Skanska USA Building
Pharmaceutical projects are smaller, but a $128-million R&D facility for Johnson & Johnson in Spring House, Pa., shows there is life.
Given the shaky U.S. economy and weak dollar, contractors servicing the slumping manufacturing sector are hoping overseas owners eyeing project opportunities on U.S. soil will come to the rescue. But some industry observers fear the level of foreign investment in the U.S. may not prove significant enough to fill the void left by traditional domestic clients.
Concerns about the market have escalated as manufacturing plant capacity rates published by the Federal Reserve have dipped. Many in the industry see a utilization rate of below 80% as an indication owners will likely cut back on expansions, says Mike Gearhart, president of CH2M-Hill’s manufacturing and life sciences group. Throughout 2007, the overall rate hovered around 79%. By June 2008, the plant utilization rate had dropped to 77.6%.
In mid 2007, “we were still flush with executing work and burning backlog,” Gearhart says. “We saw outright capital freezes in several industries starting in the fourth quarter of 2007. Come January, the bottom fell out of a lot of our domestic practice. We are down 50% on sales in the U.S. so far this year.”
Among the casualties was the building-materials sector that had been feeding products to support the housing boom. CH2M-Hill is among the firms that banked on big new cement and gypsum plant jobs in recent years. With the housing market in freefall, demand for some building products has dropped significantly. Between January 2006 and June 2008, utilization rates at wood-product plants dropped from 89.2% to 66.6%.
The domestic auto industry, traditionally a source of large manufacturing projects, also has taken a big hit in light of escalating gas prices. Many manufacturers, particularly the “Big Three” in the U.S. (GM, Ford and Chrysler), are scrambling to develop new ways and products to deal with dipping demand for low-gas mileage vehicles. Rather than building new greenfield sites, some are hoping to retool plants they have. “Clearly a lot of capital will be spent retooling facilities,” says Tom Manahan, president of the Lathrop Co., a division of Dallas-based Turner. “Among the Big Three, there is an unquestionable need to change and retool a lot of their facilities, but there is also a shortage of capital right now. The offshore firms are better positioned to adapt. For domestic firms, it’s clearly about survival.”
In July, Ford announced plans to retool three of its North American plants, shifting them from producing SUVs and pickup trucks to more fuel-efficient vehicles. Chrysler also announced plans in July to switch some of its production to fuel-efficient vehicles.
While Detroit automakers search for solutions, foreign car companies are planting big facilities on U.S. soil. Toyota is moving forward with its new $1.3-billion assembly plant in Blue Springs, Miss. The plant is expected to open in 2010. In July, Volkswagen announced plans to invest $1 billion in a new plant on 1,350 acres in Chattanooga, Tenn. The plant would produce up to 150,000 cars annually, with production expected in 2011.
While the American auto industry takes a hit, another once-dominant industry, steel, is enjoying a bit of resurgence. As global demand for steel remains steep and prices are high, companies are looking to boost production in the U.S. Germany’s ThyssenKrupp is building a $3.7-billion steel and stainless-steel processing facility in Mobile, Ala. The facility will include a hot strip mill with a stainless-steel melt shop. The facility will produce up to 4.1 million tonnes annually and is expected to open in 2010.
In May, Nucor Corp. applied for permits to build a $2-billion iron-making plant in St. James Parrish, La. The company saw its profits rise 68% in the second quarter of 2008.
Manahan sees even broader opportunities in metals production. Turner landed an engineer-procure-construct-maintain contract on a new $107-million plant for British company ZincOx. The plant will be used to recover zinc and iron from waste produced during scrap-metal processing. Turner hopes to break ground on the project this fall, with construction expected to last approximately 18 months.
The emerging renewable-energy market is creating demand for facilities beyond ethanol and biomass, as a wave of solar-panel plants is starting to sweep into the market. “There is a tremendous need to change our energy consumption, and with that will come a need to manufacture those products,” Manahan says. “Solar panels are one example [and] we’ve been pursuing a European firm that wants to build a wind-turbine plant in the states. That’s something we’ll see more and more of.”
Turner has been selected to build a $105-million solar-panel production plant in Perrysburg, Ohio, for Willard & Kelsey Solar Group. The plant is one of three solar-panel plants planned or operating near Perrysburg.
Camarillo, Calif.-based solar-power firm SolarWorld last year invested $40 million in a plant in Hillsboro, Ore., to create a facility for integrated solar-silicon-wafer and solar-cell production. The plant was a $500-million silicon-wafer production facility previously owned by Japan’s Komatsu Group, but never put into operation due to weak demand. SolarWorld plans to invest an additional $400 million in the plant. With an annual production capacity of 500 MW of cells by 2009, the plant will become the largest solar factory in North America.
Peak Sun Silicon Corp. in February broke ground on a new headquarters and polysilicon manufacturing plant in Millersburg, Ore. The $18-million first phase of the project is expected to be completed this fall. The firm may invest up to $700 million in the second phase, which is scheduled for completion in 2011.
Ivor Harrington, senior vice president of manufacturing and life sciences at Fluor Corp., says solar panel projects represent big business globally for the company. “Renewables are a real bright spot for us,” he says. “Manufacturing is flat or down and has not been good for awhile, but there is definitely a lot of interest in [renewables].”
In August 2007, Fluor began construction on a $1-billion polysilicon facility for LDK Solar in Xinyu City, China. Once completed in late 2008, the facility would be the...