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Features - Demolition Scrap Report

After a few stagnant years, demolition activity is starting to pick up, while competition for projects is stiffening.

May 8, 2014
Kristin Smith

As Americans watch for signs of an improving economy, many eyes are on the construction industry. When the housing market crashed and construction employment tumbled in 2008, many ancillary businesses to the construction industry were affected. The demolition industry was especially hard hit, as much of the work awarded to demolition contractors happens in advance of new construction projects. And less construction and demolition activity means less volume for recyclers.

As the demolition industry gears up for its busy season, the aftereffects of the last few years have set up an interesting scenario: more demolition projects to bid on and fewer companies to bid on them.

The Los Angeles-based research firm IBISWorld released a report in November 2013 titled “Demolition and Wrecking in the U.S.” in which it surmises, “The demolition and wrecking industry has been shaken by tumbling downstream construction and land-development markets during the past five years.” The report adds, “A shrinking pool of contracts to bid for during the past five years has led to intense price competition in which operators underbid one another for projects. As a result, the industry’s average profit margin fell significantly during the recession. And, because smaller contractors are typically unable to sustain lower returns from projects, many exited the industry altogether, having been forced out by intense price competition.”

Michael Taylor, executive director of the National Demolition Association (NDA), Doylestown, Pa., says the association lost about 200 members during the height of the recession, which he estimates began for the industry in 2009. He points out that most of the companies that did not survive the recession were “the small guys.” Taylor says many of these companies started up amidst the overheated scrap metals market in China in the mid-2000s. Taylor adds that no major demolition firms or large regional firms went out of business.

Positive signals

Signals are beginning to point to an improvement in the construction sector. Signs that the construction industry is making a comeback in the U.S. began showing up in late 2013. In October, construction employment hit a four-year high. Then in November 2013, a 17 percent increase in construction spending was reported.

As 2014 rolled in, numbers were still looking promising, and demolition and recycling firms like Houston-based Cherry Cos. are poised to capitalize them.

“The market is booming, not only from the demolition but also from the recycling side,” says Leonard Cherry, president of Cherry Cos. “The entire construction industry in Texas is robust. We are very fortunate to currently be seeing double-digit increases in total volume since the first of the year.”

However, Cherry adds, “We are not seeing that same corresponding increase in margin, but we are seeing that increase in total volume, which is driven by increased opportunities.”

Rick Givan, manager of special projects for Denver-based demolition firm Fiore & Sons, says he is starting to see signs of improvement in residential homebuilding in Colorado. “All the projects that have been delayed and put on hold for years are now coming back,” he says.

Givan attributes the uptick in homebuilding activity to pent-up demand, population growth and competitive bank rates. As residential construction picks up, he says, hospitals and shopping centers will be coming down to make way for new commercial development.

Stiff competition

A closer look

The construction industry consulting firm FMI, based in Raleigh, N.C., recently released its “Q1-2014 Construction Outlook.” The forecast continues to show optimistic growth in several segments, which should suggest an increase in demolition activity as a result. According to the report, construction put in place is predicted to increase 8 percent in 2014, with continued growth over the next few years.

Select market predictions include:

  • Residential – Forecasts show an 18 percent growth in single-family construction. However, multifamily construction will show a 27 percent increase in 2014, a drop from the 44 percent increase in 2013.
  • Commercial – The industry is expected to grow another 7 percent in 2014 to $52.6 billion—the highest mark since 2008.
  • Health Care – Construction will grow 2 percent in 2014; however, a jump to 6 percent is predicted in 2015.
  • Educational – 2014 will see this sector grow by 3 percent, reaching $83 billion.
  • Power – Growth to $91.2 billion is forecast for 2014, with a slow climb from 5 percent to 9 percent over the next four years.
  • Manufacturing – With signs of sustainable growth, predictions are for a 5 percent increase in 2014 to $45.2 billion and an upward swing of another 8 percent in 2015.
  • Lodging – The industry forecasts 591 hotels opening in 2014 compared with the 500 in 2013. Growth at 13 percent is expected, with this market expected to reach $16.1 billion.
  • Transportation – 2014 will see a 7 percent improvement, reaching $4.4 billion. With the president's 2015 budget proposal of $73.61 billion for surface transportation spending, this segment of the industry has a bright future in the coming years.

