UK aggregates industry’s dawning optimism and confidence

The current picture in the UK aggregates industry is one of dawning optimism and confidence, overshadowed slightly by continuing problems with recovering capital, against a backdrop of dissatisfaction and unrest caused by the ongoing controversy over the Aggregates Levy. It is a cauldron of different views for such a small region, but it is nothing if not dynamic, writes Julie-Anne Ryan.

The general figures speak for themselves in terms of recovery, as outlined by the 2897 Mineral Products Association (MPA).

Results for the first quarter of this year indicate significant increases over the same period of 2013, albeit lower than the last quarter of 2013. Aggregates and asphalt sales volumes were about 17% higher and ready mixed concrete sales 5% up in Q1 2014.

In context, Q1 volumes in 2013 were historically low and markets had yet to see the benefits of the sharp pick-up in housing activity from April 2013.

According to the MPA, the underlying performance over the last two quarters suggests that construction market improvements are extending beyond housing and beyond London and the South-East. Also, the improvement in aggregates sector sales in recent quarters points to stronger general construction growth through 2014.

Nigel Jackson, chief executive of the MPA, said: “These first quarter figures add weight to the signs of recovery seen in 2013 and provide evidence that we are now seeing a more sustained improvement in construction markets. However we remain over 25% below pre-recession levels of activity and we are very aware of the caution expressed by the Chancellor that the recovery has some way to go. Government needs to maintain a relentless focus on recovery, notably the delivery of repeatedly announced infrastructure projects, to ensure businesses throughout the UK have the opportunity to grow and invest.”

The Construction Index offered figures showing that 33,816 new homes were registered in the UK during Q1 2014, a 7% increase on the 31,739 for the corresponding period a year ago. Of these, private sector registrations increased by 3%, reaching 24,414, compared with 23,608 in Q1 2013, and public sector registrations in Q1 2014 were up by 16% year-on-year from 8,131 to 9,402.
Richard Bird, executive officer of the 887 British Aggregates Association (BAA), said that reports of improvement differ depending on whom you speak to.

“It’s patchy, but it’s definitely on the up. Some people are saying they have never been so busy while others say that they can see it’s just starting. But there’s no negativity anymore.”

Echoing the MPA’s call for governmental focus on infrastructure, he added: “The government is going to have to pay attention to roads. Recent governments didn’t spend as much money on roads as they used to: we are not getting the push of roadworks, motorways; we’re relying more on the building side of things. There’s no one specific thing that’s going to turn it around: we must not get too lost in housing. In fact there’s a worry that if they need so many houses in this country they might tend to mass produce houses, to build them in factories rather than of bricks and mortar.”

He stressed that work on roads is vital for the transport of products and for the knock-on effect such work will have on the quarrying industry. It seems that he won’t be disappointed.

Construction 2025, the government’s industrial strategy, states that the construction sector must cut the cost of construction and whole-life maintenance of assets by 33%, and deliver a 50% decrease in the overall time to deliver new build projects or refurbish existing assets.

“The principles of this landmark strategy are already driving greater change across the highways industry on both the strategic and local road networks, and the pace of this change is only set to increase,” says Paul Fleetham, managing director of 7235 Lafarge Tarmac’s contracting business.3006 Finning invest in Ireland

It has proved difficult to find up-to-date figures from the aggregates industry in Ireland, where the severity of the construction slump resonated around the world.

In the Irish Concrete Federation’s (ICF) 2012 annual report (published in July 2013) chief executive Gerry Farrell said: “The reduction in output from Ireland’s concrete manufacturing businesses from 9 million cubic metres at the peak of the ‘Celtic Tiger’ era to 2 million cubic metres in 2011 clearly underlines the devastating impact the recession has had on our industry. Other analysis in the report showed that approximately 27% of available capacity was currently being utilised, highlighting the massive structural overcapacity which exists in the industry. The report also highlighted the issues of regulation and quality which need to be addressed by the industry and in this respect the ICF initiative on certification was seen as a vital way forward in advancing our industry’s future.”

