Quarrying and aggregates hit hard by the credit crunch

It's becoming a bit of a mantra: sales are suffering because of a drop-off in housebuilding. But more than that, many sectors are suffering the double whammy of poor sales combined with increasing input costs.

A sector that could suffer more than most is aggregates. Having experienced a good year in 2007, the sudden drop-off has caught quarry operators cold. Sales in aggregates have been fairly steady for the past 10 years, oscillating between 200 and 220m tonnes, however, this year could see a significant drop.

According to Quarry Products Association (QPA) figures, in the first quarter of 2008 sales of sand and gravel were down 8% and ready-mixed concrete fell 7%. Its figures for the first six months of the year are being collated but Jerry McLaughlin, director of economics and public affairs at the QPA, says the situation is unlikely to change and, if anything, it will worsen. "The trend is more likely to get worse than better," he says.

"The only area bucking the trend is asphalt, but that is only because last year was so bad. Looking at the market as a whole, it's worse than the official figures show as they're slightly historic."

Not only are orders down, but energy prices are having a serious impact. There has also been a chunky increase in the aggregates levy. "The one thing with our industry is that we're probably hit the hardest and the earliest," explains Lex Russell, vice-president of aggregates at Cemex. "In the first six months our aggregate sales were down 2% on last year and I see little improvement in 2009. An economic slowdown is one thing but we're also hit by high energy costs making it a double whammy."

And the story is no different for the smaller operators. "Aggregate sales are now very patchy in housebuilding and the same goes for the construction industry generally," explains Peter Huxtable, secretary at the British Aggregates Association. "If certain areas dry up it will become very difficult. There are still big jobs going on but sales are poor."

Efficiency savings

A variable that operators can control is production efficiency, and it's an area that is now under the microscope. Russell continues: "We now use gearboxes and motors that are more efficient to save on running costs. In terms of quarrying, we are just producing what we need to satisfy demand."

This sudden slowdown in production is happening across the industry. Tim Deal, senior planning and estates manager at Lafarge says that some producers will be considering mothballing sites. "I wouldn't be surprised if there was a rationalisation of production capacity in the market," he adds. "Geographically some sites can sustain a decline because of an existing scarcity of resource. Each area has its own characteristics and that will impact on whether sites are mothballed."

And the cost pressures don't end with energy and the aggregates levy. Planning remains an issue and reserves continue to fall. Deal says there is a certain amount of uncertainty in the process. "There should be an improved planning system but the new development framework process has proved less easy to implement than was intended." But he concedes that more applications are passed now than in the past.

"There is a lot of confusion over the process but also a higher success rate. But that's all down to the effort we put in. You just can't afford to make a planning application for the wrong site as it costs in excess of six figures to make the average application."

Biodiversity & restoration

A vital part of the planning process is what to do with a site after the reserves have been exhausted. It is an area that suppliers take extremely seriously.

One particularly exciting project is Eton Aggregates' Dorney Lake in Berkshire.

The 2000m lake has been restored to an Olympic standard rowing course, park, arboretum and nature conservation area, and will be used for the 2012 Olympic rowing and canoeing events.

This was all developed from the extraction, processing and sale of 4.2m tonnes of sand and gravel. Eton Aggregates is a consortium of Cemex, Lafarge and Tarmac.