Tom Radz

When you hear the words “construction materials,” it is only natural to think of the more common commodities, like lumber, steel, or glass. Someone in the industry might also include less popular materials like gypsum or copper. However, a material not often considered is one that directly affects the production of a number of vital materials: sand, which is in short supply globally.

When it comes to raw materials, sand only trails water as the most used commodity in the entire world. In the construction industry alone, between 40 and 50 billion tons of sand is used every year. The demand is so strong that sand pirates have stolen entire beaches overnight and islands have completely disappeared from illegal mining.

CONSTRUCTION MATERIALS MADE WITH SAND

Among the many products that are produced with sand, the more prevalent ones used in construction tend to be concrete, glass, and plaster. Considering that all three of these materials are found in almost every construction project across the globe, many general contractors are monitoring the sand shortage situation closely.

WHAT TYPE OF SAND IS NEEDED?

For those unfamiliar with sand’s role in the production of construction materials, they may wonder how it’s possible to have a shortage of sand. In the United States alone, there is more than 86,000 square miles of desert, which is less than 1 percent of the total sandy deserts on Earth.

However, the sand in deserts is very fine and smooth, so the ability for the grains to bond is basically non-existent, rendering them completely ineffective for the production of materials like concrete. Even cities like Dubai, which are surrounded by vast deserts, have to import sand from countries like Australia to construct their buildings.

The sand used in the production of construction materials is mainly extracted from riverbeds, lakes, oceans, and beaches. This type is known as marine sand.

HOW MARINE SAND IS CREATED

Most of the sand that you find on beaches is primarily made up of quartz and mainly originates in rivers and streams. Erosion takes place in these waterways and the sand that is produced is carried to the ocean where the waves break it down even further. The hard pounding of the water currents and waves against the rocks creates a type of sand with jagged edges, allowing it to bond together easier. This process is what makes marine sand better suited as bonding material than that of desert sand, which is roughly all the same size and smoother because it is moved by the wind.

EXTRACTION’S EFFECT ON THE ENVIRONMENT

This process of extraction is not very eco-friendly as it creates unnatural erosion, destroys ecosystems, and pollutes waterways. Citing environmental concerns, specifically erosion, the State of California, under pressure from local activists, forced the CEMEX Lapis plant in Monterey to shut down its operation. This was the last coastal sand mine in the United States.

LACK OF REGULATION

Unlike other commodities, sand has very little to no regulations, depending on what part of the world you are in. This is what ultimately makes it a cheap commodity in comparison with others. Other than ocean mine operations, which is a little more involved, it is fairly easy to extract sand and transport it.

Due to the lack of regulations, sand can theoretically be mined by anyone who has a shovel and a bucket and it often is. However, they do have to compete with the large companies who have the proper machinery for such operations.

SAND PIRATES

It may sound like something from out of an apocalyptic movie, but sand pirates are very real, although in some areas, like India, they are referred to as sand mafias. These organized gangs have been known to remove entire beaches literally overnight. Over time, we have seen entire islands disappear due to erosion because of illegal sand mining operations.

There is no differentiating between pirates and sand mafia, as both often rely on intimidation through violence to carry out their mission. There are plenty of instances where bribes were offered and murders were committed by the sand pirates who operate on black markets all over the world.  From the Caribbean, to India, to the Far East, sand pirates have murdered journalists, law enforcement officials, and environmental activists.

WILL WE RUN OUT OF SAND?

Another negative byproduct of having no regulations is that there is no inventory of just how much sand is actually out there. What we do know is there is not an infinite supply and mining it can have catastrophic effects on the environment depending on where and how it is sourced.

Nearly a third of the construction on the entire planet is happening in China, where they produce more concrete than the rest of the countries in the world combined. From 2011 to 2013, China used more concrete than the U.S. did in the entire 20th Century. This, of course, means they use a large amount of sand for their concrete.