Individual views from this year, though, may be a hint of better things to come.

Finning UK and Ireland is investing £10 million (€12 million) in two new facilities: a national parts centre in Cannock, central England, and a state-of-the-art branch in Dublin, to support continued customer growth and the much-reported construction upturn.

Managing director Neil Dickinson said: “We really believe that, like the UK, the Irish construction market is beginning to gain momentum. Our market share in Ireland has increased significantly and we aim to further grow this for core and smaller machines over the next few years.”

“This means that greater cost efficiencies and accelerated delivery are expected for the strategic road network.”

The BAA is not so happy with the almost 12-year fight it has waged against the Aggregates Levy, which it believes is unacceptably unfair on huge numbers of aggregates producers.

Bird stated that during the meetings that were held at the Treasury in November, officials refused to let BAA members attend.

In common with the other big four companies, 643 Cemex is enjoying the growing optimism and confidence of the sector.

Vice president for aggregates and asphalts, Lex Russell, said: “The first quarter shows substantial growth in the business figures: 15% growth against same period 2013, which is still about 30% below where we were a few years ago. It is industry-wide but we reflect the industry.”

He says the main drivers to growth are the large number of major projects in London (Crossrail, for example) but he added: “London is almost like another world, business there is immense in comparison to the rest of the UK.”

Russell, too, sees optimism across the board as long as the Government doesn’t spoil it all. “There’s a lot of groundwork in new housing developments, utilities are showing promise too, and infrastructure projects. As long as the Government sticks to policies that promote infrastructure growth and expansion. There is some economic growth, optimism and confidence, the most we’ve seen since 2006.

“We have been playing everything down and it’s been doom and gloom for so long that confidence is helping everyone.”
There are still substantial wounds from the downturn that will take some years to heal fully, and there is evidence that aggregates in the UK make a loss across the board. It’s something that Cemex is making a study of. The company itself has not managed to recover all the costs of its work so far.

“We have to fight for capital and the return on that is inadequate. When we can start to recover our full costs it will help,” Russell explained.

“We spend a lot of money on restoring our quarries: when we leave a quarry we make sure we return it to the community as a better amenity than it was when we took it over. Instead of empty ground we leave parks, ponds, lakes even, with full biodiversity. It’s something we’re very proud of, but it costs money.”

The MPA points out that its membership is made up of the vast majority of independent SME companies throughout the UK, as well as the nine major international and global companies. It covers 100% of GB cement production, 90% of aggregates production, 95% of asphalt and ready-mixed concrete production and 70% of precast concrete production. Each year the industry supplies £9 billion (€11 billion) of materials and services to the £120 billion (€147 billion) construction and other sectors. Industry production represents the largest materials flow in the UK economy and is also one of the largest manufacturing sectors.

% CHANGE OVER SAME PERIOD OF PREVIOUS YEAR

* 2013 Change in total cementitious sales volumes
** Cement data willfrom now on be published on an annual basis only

The MPA’s position on the Aggregates Levy

Nigel Jackson, Chief Executive MPA, said: “The MPA, and prior to that QPA, have always stated that the Aggregates Levy is a bad environmental tax and both organisations have been consistently opposed to it. Both Treasury and BIS [Department for Business, innovation and Skills] are aware of the MPA view which we repeat regularly. Our strategy has been to try and mitigate the rate of growth of the levy which to date is worth around £70 million as a result of 3 freezes in indexation we alone have argued for. MPA has taken the view that Government is unlikely to remove the levy as it is ‘hard baked’ into both Treasury forecasts and environmental thinking. We have  been aware from the outset that the exemptions and reliefs would be liable to both legitimate use and abuse and would require modification at some point with the likelihood that Treasury would seize the opportunity to increase its tax take from the sector rather than reduce it. The overriding issue for our members has been the creation of a level playing field and consistent and rigorous enforcement. MPA has taken the view that whatever the outcome of any legal action either in the UK or EU the Government ‘owns the goalposts’ and will move them to recover revenues whatever the justification.”