs Vary And Keep Aggregates Market Fragmented
Aggregates are usually shipped from quarries or production areas close to their end market. This is because even a relatively small amount of aggregates, in terms of value, can weigh several tons. Because most aggregates are transported by truck, transport over 50 miles is thus cost-prohibitive and infeasible.[11] However, this can be circumvented to an extent by alternative modes of transport, specifically by rail or by water. For those aggregates producers with proper facilities, rail transportation provides a cheaper alternative to shipments by truck. Transport by barge is even cheaper, but is only available to those producers with access to coastal waterways.
Quarries Are Increasingly Difficult to Develop
Quarries are obviously essential to aggregates producers' business; without quarries and the reserves they provide, there is no source of raw materials. However, quarries are subject to the same "not in my backyard" mentality as nuclear power plants and garbage dumps. As such, receiving the proper zoning permits is exceedingly difficult and time-consuming, especially near the populous metropolitan areas where demand for aggregates is highest. Indeed, the extraction of aggregates is frequently prohibited near populated areas.[12] Accordingly, owning enough quarries to provide sufficient reserves to various markets is a challenge, but necessary for ongoing business.
Private Residential Construction Demand is Depressed
The effects of the 2007 subprime lending meltdown impact the aggregates business; because new home construction has fallen sharply, demand for aggregates to be used in residential home construction (most often as driveways or foundations) has suffered. Until new home construction recovers, this particular end market will not demand as many aggregates, hurting the industry's business.
Government Funding is Necessary for Public Construction Projects
Public infrastructure projects are the single largest end market for aggregates. These projects are funded by the state and federal governments. These projects provide stability in the face of economic fluctuations, but a lack of funds will delay construction and put new projects on hold. Indeed, publicly-funded construction around the country is on hold due to budget shortfalls in many states.[13] Most government funding for highway and road construction comes from the Federal Highway Trust Fund, which in turn receives most of its money from gasoline taxes. Because Americans have been cutting back on driving due to rising energy costs, the Federal Highway Trust is not receiving as much money as it had expected, and so cannot dole out the planned amount of funds. As long as government funds are lacking and budget shortfalls continue, present and future projects will be put on hold, which will dampen demand for aggregates and hurt the industry's business.
Rising Energy Costs Affect Aggregates Producers on Multiple Levels
Rising energy costs affect aggregates companies on two levels. First, they require fuels such as diesel fuel, natural gas, coal, and petroleum coke to mine and produce aggregates. Secondly, regardless of whether aggregates are transported by truck, rail, or barge, rising energy prices increase the cost of shipments. As such, increasing energy costs are doubly effective at reducing the gross margins of aggregates companies.
Cooperative Weather is Essential to Smooth Production
The aggregates industry is seasonal; as construction takes place outdoors, more business is done during the better weather of the second and third quarters than during the comparatively worse weather of the first and fourth quarters. However, adverse weather conditions can reduce demand for aggregates, as well as increase costs and reduce production.
References
- ↑ USGS, "Mineral Industry Surveys"
- ↑ SEC, Martin Marietta Materials 10-K, pg. 10
- ↑ SEC Vulcan Materials Company 10-K, pg. 6
- ↑ USGS, "Mineral Industry Surveys"
- ↑ SEC, Vulcan Materials Company 10-K, pg. 69
- ↑ SEC, Martin Marietta Materials 10-K, pg. 9
- ↑ SEC, Cemex 20-F, pg. 12
- ↑ USGS, "Materials in Use in U.S. Interstate Highways"
- ↑ USGS, "CRUSHED STONE AND SAND AND GRAVEL IN THE FIRST QUARTER 2008"
- ↑ USGS, "CRUSHED STONE AND SAND AND GRAVEL IN THE FIRST QUARTER 2008"
- ↑ Morningstar Report 9-25-07
- ↑ USGS.com, "Natural Aggregates - Foundation of America's Future"
- ↑ Stateline.com, "States worry about dwindling road funds," 7/24/2008
Companies in the Construction Aggregates Industry (7)
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