SEARCHING FOR SOLUTIONS

The United Nations Environment Programme (UNEP) recently released a report where they make 10 recommendations to solve what they call a “crisis” in the sand industry. Among their recommendations are “recognize sand as a strategic resource”; “map, monitor and report sand resources”; “restore ecosystems and compensate for remaining losses”; and “source responsibly.”

Arguably the most important recommendation from UNEP states, “Establish best practices and national standard, and a coherent international framework.” Organizing the international community to regulate the sand industry is tantamount to solving all of the other present issues.

ALTERNATIVES TO SAND

Crushed rock can be recycled from demolition sites to make products that are historically made from sand. Another emerging alternative to concrete and steel in construction is engineered timber.

Lendlease recently completed 25 King, the tallest and largest engineered timber building in Australia. While the building does have a concrete base for the first two floors, the next nine floors are all constructed from engineered timber. As more products like engineered timber come to market, the construction industry’s reliance on scarce materials like sand will begin to wane.

The previous two years have been a wild ride when it comes to the prices of construction materials. While some materials have fluctuated drastically, many others have steadily risen. With bottlenecks in the supply chain and rising gas prices, along with other untimely factors, the cost of securing necessary construction materials placed an added burden on every firm across the nation. These costs had to be, unfortunately, passed on to the consumer.

However, as pressure on the supply chain continues to dissipate, certain commodity prices have begun to improve. While the ongoing war in the Ukraine continues to pose challenges globally, gas prices have recently begun to trend downward, and that cost appears to be already reflected in the price of some domestic materials.

VOLATILE LUMBER PRICES

Lumber has been one of the most volatile of materials over the past two years.  Since September of 2020, this commodity has drastically fluctuated, rising 40 percent over the second half of 2021 and now lowering 16 percent over the first half of 2022. 

GLASS STOREFRONT SYSTEMS SURGING

While flat glass has somewhat stabilized nationwide, we have seen a staggering increase of 40 percent in the price of glass for storefront systems, here in the Southwest, over just the past quarter.

STEEL MILL PRODUCTS

Prices on steel mill products have dropped more than 14 percent since spiking in May as demand continues to wane. Experts point to the overproduction of steel in Q4 of 2021 as the reason for this drop in price.

FINAL DEMAND FOR GOODS

In the month of July, the index for final demand for goods fell by 1.8 percent, which is the largest drop since early 2020 when it fell 2.7 percent. Much of this decline can be attributed to a 16.7 percent drop in gasoline prices. 

Phoenix natives know that driving north on Interstate 17 means two things – traffic and scenery. But well before the terrain turns to majestic mountains, there is another changing landscape, just as you’re leaving Phoenix, that has also been turning some heads.

From the highway, it is hard to miss the 38 cranes that are scattered throughout a 1,100-acre construction site where the Loop 303 meets the I-17. This site will be the future home of a $12 billion semiconductor plant operated by the Taiwanese company, TSMC. 

The sheer size of the operation is undoubtedly impressive, but the implications it has for other projects in the Phoenix Valley doesn’t necessarily have local general contractors singing its praises. The ripple effect of such a project has posed major challenges for construction firms who were already having a hard time sourcing materials because of the pre-existing supply chain issues. 

When you consider the fact that Intel is investing $20 billion in two similar facilities in the Phoenix Valley, it is safe to say that securing materials for other projects in Arizona will become even more difficult. Subcontractors are already being put on allocation for many of the materials needed for the semiconductor projects.

While it may be difficult to pin down exact numbers as to what degree these new facilities will delay other construction projects, an in-depth look at what we already know about the TSMC plant and recent legislation may help shed some light on what can be expected in the near future.

THE DEMAND FOR SEMICONDUCTOR PRODUCTION

Just as the onset of the pandemic created a shortage in the supply of many items, computer chips, like the ones that will be produced by TSMC here in Phoenix, also proved to be scarce. These chips are vital for not only computers, but cell phones and major household appliances as well, along with many other electronic devices.

