A market downturn in the construction industry is coming; however, it’s not likely until after 2020. Construction industry members and observers know a decline is inevitable with market growth continuing too long to last.
The Engineering News & Record’s Construction Industry Confidence Index (CICI) has risen by one point to 52. Many of the 283 participating executives from larger construction firms believe the market has enough energy for growth for at least another six months and may show signs of decline toward the end of the year.
There are several reasons for the positive outlook for the industry in 2020. The economy has performed better than predicted, notes Anirban Basu, CEO of Sage Policy Group, an economic consultant and a Construction Financial Management Association adviser.
Also, the Federal Reserve raised interest rates nine times over the past couple of years and has seen no signs of inflation. Therefore, the Federal Reserve has lowered interest rates three times in 2019. Fed Chairman Jerome Powell announced that the economic outlook remains favorable and that he anticipates no interest rate increase in 2020.
Rising interest rates, which began in 2018, had adverse effects regarding project financing, Basu says. Owners now seem to be willing to absorb some of the added costs resulting from higher wage rates.
The skilled labor shortage remains one of the major constraints regarding the kickoff of significant projects in the 2020 market. The critical cost concerns in 2020 will be managing this crisis, with labor escalation anticipated to outpace material increases.
The following sectors of the construction industry are expected to see the most growth in 2020 as a percentage of the 283 members participating in the CICI:
Distribution warehouse, +24 percent
Education, +27 percent
Hospitals and health care, +41 percent
Higher education, +25 percent
Multiunit residential, +14 percent
Transportation, +38 percent
Water, sewer and waste, +43 percent
Power, +32 percent
Petroleum and petrochemical, +23 percent
The PVF sector of the market looks to be fairly robust for 2020, although it will not be setting a record pace, as seen in 2018.
As mentioned in my January report, U.S. refiners have initiated major turnaround maintenance projects in January that are to continue through the first quarter of 2020. As usual, the Texas coastal market accounts for some of the highest-valued projects with an estimated value of more than $1.1 billion.
Also, the U.S. South will see major natural gas-fired plant maintenance projects during the first quarter of 2020, valued at more than $540 million.
Phillips 66 has increased its capital expenditure program to $4.5 billion for 2020. The midstream budget contains funding for the Liberty and Red Oak crude oil pipelines and 450K/BBL/d of additional fractionation capacity at the Sweeney Hub in Texas.
Black & Veatch (Overland Park, Kan.) has taken the lead in power plant projects fueled by U.S. natural gas with an estimated TIV of $36 billion, including $13 billion set for kickoff in the first half of the year.
Ohio accounts for nearly $1.8 billion in only two natural gas-fired, combined cycle (NGCC) facilities: CME Energy’s $860 million addition to its Clean Energy Center in the city of Oregon; and Clean Energy Future’s $925 million Trumbull Energy Center in Lordstown.
Two other NGCC plants are scheduled for Michigan: Development Partners Group’s Marshall EnergyCenter (a 500 MW facility), estimated at $600 million; and the Lansing Board of Water and Light’s $500 million Erickson Power Station in Lansing, which will generate 250 MW. The Marshall facility is scheduled to begin construction in the early spring.
Despite signs of slower growth in the manufacturing sector, a broad range of projects are planned for the 2020 construction year. There are $69 billion worth of U.S. industrial manufacturing projects set for a kickoff during the year.
The automotive sector plans for 2020 construction starts valued at $6.6 billion TIV in South Carolina. Volvo Cars of North America is planning a second-phase expansion at its 2,800-acre Ridgeville site.
Passage of the United States-Mexico-Canada Agreement (USMCA) trade deal, the phase one trade deal with China and the long-term reauthorization of the U.S. Export-Import Bank will boost manufacturer’s optimism, notes the National Association of Manufacturers.
Distribution and warehousing sectors have planned projects for construction starts that amount to more than $21 billion. This sector includes data centers across the United States. In Kansas City, Mo., Alphabet Inc. plans to construct a $600-million data center campus located on an 80-acre site in the North Arlington Business Park.
Noncompliant Forged-Steel Flanges
The shadow cast over the PVF sector of the importation of misrepresented noncompliant forged-steel flanges in 2019 will remain an issue for the 2020 PVF (and beyond) market.
On Sept. 27, 2019, after a nine-day trial in the U.S. District Court in Houston, the jury handed a win to Weldbend Corp. and Boltex Mfg. Co. Ulma fraudulently exported to the U.S. market carbon steel flanges as heat-treated (normalized) in accordance with ASTM A105N specifications, when they were not.
As a result, I urge the PVF industry to increase the scrutiny of the manufacturers supplying critical materials to their facilities. This applies to the end-user, the distributor and the fabricator to ensure the quality of the product, the safety of the American public and to limit your exposure to significant liability claims.
PVF Roundtable News
This is just an overview of the construction and PVF sectors of the market for 2020. As a member of the PVF Roundtable board of directors, I, along with my fellow board members, urge you and your associates to attend the networking meetings for further insight on what to expect in the PVF sector this coming year.
The first 2020 meeting of the PVF Roundtable is scheduled for Feb. 11 at The Bell Tower on 34th in Houston.
The second meeting of the 2020 season will be a networking meeting scheduled for May 12, beginning at 4:15 p.m. and ending at 7 p.m. The meeting will be at the same venue.
The PVF Roundtable board urges you and your associates to attend the networking meetings as this is where the movers and decision-makers from all sectors of the PVF industry meet to network and exchange information and ideas.