In Cherry’s opinion, the Texas market must be faring better than other areas of the U.S. because of more out-of-state competition. “When the market’s hot, some guys just move into that market,” he observes.

Ron Feather, president of Demolition Services Inc., Manassas, Va., also says he is feeling an increase in competition in the Washington, D.C., area where he bids for jobs. “The competition in this area is tough,” he says. “There are a lot of great demo guys in this area. They all have their pencils sharpened, and we are all being very competitive.”

The harsher than normal winter may have delayed some projects in the Mid-Atlantic, but just 95 miles south in Richmond, Va., it hasn’t affected the number of projects S.B. Cox Inc. has in its future. Owner S. Barbee Cox III says that most demolition contractors are lucky if they know what they will be working on two months from now, but this year, “We are pretty locked up right now through July, and we have several jobs that will go into the fall.”

The Upper Midwest also is showing signs of recovery in the commercial construction sector, according to Don Rachel, CEO, Rachel Contracting, St. Michael, Minn., but it is still a bit early to know for sure. As of early April, Rachel says, “We’ve still got piles of snow on the ground.”

Rachel Contracting won’t reach its peak season until July or August, but the company is finding work. It is in the midst of a few projects, including demolishing three large dormitories at the University of Minnesota Duluth.

Material generation from demolition sites in other parts of the Midwest began increasing as early as March.

“We are really busy,” says Andrea Yedinak, a material trader for All American Recycling, a scrap metal processor with yards in Joliet and Ford Heights, Ill. “It is a really good turnaround from the deep freeze we’ve had here. We’ve had some large jobs where all of our drivers and all of our trucks have been dedicated to just demolition,” Yedinak adds.

Demolition contractors across the country are having little trouble finding work. “I’ve got more backlog than I usually do,” observes Cox.

Through the recession, university and hospital projects in the Richmond area were steady. Now commercial and military projects are coming back. Demand for concrete and roll-off containers also is up for S.B. Cox. “Things are better than they’ve been for five years here,” Cox says.

Feeling the Pinch

While business is picking up for many demolition contractors, metals prices are taking away from profits.

“We’ve seen a downturn within the last 50 days,” Cherry says. “We are anticipating the market will begin rebounding in the near term.”

Cox is hanging on to material in anticipation of the market going back up. “We are cutting structural steel up and holding it right now,” he says.

Rachel says copper prices have taken a hit in Minnesota as of late and the recycled aggregates market has not been that active either. “We have an overabundance of [aggregate] in the Minneapolis/St. Paul market at this point just because there has been a fair amount generated over the past few years and not a lot of construction activity to absorb it. It is a very long commodity.”

By contrast, aggregate markets in the Mid-Atlantic and Texas are active. Cox says, “Base is hard to move, but we can move all of the 3-inch material we can make.”

In Texas, Cherry says aggregate sales are setting records. “Most of our aggregate sales are centrally located within the greater Houston area,” he says. “With the robust economy, aggregate sales are currently running at an all-time high. That is currently our strongest market despite the uptick on the demolition side. The aggregate side is actually even stronger.”

Despite reports of growing momentum, demolition activity has not returned to prerecession levels. According to IBISWorld, that won’t happen until 2018, but the industry is well on its way back. The survey forecasts 6 percent growth in 2013, noting, “Emphasis on value-added services like concrete cutting and secondary revenue streams like selling recycled material will increasingly define contractors’ business models in the coming years.”


he author is a managing editor for the Recycling Today Media Group and can be reached at ksmith@gie.net.