RECENTLY PASSED LEGISLATION

In early August, President Biden signed into law the Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS for America Act). Of the $280 billion allocated toward the bill, $52 billion will be devoted specifically toward incentivizing chip production domestically. Just one week prior to Biden signing the CHIPS Act into law, U.S. Speaker of the House, Nancy Pelosi (D-California), made a trip to Taiwan to meet with the chairman of TSMC to discuss what the bill entails. The meeting is a strong indication that TSMC is considering building more factories at their site in Phoenix.

TIMELINE OF THE TSMC CONSTRUCTION

Construction on the TSMC plant began in 2021 and they are expected to start production of their chips in 2024. Completion of the fabrication structure (“fab”) is near completion, and as of June, about half of the glasswork had been installed. Under normal conditions, a plant like this can generally be built in a little more than a year’s time, but supply chain issues and the fact that this is a Taiwanese company building their facility overseas, it is expected to take longer.

SIZE OF THE PROJECT

Across the 1,100 acres of land in North Phoenix, the TSMC complex is expected to total 3.8 million square feet once completed.  If the company does decide to build additional “fabs” on the site, the total cost could be as high as $35 billion.

SIMILAR CONSTRUCTION PROJECTS

In addition to the TSMC and Intel facilities, other developments are in the works to strengthen the supply chain to the these plants. Most notably, Sunlit Chemical, a company that produces chemicals used in the manufacturing of semiconductors, broke ground on a $100-million facility earlier this year, near the TSMC plant in North Phoenix.

MANUFACTURING AND CONSTRUCTION JOBS

The TSMC plant is immediately expected to create 1,600 jobs and nearly 5,000 manufacturing jobs over the next three years. According to Intel, their semiconductor plants will create approximately 15,000 jobs, which doesn’t include the more than 3,000 construction positions needed to build their two facilities. Because Sunlit Chemical relies heavily on automation for the production of their chemicals, their impact in terms of labor will not be as significant, but their services are vital to TSMC and Intel’s operations. They will, of course, need to dip into the construction labor pool to complete the building of their 900,000-square-foot facility.

When it comes to employment in the construction sector, the numbers can be a little misleading if you are not exactly sure how to interpret them. There are so many different positions that need to be filled, across a number of skilled trades, so the overall figures may look positive when, in fact, there is still a long way to go. This is the case for the present situation in which the construction industry finds itself.

THE OVERVIEW OF CONSTRUCTION UNEMPLOYMENT

The construction unemployment rate is now well lower than the pre-pandemic levels and the sector is filling more positions daily. Skilled trades, however, continue to struggle to recruit the younger generation to fill the gap left by early retirees from the pandemic.

THE BREAKDOWN OF THE NUMBERS FOR NONRESIDENTIAL CONSTRUCTION

From April to July, the construction unemployment rate fell, this past quarter, from 4.6 percent to 3.5 percent, which is well below the pre-pandemic mark of 5.5 percent. There is even a larger decline when looking at the entire first half of 2022, which began with a 7.1 percent mark for unemployment. This was the highest the rate reached since April of 2021 when it was at 7.7 percent.

RESIDENTIAL VS. NONRESIDENTIAL CONSTRUCTION HIRES

In July, total construction employment rose by 32,000 hires, however, the nonresidential construction sector has yet to surpass its pre-pandemic levels. Residential construction appears to be shouldering a large portion of the lift when it comes to new hires. As of June, nonresidential construction was still -2.9 percent below its pandemic level for employment, while residential was up 6 percent.

THE SKILLED TRADES SITUATION

The skilled trades, specifically, continue to struggle to fill positions that were vacated by older workers who opted for early retirement during the shutdown. The construction industry is still looking to add approximately 650,000 workers in 2022, according to the U.S. Department of Labor. This number is quite daunting when considering that less than 45,000 apprentices completed their programs in 2021.

To learn more about the current state of the construction industry, click here to download our Q3 2022 Construction Delivery Outlook.