Construction industry benefits from stimulus

Mike Betts splits his time between New York and London as a Building Analyst for JP Morgan Chase. He is, in fact, in London right now paying close attention to what Barack Obama’s been doing and saying about the Stimulus Package. The construction industry is going to benefit, because several international building companies do a large chunk of their business here in the U.S. and the promise of so-called shovel-ready projects across the country is wetting their appetite.

Betts explains how some European construction companies will benefit: "I mean companies like CRH, which is a global building materials company specializing in aggregate cement, concrete, et cetera, they derive half of its profits from the U.S. And some of the big global cement companies, which are European in origin, people like Holcim and Lafarge also derive more than 10 percent of their profits from the U.S., so clearly they’re major beneficiaries of the stimulus package."

CRH is headquartered in Ireland, roughly 45 percent of its earnings before interest, taxes, depreciation, etcetera are generated here in North America. This company in particular is said to be the number one provider of asphalt here in the United States. Betts says CRH has 11 percent of the asphalt market, and its ready to fill more than potholes: "Yes, it is. I mean clearly filling potholes is a start, but I mean it has the ability to provide the asphalt for major new highways. It also supplies aggregates, which is crushed rock found in gravel, so the stone base that’s required for roads. So yes, it provides a number of those products."

How Americans potentially benefit from having an Irish company providing the building materials for massive highway projects, according to Betts: "Well, you have to remember that the 45 percent of CRH is sales and profits that comes from the U.S. Pretty much all of that work is done by Americans. Now, obviously also the U.S. will benefit in terms of lower bitumen costs. I mean, if you just take the example of asphalt which we mentioned earlier, the main raw material for that is bitumen which is a waste produce of refining oil. You know, there’s a major advantage of scale in terms of keeping that cost down and ensure that more work is able to take place than would otherwise be the case. And therefore more jobs are created."

Betts explains the process by which a road is built by tracing a bucket of crushed rock from quarry to construction site: "The rock will be extracted from the ground in a local quarry. It will be crushed in a local quarry. It will then be transported to a construction site, typically within five or ten miles of that quarry and it will then be placed typically by a local contractor as a sub-base for the road upon which the asphalt will then be laid on top.

"… what an international company like CRH provides is they have an international expertise that they’ve derived from Ireland, the UK, continental Europe and elsewhere to improve the efficiency of their U.S. operations.

" … overall I see the stimulus package as being essential to both sustain and create jobs in the construction industry, which is typically 10 percent of GDP. We are counting on the success of the stimulus package in the U.S., because the plans in Europe are very similar to those in the U.S. So I think lessons will be learned from what happens in the U.S. to apply to Europe to make sure that the packages are successful."

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