January 9, 2017
After a year that showed positive, but mixed results, the arrows are overwhelmingly pointing up for 2017, according to the results of the Aggregates Manager 2016-2017 Forecast Survey. The survey assesses production trends for the current year and asks producers their expectations for the coming year.
Respondents to the 2016-17 survey reported the most optimistic future business conditions since the survey began tracking industry sentiment in 2004; nearly one in two respondents predicted either excellent (13.3 percent) or very good (34.8 percent) business conditions in 2017. At the same time, negative predictions were among the lowest ever given with fewer than 12 percent calling for a fair year, and less than 1 percent anticipating a poor year.
For more than three in four respondents, 2016 was a good year; 11.1 percent described it as an excellent year, 28.9 percent said it was very good, and another 36.3 percent said it was good. There were weak segments as well, however, with nearly one in four respondents saying business conditions for the year were either fair (20.0 percent) or poor (3.7 percent).
Those at large operations (3 million tons per year or more) reported strong results. Nearly six in 10 (59.2 percent) of respondents at operations that produce more than 5 million tons per year described business conditions as either excellent or very good, while slightly less (57.1 percent) of respondents at operations that produce between 3 million and 5 million tons per year reported the same results. At the other end of the size spectrum, smaller operations (those under 1 million tons per year) were much more likely to report poor business conditions. More than one-third of respondents in operations that produced less than 500,000 tons per year reported either fair (28.6 percent) or poor (7.2 percent) business conditions.
By commodity, respondents from companies that produce both crushed stone and sand and gravel were the most likely to characterize 2016 business conditions as either excellent (18.4 percent) or very good (32.7 percent). Sand and gravel producers were the next most optimistic, with 11.8 percent reporting excellent business conditions and 35.3 percent describing them as very good. Crushed stone producers were the most reserved, with 5.7 percent scoring 2016 as excellent and 31.4 percent opting for a rating of very good.
By region, operators in the South were the most likely to report strong business conditions, with 15.7 percent describing it as excellent and an additional 29.4 percent saying it was very good. Operators in the Northeast and West followed closely, with 43.8 percent of those in the Northeast reporting excellent or very good conditions and 38.8 percent of operators in the West opting for the top two business condition ratings. This was particularly good news for those in the Northeast, where the percentage of operators with strong results increased by 7.4 percent. Operators in the North Central region were the least likely to report strong business results, with 31.4 percent falling into the excellent and very good categories. That number, however, is still up 5.5 percent over 2015.
Overall business expectations for 2017 are quite strong, but the degree of optimism shifts among the various subgroups.
Differences were most notable based on the size of the operation. Respondents in the largest size group (more than 5 million tons) were the most upbeat, with more than one in four (25.9 percent) anticipating an excellent year. Those at the smallest operations (less than 500,000 tons per year) were the most restrained with 1.8 percent calling for a poor year, and an additional 17.9 percent expecting a fair year.
By commodity, nearly six out of 10 sand and gravel producers expect either an excellent year (17.6 percent) or a very good one (41.2 percent). Crushed stone and sand and gravel producers were the next most optimistic with more than 50 percent calling for either an excellent or very good year. Crushed stone producers were slightly less optimistic with 40 percent anticipating either an excellent or very good year.
After 2015, when more than half of survey respondents said they had increased production volumes, growth in volumes was more modest. A total of 35.5 percent of respondents said they grew production volumes in 2016, compared to 17.8 percent who said volumes shrank. The number of respondents who reported lower volumes in 2016 is more than double the size of those who reported lower volumes in 2015. The average production increase was 13.7 percent — 8.5 percent lower than 2015 — while the average decrease was 25.1 percent — 11.6 percent lower than 2015.
Once again, large producers reported the best production results. One in two respondents at sites producing 3 million to 5 million tons said production volumes increased in 2016. They were followed by respondents at sites with 1 million to 3 million tons (42.1 percent), more than 5 million tons (40.7 percent), 500,001 to 1 million tons (31.6 percent), and up to 500,000 tons (28.6 percent). Those smallest sites were also the most likely to report decreased volumes with one in four respondents saying 2016 production volumes were lower in 2016 than 2015.
Operations producing crushed stone and sand and gravel were the most likely to report increased production volumes (44.9 percent), with an approximate 10-percent margin over sand and gravel producers (35.3 percent) and crushed stone producers (34.3 percent).
By region, respondents in the South, by far, were the most likely to enjoy gains in production volumes. Nearly one in two (49.0 percent) reported increased production in 2016. They were followed by the West (35.5 percent), North Central (25.7 percent), and Northeast (12.4 percent). The Northeast was the only region to have a greater proportion of respondents note a decrease in production (18.8 percent) than an increase. Those who reported an increase there noted gains of 1 to 9 percent. By comparison, more than half of respondents in the South benefited from 10- to 14-percent gains, while an additional 12 percent noted an increase of 30 percent or more.
Looking at 2017, respondents anticipate a strong year for production; 48.1 percent said volumes will be up, 47.4 said they would be stable, and just 4.5 percent said they would fall.
Optimism crossed size ranges and commodities, with only a few notable concerns raised. Just over one in five (21.4 percent) respondents at sites producing 3 million to 5 million tons anticipate a decrease in production, but more than double that amount (42.9 percent) call for an increase. Among crushed stone and sand and gravel respondents, 12.2 percent said production would decline, but 49.0 percent of that group said it would increase.
By region, the South looks to extend its strong record, with 54.9 percent of respondents who predict higher volumes. They are followed by the West (51.6 percent), North Central (42.9 percent), and Northeast (31.2 percent).
Respondents who predicted an increase estimated an average increase of 14.5 percent — 2 percent lower than last year’s forecast. Those who called for a decrease suggested an average decrease of 13.3 percent — 17.5 percent lower than last year’s estimate.
Investing in equipment
With a strong year expected, many respondents anticipated an increase in capital expenditures for 2017; 31.9 percent said they will spend more, with an average increase of 19.2 percent. In contrast, just 7.4 percent indicated they expect to invest less, with an average decrease of 26.9 percent.
Top categories for increased equipment investment include: loading and hauling (33.3 percent), crushing and screening (31.9 percent), conveying and material handling (28.9 percent), equipment and truck maintenance (28.1 percent), and automation (25.2 percent).
By region, respondents in the West and South were most likely to invest in loading and hauling, while those in the North Central were most likely to purchase crushing and screening equipment. Northeast respondents were split among loading and hauling equipment and equipment and truck maintenance, a likely reflection on the tougher season they had in 2016.
After a year marked by uneven progress, 2017 could be a breakthrough year. While some operators, such as those in the South, said they are running full tilt, this may be the year their counterparts in the Northeast gain some much-needed ground.
Expectations of a strong year were reflected not only in reports of business conditions and production volumes, but also in the area that has been the respondents’ greatest challenge — retaining workers. Nearly one in five described worker retention as a major problem, marking it as a greater concern than competition for sales or aggregates availability and permitting.
Last year, 31.1 percent of respondents reported an increase in their total workforce, with the most likely hires being hourly labor or female personnel. If predictions for 2017 bear out, start looking to expand your workforce now. By the summer, you may very well need those extra boots on the ground.
The objective of the 2016-2017 Aggregates Manager Forecast Survey was to determine business, production volume, spending, and workforce trends. In November 2016, Aggregates Manager emailed questionnaires to a random selection of readers in the crushed stone and sand and gravel, crushed stone-only, and crushed gravel-only industries. Surveys were sent out just after November elections. A total of 135 useable surveys were completed.