JULY 2008

Construction and demolition debris recycling remains strong

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A slowdown in construction spending nationally – mostly residential, but increasingly commercial – is hitting construction and demolition (C&D) recyclers. C&D volumes are expected to drop this year and next, says Michael Taylor, executive director of the National Demolition Association in Doylestown, Pennsylvania.

“There has been a slight drop in volumes as demolition activity has slowed,” Taylor says. While demolition is only half of the C&D acronym, demolition alone generates approximately 115 million tons of debris annually in North America.

Close to 70 percent of demolition debris is recycled, Taylor says.

Some of the biggest declines to hit C&D recycling in the United States are from construction. The U.S. Commerce Department reports that total construction spending slipped 0.4 percent in April from March to an annual rate of $1.12 trillion.

Spending in the private sector for factories and offices rose 1.6 percent, offsetting residential construction, which fell 2.3 percent for the 26th consecutive monthly decrease.

Construction spending has not increased month-over-month since September. Total spending in April was down 3.9 percent compared to April of last year. 

The construction slowdown is not decreasing the number of C&D companies, Taylor says, noting that he is not seeing a decrease in member companies within the demolition industry. The association has more than 1,100 members in North America.

Demolition waste prior to sorting and processing.

C&D recyclers are also represented by the Construction Materials Recycling Association (CMRA) in Eola, Illinois. William Turley, executive director, says he is also seeing new C&D recyclers enter the market despite the downturn in construction ­spending.

“We are seeing new companies bring mixed C&D operations online all the time, and that will continue into the foreseeable ­future” he says, adding that many of the manufacturers of equipment for sorting C&D report having a six-month backlog.

“We expect recycling to remain strong no matter what,” Turley says. Some areas of strength for C&D recyclers include infrastructure work and green building projects, which requires the material generated during construction projects to be recycled.

“We expect our industry, to some degree, to reflect what is happening in the construction industry,” Turley says. But he says it is hard to know C&D volumes for this year compared to last year because the numbers are not tracked on a regular basis.

Looking at C&D volumes in the solid waste industry provide somewhat of a proxy. Republic Services, Inc. in Fort Lauderdale, Florida, reports that C&D volumes relative to residential construction dropped 15 percent over the last 12 months.

“In most markets, the home construction business started getting soft in 2007,” says Will Flower, vice president of communications at Republic Services. He says that C&D volumes are now mostly flat, although there are some market variations.

“Despite the decrease, we have seen pricing remain stable,” Flower says.

Brian Butler, an analyst who covers the solid waste industry for Friedman Billings Ramsey & Co., Inc. in Arlington, Virginia, says that many investors quickly jumped to the conclusion that as national construction numbers declined, C&D rates would follow.

“However, in practice it appears the waste haulers, both public and private, have shown excellent discipline on C&D pricing,” he says. “While C&D rates are not moving up in most markets, there has not been a significant decline as many expected.”

Many of the public companies have parked or removed containers out of markets with significantly reduced C&D demand, Butler says. He says disposal rates along with fuel costs have remained high, limiting the ability of private haulers to cut prices.

“Residential construction volumes are down 15 percent, but non-residential volumes have held up better,” he says. “Only recently are companies beginning to talk about weakness in the non-residential construction market.”

Butler says monthly construction spending from the U.S. Census Bureau provides a good barometer of what is happening with C&D volumes. In the first quarter of this year, 12-month residential construction spending was down 17 percent, while non-residential construction was up 15 percent. The net impact was a 2.2 percent decline.

Butler expects residential construction volumes to remain weak. But he says the rate of decline will slow in the second half of this year and be flat to positive next year. He also expects growth to slow this year in non-residential construction volumes.

Stewart Scharf, an analyst with Standard & Poor’s Corp. in New York, expects the downturn in C&D volumes at solid waste companies to continue through at least 2008 and probably into 2009, when volumes may stabilize and start to pick up somewhat.

“Although C&D volumes account for a relatively small percentage of total waste collection volumes, the downturn in the residential housing market continues to negatively impact C&D volumes,” he says. “Combined with soft economic conditions, organic volumes have been flat to down in single digits over the last few quarters.”

Scharf says the recovery in C&D volumes depend on the recovery in the housing market and the economy. S&P is forecasting a 34 percent drop in housing starts for 2008, versus a 26 percent decline in 2007. S&P predicts a 10.7 percent rebound in 2009.

While overall construction spending is probably the biggest impact on C&D debris volumes, government regulations play a significant role in the market.

“Some municipalities have begun restricting the disposal of C&D waste in landfills, requiring homebuilders to recycle a percentage of the debris,” Scharf says.

Do these types of regulations help C&D recyclers? Turley, with the Construction Materials Recycling Association, says that while C&D recyclers need further help developing new markets for C&D material, some regulations hurt more than help.

“We are seeing state environmental agencies directing and even requiring recycling of material, while a different department in the same agency has made restrictions so tight it is nearly not economically feasible to recycle,” he says.

A balance is needed between regulation and market development. The solution is to write a small percentage of C&D material into specification documents and promote the reuse of C&D debris, says Taylor, with the National Demolition Association.

“Don’t set up administrative barriers or economic disincentives for companies,” he says. “Push these materials to architects, engineers and purchasing managers.”