Aggregate Producers Face Difficult Times

By Aram Kalousdian, Editor | September 28, 2010

Aggregate producers reported that they are going through some difficult economic times in Michigan, at a recent roundtable discussion with Michigan Contractor & Builder.

Kurtz Gravel Co. is primarily a ready mix concrete producer but is also in the sand and gravel business. The company has six ready mix plants in the northern Detroit suburbs, and two building supply stores and one sand and gravel operation that are also in Michigan. The sand and gravel operation primarily supplies the company's ready mix operation.

Daniel V. Guthrie, president of Kurtz Gravel Co. said that their ready mix business is experiencing cost increases in diesel fuel, insurance and employee benefits.

"Our industry is extremely competitive. We don't have pricing power. Our business is becoming more difficult. Volume-wise, we've been growing since the early 1990s, but our markets are smaller. So, we're having problems with pricing, costs, and we're experiencing some regulatory problems that are becoming more significant," Guthrie said.

"We're in the area where General Motors is prominent and we had some high expectations for volumes this year that aren't materializing because of the problems that General Motors has had. They put some larger projects on hold. We're not as optimistic about our volumes for 2005 as we were three or four months ago."

Edw. C. Levy Co. handles the full range of aggregates, including sand and gravel, slag and limestone. Bob Nobbs, director of Sales & Marketing for Edw. C. Levy Co., reported that the difficult economic times in Southeast Michigan are having an effect on business.

"We're still at 7-1/2-percent unemployment. There have been very few jobs that have come into Southeastern Michigan; the jobs are leaving the area. The U.S. unemployment rate is approximately 5.3 percent. So, certainly, some of the recovery that we've seen in other parts of the United States, and even in Michigan, is not occurring in Southeastern Michigan. That obviously leads into funding issues all the way through," Nobbs said.

"The Portland Cement Association reports that Portland Cement consumption in the first quarter of 2005 was down 10 percent. Retail construction is up slightly, but it is not terribly good. Warehouse construction has been terrible. The high vacancy rate will continue through 2008. There isn't a lot of office construction going on either. Hotel construction is down. With the permanent casinos in Detroit, hotel construction may improve in 2006 or 2007, but I don't see anything happening yet this year," Nobbs said.

"Educational facility construction is up this year; however, with some funding issues that are out there, 2006 and 2007 seem to be doomed. There is an increase in healthcare facility construction, but there isn't a lot in the pipeline. Residential, for the first time in several years, is dropping.

"My projection is that our company will be down approximately 8 percent in aggregate production this year.

"So, right now, the economy in Southeastern Michigan does not look good and when you've got the increased costs with less volume, it's going to be very difficult to get pricing over capacity." Nobbs pointed out that the aggregates business is heavily reliant on tax dollars.

"When we talk about aggregates, probably 80 percent are purchased with tax dollars. If the tax dollars aren't there, that's going to hurt," Nobbs said.

"There is a quality of life issue here. The road program is a jobs program. It produces good paying jobs that you can't export and it stimulates the economy. We need to find funding, whether it's through a gas tax or excise tax or bonding, in order to fund our roads and bring new business in.

"Environmental issues and governmental regulations continue to increase. We also have specification issues. There are a lot of restrictive specifications out there that say that you cannot use a specific product. We support a specification that says that this is what a product needs to do; let the marketplace decide what the most economical product is to go into it and don't restrict the use of a product in the specification."

Andrew G. Schulz, vice president and general manager of Aggregate Industries Aggregate Division, said that his industry concerns include safety on the job, Michigan Department of Environmental Quality issues, and local permitting issues. He said that his company has concerns about costs for fuel, steel and off-road tires.

"We have to anticipate our orders now for off-road tires. We need to have eight to 12 months of inventory," Schulz said.

Mike Newman, Michigan Aggregates Association managing director, also discussed some of the issues the industry is currently facing.

"From the regulatory side, there are several things that we have serious concerns about. The first one is water. There are several proposals in the state legislature, driven by the Granholm administration, to restrict the amount of water that can be used in any manufacturing process. Unfortunately for us, we don't have the same level of control of water usage that a lot of industry users have," Newman said.

"When we are digging below the water table, we don't want the water there. It's expensive for us to move it out. We've seen almost a rush to judgment where the regulators, driven by the administration, are willing to sacrifice in some ways, one natural resource in order to protect another natural resource. Aggregate is located where nature put it and we don't have a lot of options on where to go to get it. They are putting restrictions on us that could put us out of business." Newman pointed out that the state needs to do more to identify where natural resources are.

"The state hasn't worked hard enough to identify resources. Our resources are non-renewable. There should be some type of system where resources are identified, but the state has always been reluctant to put the money into that. Once they are identified, they should be protected until they are extracted. Once they are extracted, you can do whatever you want to with the property. Several other states have done that, because they realize that natural resource is very valuable."

Newman said that it's important for the state of Michigan to do this, because there will be a shortage of resources in the near future in Southeast Michigan.

"We're restricting extraction through permitting and we're also not protecting the resources by allowing development to encroach on them," Newman said.

Newman pointed out that the vast majority of permitting is done on the local level. He said that there is a great deal of inconsistency in permitting regulations from jurisdiction to jurisdiction.

"One of the things that we are looking at is some kind of statewide mining permit that pre-empts local permitting. This way, there will be one set of standards for everyone who operates in Michigan," Newman said. He added that part of this process could include having the state identify natural resources and protecting those resources from development.

Newman said that the aggregates industry has difficulty with the Michigan Department of Transportation's (MDOT) inconsistent specifications.

"Most of the projects are driven by special provisions. They take specifications that everyone agreed to three years ago, worked on for one year, and then they say 'well that was OK, but now we want this to happen.' So, it's very difficult for us to set up our plants and produce quality material, when every time we turn around there is a change in the specification. It's never consistent and there is no centralized control. The regional engineers are doing it on their own. It is a very, very complicated process for us, and I think it costs the taxpayers an immense amount of money," Newman said.

"We've always argued that if a material meets a specification, it should be included in the specification. We were finding more and more of these exclusionary specifications coming out of MDOT."

Newman also noted that the Michigan Aggregates Association has always been vigilant about safety. The association trains approximately 1,500 miners every year.