Reasonable Expectations

For an industry such as C&D recycling that is trying to establish itself , there are few better decades that could have been chosen than the 1990s.

The U.S. economy enjoyed stable growth on most fronts – and often a booming construction market – during the last eight years of the decade.

The demand for aggregates, mulch and other products made from processed C&D materials has been stable or better during that time, in many cases allowing entrepreneurs entering the field to concentrate more on production techniques and less on scurrying to find end markets.

Most forecasts call for the good times to continue into 2000, which should allow C&D recyclers to again find willing purchasers for their processed products.

Crushed concrete and reclaimed asphalt can come from several different sources and can be used in some applications apart from road base. But almost without question, the volume of concrete crushed and asphalt recycled in a given year will be related to the amount of highway construction activity taking place.

Along with commercial and industrial demolition and construction, road building activity provides both a supply source and a demand outlet for crushed concrete.

The good news for C&D recyclers in this aggregates segment is that federal highway funding is slated to enter two years of peak activity.

The Transportation Equity Act for the 21st Century (TEA-21) is the five-year federal highway spending plan that has replaced its predecessor ISTEA. According to TEA-21 figures compiled by the American Road & Transportation Builders Association (ARTBA), Washington, federal highway spending will increase incrementally through fiscal year 2003.

A major leap in spending, on paper, occurred from 1998 to 1999, but according to ARTBA economist William Buechner, the figures are somewhat misleading. While the major leap in highway spending occurred on paper beginning in 1999, most of that activity last year was restricted to planning and bidding. The real work for contractors emanating from TEA-21 will begin with the 2000 construction season, Buechner told attendees of the recent annual meeting of the National Aggregates Association (NAA).

In addition to budgeted spending increases, Buechner noted that TEA-21 also gives the Federal Highway Administration the authority to spend any excess revenues that enter the federal Highway Account. Initial projections for this Revenue-Aligned Budget Authority (RABA) funding call for an additional $1.5 billion to be added to the budget in fiscal year 2000, with that RABA number increasing to as much as $2.5 billion in 2003.

Buechner told NAA attendees that how much overall highway and bridge-building business there is in 2000 will depend on "how quickly the states actually spend their federal highway funds," and "how much money state and local governments spend for non-federal construction."

Past figures from the U.S. Department of Transportation show that only 27% of federal highway money is spent during the year it is budgeted, while 42% is spent the following year and another 17% in the third year. Those figures are why Buechner is confident that the 25% leap in federal highway spending that occurred in fiscal year 1999 with the start of TEA-21 will really kick into gear this highway construction season. He predicts 12.4% growth in actual federal highway spending in 2000.

Buechner notes, however, that just 40% of overall highway spending comes from the federal budget while the remaining 60% comes from state, county and municipal budgets. Even with that in mind, Buechner predicts that 2000 should bring roughly a 7% increase in highway spending nationwide.

The building construction and demolition industry will most likely not experience a similar leap in activity, most forecasters agree. However, prospects are by no means gloomy in that segment.

Office and industrial vacancy rates in much of the U.S. remain low, and builders continue to construct new space to meet demand. According to the Society of Industrial and Office Realtors (SIOR), Washington, "development of new office property increased 16.9% during 1999, a record for this decade, reaching 140 million square feet." SIOR also classifies the industrial property market as "remarkably sound."

Demolition contractors and concrete crushers should continue to benefit from the strength of central business district (CBD) activity, where most new construction takes place only after a demolition job has occurred. SIOR classifies "Class A" central business district office properties as having the tightest vacancy rates of any segment. In its year 2000 Comparative Statistics of Industrial and Office Real Estate Markets report, SIOR lists San Francisco, New York, Boston and Washington, D.C. as among the most robust regional markets.

Construction and demolition in CBDs will remain favorable for C&D recyclers due to the continuation of other trends as well: the rise in gasoline costs and the depletion of quarries located near central cities. Rising truck fuel costs – coupled with longer trips to both quarries on the construction supply side and landfills on the demolition disposal side – will ensure an economic incentive is in place for materials processing on-site or nearby.

Portions of the lavish amounts of money that have been put into the hands of Internet-related companies are also making their way to the construction markets, according to SIOR chairman-elect Stephen F. Blau. "Industrial properties are one instance where the ‘dot.com’ businesses are clearly a source of increased real estate demand," says Blau. "Not only are the Internet companies recycling older industrial buildings for their office functions such as design, programming and marketing, but they are taking large chunks of warehouse space for order fulfillment operations," he notes.

Among the threats to the construction market momentum would be an economic downturn in the U.S., which would almost certainly include a change in fortunes for many of the Internet-related companies. "The one risk that few have focused on is what happens when consolidation strikes cyberspace – as it will certainly do – and it becomes apparent how short is the path from S-11 to Chapter 11," remarks Blau.

If demolition activity continues on pace as expected in 2000, the supply of waste wood for C&D processors should be steady.

Many wood recyclers, however, are still searching for expanded and more profitable end markets for their reclaimed and processed products.

While some recyclers would not regard burning wood as an alternative fuel as true recycling, the market could potentially be a large-volume one for those who choose to enter it. In 1999 an executive order from the federal government offered hope with its mandate to federal agencies to design, develop and promote the use of alternative fuels, including "biomass" fuels made from waste wood.

Rexius Forest By-Products, Eugene, Ore., processes sawmill waste, green waste and demolition debris wood. The company does produce hog fuel for the bio-mass market, but also makes wood chips and mulch for the landscaping market.

Rexius vice president of by-products production Jack Hoeck believes 2000 should continue a string of solid demand years for such products. "In general, the mulch markets seem to have been growing fairly steadily at about 8% to 10% per year," notes Hoeck.

He acknowledges that product created from demolition debris can be less attractive or marketable than that made from green waste, but the growing popularity of equipment that adds color to wood chips and mulch may be narrowing the gap.

The colorizing systems "definitely help waste wood," says Hoeck. "They really help the ability to market the wood if you can make it look more like a traditional mulch product," he remarks.

In California and adjacent states, some wood recyclers will benefit from the start-up of a building products plant that is accepting C&D wood debris as a feedstock. CanFibre Group Ltd., Toronto, could become a significant consumer of waste construction and demolition wood, first at its operating plant in Riverside, Calif., and next at plants it has under construction in Lackawanna, N.Y. (near Buffalo), and in Amsterdam, Holland. The company is also in the permitting process to build another waste wood-consuming plant in south Chicago. C&D