Aggregate Economics
Aggregates Market Structure – Supply
Aggregates are supplied from both primary and recycled and secondary sources. Primary sources include the quarrying of crushed rock and sand and gravel and the dredging of sand and gravel from the seabed. Recycled sources include materials previously used in construction markets such as crushed concrete from demolition waste, road planings and spent rail ballast. Secondary materials are those by-products or co-products from other manufacturing or extractive activities which can be used in aggregates markets, for example slate waste, china clay waste, iron and steel slags and waste glass.
There have been significant changes in the relative contribution of the different sources of supply since data on sales volumes was first collected regularly by Government in the post war period. At that period the predominant source was quarried sand and gravel, but in recent decades the supplies of crushed rock and recycled/secondary materials have become relatively more significant. The table below indicates the domestic supply into aggregates markets in Great Britain since 1980. There is a relatively small level of international trade in aggregates, with imports into and exports from Great Britain generally accounting for no more than 2% to 4% of the market. As such GB production gives a reasonable indication of the market size and market movements.
Graph of the Aggregate Sales in GB - 1980-2010
In broad terms the share of recycled and secondary has increased from the historic level of around 10% to 28% n 2010.
Given that the research indicates that most significant sources of recycled / secondary materials are already well utilised in GB, this suggests that the amount of material which is available is now the most important factor in the use of these materials. In other words there is a strong established culture in the GB Construction sector to use recycled/secondary materials where possible and strong incentives to do so.
Looking at the data on construction output and the sources of aggregates supply it is clear that the statistical relationship (the correlation coefficient) is strong when comparing total construction output and sales of recycled and secondary materials.
As a result we would assume that the future use of recycled/secondary materials will depend mainly on the level of construction output. The explanation for this is that it is the construction process which leads to demolition and redevelopment and which therefore creates the supply of the main source of recycled / secondary materials – demolition waste. So an incremental increase in the use of these materials as construction output increases the most likely trend.
Aggregates Market Structure - Demand
The figures above represent supply into aggregates markets. In addition 15 – 20 million tonnes of aggregates minerals are used annually for non-aggregates purposes, for example silica sand for glass making and limestone for iron and steel and cement manufacture.
Aggregates are used throughout the construction industry, although detailed and consistent data on the use of aggregates by construction sector is not yet available, but the Government's Annual Minerals Raised Inquiry (AMRI) gives some indication of construction uses.
Table Showing AMRI Rnd-users 2008 (million tonnes - GB)
| Sand & Gravel | Crushed Rock | Total | % of Total | |
| Asphalt Sand & Gravel | 2.2 | 2.2 | 1.2 | |
| Coated Roadstone | 19.5 | 19.5 | 10.4 | |
| Surface Dressing Chips | 1.2 | 1.2 | 0.6 | |
| Uncoated roadstone | 25.6 | 25.6 | 13.7 | |
| Concrete aggregate | 45.7 | 23.0 | 68.7 | 36.7 |
| Mortar Sand | 8.5 | 8.5 | 4.5 | |
| Other Screened/Graded Aggregates | 4.6 | 15.0 | 19.6 | 10.5 |
| Other Construction uses/Fills | 11.1 | 26.6 | 37.7 | 20.1 |
| Rail Ballast | 3.4 | 3.4 | 1.8 | |
| Armourstone/gabion | 0.7 | 0.7 | 0.4 | |
| TOTAL | 72.1 | 115.1 | 187.2 | 100 |
Construction activity is measured by the Office for National Statistics as “Construction Output”. This data is published monthly and is generated by ONS surveys of contractors – contractors report the value of construction work carried out over the period, broken down by the type of construction work. The chart below shows the historic relationship between the value of construction output (in constant 2005 prices to take account of the impact of inflation) and total aggregates sales (including both primary and recycled/secondary materials)
Table Showing AMRI Rnd-users 2008 (million tonnes - GB)
The relationship between aggregates demand and construction activity is illustrated in the chart above. There is, unsurprisingly, a reasonable long term relationship between the two sets of data although this relationship is not consistent from year to year. It is notable, for example, that the relationship has been weaker over the past decade. The amount of aggregates used per £1 of construction output has declined over this period, for reasons potentially including:
- Construction output being more weighted towards types of construction requiring fewer aggregates – e.g. high value retail and commercial developments having an increasing share of their construction value accounted for by non-aggregates element of construction such as complex IT, heating and ventilation systems.
- Less waste on construction sites
- The use of ground stabilisation techniques and engineering solutions requiring less material, for example cement/lime stabilisation
- More brownfield and less greenfield construction, allied to requirement for higher density development, leading to less transport and services infrastructure for such developments.
It is not, however, clear if this trend whereby construction has become less “aggregates intensive” will continue in the long term or whether, for example, an increasing focus on infrastructure construction might increase this aggregates intensity. The conclusion is that while there is a clear relationship between the level of construction activity and aggregates demand, that relationship will not be constant over time.
Construction output represents a significant share of national economic activity, typically seven to eight per cent. However the ONS construction output statistics understate the total contribution of construction due to sector statistical definitions, for example not including all professional services associated with construction or related transport movements. As a result the construction contribution to Gross Domestic Product is at least 10%. The aggregates and associated sectors account for some five per cent of construction output and represent by far the largest flow of materials into construction.
Factors influencing future aggregates markets
Key factors underpinning future demand for construction and aggregates include the economic performance of the UK and associated private and public expenditure on construction, changes in population and demographics and the consequences of Government policy objectives which are likely to focus increasingly on sustainable development and countering climate change.
Taxation and regulatory impacts
Regulatory and taxation costs in the aggregates sector have increased significantly in recent years. The most direct cost is the Aggregates Levy, introduced in April 2002. The Levy is charged on aggregates used for construction purposes. The original Levy charge was £1.60 per tonne and the current rate is £2.00 per tonne, with the levy raising £300 - £350 million of tax revenue per annum for Government. The Levy was introduced as an environmental tax, calculated to reflect the environmental impacts of aggregates supply and to encourage the use of recycled and secondary materials in aggregates markets. In order that some of the Levy revenue would be spent on sustainability and local community projects related to aggregates, Government introduced an Aggregates Levy Sustainability Fund (ALSF) with the Levy. In England the nominal value of the fund was £29 million pa but actual ALSF spending has averaged £20 million pa. Government has announced that the ALSF will end in England at the end of 2010/11, leaving Wales as the only remaining part of the UK with a functioning ALSF scheme. The overall environmental impact of the aggregates levy is unclear.
The aggregates and aggregates product industries have also been affected by costs associated with energy taxation and related measures. The Climate Change Levy has increased energy costs for business and the aggregates sector, which transports a very large volume of relatively low value materials, is particularly sensitive to increases in fuel prices driven by rising oil prices and fuel duty increases.
The Government’s new Carbon Reduction Scheme, a tax measure directed at organisations with energy use above a set threshold, will increase energy costs for larger companies in the sector and the third phase of the EU Emissions Trading Scheme from 2013 is likely to include larger asphalt plants within its scope, further increasing costs.
There has also been a general trend of increasing regulatory costs in the sector as Government and regulatory bodies have increased a range of planning, monitoring and enforcement charges imposed on companies. Due to the pressures on the UK’s public finances, such costs are unlikely to diminish.
Statistics obtain from: http://www.statistics.gov.uk