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SYNTHETIC AGGREGATE - SHOW ME THE MONEY

Jan, 28 2005

SYNTHETIC AGGREGATE - SHOW ME THE MONEY The Economics of a New Market Presidential advisor James Carville focused the 1992 Clinton run for the White House, keeping it on track with a phrase: “It's the Economy, Stupid”. The economy was emerging from a two-year recession, Americans were nervous, and high-paying manufacturing jobs were just starting to disappear overseas. The Beach and Hodge computer model predicted a fairly and accurate picture of future economic activity after plugging in variable economic and tax data. The bottom line was that a during low tax years, the economy boomed. Fast forward to today…... fifteen years later. The phrase should now be restated: “It's the Rock, Stupid”. The conundrum is whether the aggregate industry depends on, reflects, or drives the U.S. economy. More than likely, it's all three. The Portland Cement Association ran radio advertisement stating everything that touches our lives depends on concrete. They are partly right. Our roads, buildings, foundations, facades, and walkways are made of concrete, with most of consumer goods delivered over the roads. Rather than look at the chicken, instead consider the egg. What is the major component of concrete? The rock…the Aggregate. It comprises 60-75% of cement. While road base accounts for 70% of all construction aggregates, what about all the rest of the uses? Enter the Synthetics. Some synthetics are lightweight substitutes for mineral aggregate, and can be made from recycled materials, such as a mixture of plastic, fly, or bottom ash (a waste product of coal fire electricity plants). If it “looks like a rock, then it's a rock”, but a lighter, high strength rock. Concrete made from synthetics can have a rough texture or produced smooth as glass, while at the same time being cutable, nailable, and screwable. Estimates are that only about 25-30% of these recyclable materials are being utilized now, with the rest unfortunately dumped in landfills. Imagine the growth industry potential as most ash is used to make economically beneficial products. Currently, mineral lightweight aggregates is a $2+ billion industry in the U.S., and considered in its childhood. Following that line of thinking, the synthetics are in infancy. With increasing use, synthetics are expected to replace not only some of the current mineral lightweights, but due to its strength and lower cost to produce, it will open new markets in the concrete and building industry. As our population and infrastructure grows, the need for these ‘replacement/alternate rocks' is an economic no-brainer. Why is this industry so important? Without growth, there is no economy. Two hundred years of building this country has placed the aggregate industry in an unusual position with expensive new problems. The rub? Nature, oil, and demand. The prime quarry location is close to a population center, where supply meets market demand, quickly and most cost effective. Population density is pushing quarries further out, and the number of sand and gravel permits are dropping. Aggregate shortages, and natural disasters push prices up. Oil price hikes increase kiln, rail, truck, and crushing costs. Environmental issues are growing, as population centers don't want the quarry or cement plants in their back yard. As older quarry mineral zones play out, or quarry permits expire or non-renewed by municipalities, nature takes over. It's location, location, and location, which drives up costs due to distance or higher land prices. Mineral taxes, already levied in Europe, are being considered by city and state governments. Replacement of an aging infrastructure, coupled with new building and population growth, fuels consumer demand. Obviously, alternatives to minerals would become more valuable, as synthetic distribution centers become available. Show me the Money. Synthetic aggregates are a premium value product, made from 80-90% recycled products, and which could simultaneously solve multiple problems. About 56% of the electricity in the U.S, comes from coal fire plants, producing 128,000 tons of ash waste per day (71M metric tons per year (USGS).) The consumer/taxpayer is currently paying tipping fees to haul off the majority of waste fly or bottom ash to the landfill. Only a small part (cementitious Class C and F) from about 40% of the coal plants is usable now. There is new technology where most of the coal fly and bottom ash (including non-cementitious) from all coal fire plants, could be used to make viable synthetic lightweight concrete building materials. Why not develop new economically beneficial industries, instead of creating more environmental dumps? Imagine the lower materials and construction costs for the housing and office building industries, as well as advantages of using ‘green/recycled' materials, and making housing more affordable to more buyers? These have high tensile and high compressive strength, as well as they meet ASTM 330 and 331 standards. Synthetics are applicable to many markets, including high rise buildings where weight, strength, earthquakes, and cost are the primary factors. The market is wide open with only 10-20% of the lightweight market currently developed. Synthetic aggregates can be made 30-70% lighter, which means the hauler or manufacturer can put more mixed concrete in concrete trucks. Fewer trucks equals cost saving, or more volume can be delivered more efficiently. Synthetics are the middle ground, because they are a lighter product. The aggregate industry employs about 115,000 people. Consider the number of companies not currently in the synthetic or lightweight market, who already have the mineral aggregate operations that could produce a whole new income stream by simply adding an additional shift to hundreds of plants. That profit margin differential goes to the manufacturer/patent owner, since they can either charge the same as for other lightweight concretes, charge less due to competition, and/or provide more material. Synthetics could replace or supplement the current market, or open new markets, ease shortages, and create additional growth. The Synthetic market is estimated, when fully developed, to be able to produce another $2.1B annually in the U.S. alone. Synthetic aggregates can be manufactured on site, or stockpiled to meet year round demand. The objective is to benefit the concrete producer's bottom line, and provide tax advantages, while simultaneously benefiting our environment with “Green” products and reduce landfill waste from power and plastic plants. The concrete producer is the winner with an expanded portfolio of consumers. Lower weight for concrete and/or finished concrete products translates to high economic value when production or transportation costs are factored. Consider that $12 Billion of quarry, sand, and gravel raw aggregates were produced in 2003, a value added $66 Billion in sales. Total construction output translated to $15B/yr in the U.S. With about 10% of those figures in the current lightweight mineral market, or by increasing the same percentage growth in the new synthetic market, that 10% would create $ ….... well, you do the math. David Shulman and Yvonne Smith ELITE Aggregates yvonne.smith@eliteaggregates.com