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Property Market Report July 2005
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Property Market Report | The minerals and waste management industries |
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The minerals and waste management industries Contents
OverviewThis year’s report (the twelve month period to July 2005) continues with takeovers and rumours of takeovers in the aggregate market. The waste industry has seen a major change in the way it undertakes its business with the introduction of legislation that brings to an end the co-disposal of hazardous waste and tighter controls on how much municipal waste can be disposed of to landfill.
Construction materialsAggregates A strong final quarter meant that aggregate sales for 2004 were broadly similar to 2003 with the Quarry Products Association reporting a modest decline in the annual sales of sand and gravel . Value added products however differed in performance, with ready mixed concrete sales up by 3% and coated stone down by a similar amount. According to the Quarry Products Association, ready mix sales were boosted by growth in housing, commercial and public non-housing sectors, with the drop in coated stone being due to lack of activity on major contracts. Industry discontent over the Aggregates Levy rumbles on, with the level of tax remaining frozen at £1.60 per tonne since its introduction in 2002. The Government’s view is that there are indications that production of virgin aggregates has reduced since the levy’s introduction, with attendant environmental benefits. The industry believes otherwise, pointing to a relatively small increase in the use of recycled material and some substitution of lower quality taxed material by other non-taxed extracted mineral such as shale or slate. This view is supported by a report published by the British Aggregates Association which commented that the levy had created an environmental problem with a rise in illicit quarrying and a growth in un-saleable lower quality primary aggregates which cannot compete against untaxed secondary and recycled products. Consolidation of the industry continues, with the reported acquisition in March 2005 of the RMC Group, by Mexican giant Cemex, the world’s third largest cement producer. Together with RMC, the Company will be the largest producer of ready mix concrete in the world and the fourth largest aggregates producer. Further consolidation of the UK aggregates sector looks increasingly likely with the tabling of a bid by Holcim of Switzerland to acquire Aggregate Industries. If the deal is successful it will leave Hanson as the only UK quoted major aggregates group. Marine Aggregates Marine aggregates continue to be an essential source of sand and gravel especially in areas where land based extraction is not readily available. The south-east is the largest market area where around a third of all sand and gravel requirements are met from sea dredged sources. Extraction rates have remained fairly stable over recent years at around 22 million tonnes per year, although a downturn in the construction industry has started to impact on the demand for marine aggregates. There are many licensed areas for marine dredging off the British Isles but the majority are based off the South and East Coast of England and the Bristol Channel. Several new dredging areas off the South coast have recently received a positive view from the Government. These areas in the eastern English Channel have large reserves and allow for dredging over a fifteen year period, subject to review every five years. If these new areas are extracted to the extent permitted, the total amount landed in the south-east could increase by several million tonnes per year. Recycled and Secondary AggregatesApproximately 275 million tonnes of aggregates are used each year in the UK as raw materials for construction. Of this, around 65 million tonnes are sourced from recycled and secondary aggregates resources, but estimates suggest that a further 20-25 million tonnes a year of suitable recycled and secondary materials could be used. The UK has a higher level of aggregates recycling than in other major European countries. The proportion of recycled aggregates to total primary aggregates and recycled aggregates in the UK is 23 %, compared with 16% in Germany, 5% in Belgium, 4% in France 1% in Italy and 0.5% in Spain. The introduction of the Landfill Tax and the Aggregates Levy continue to reduce the primary aggregate share of the market with a switch to the use of recycled and secondary aggregates, which, combined with agencies such as WRAP(Waste Resources Action Programme) facilitating and promoting the increased use of recycled and secondary aggregates is helping to meet the Government objectives and targets on recycling. The greatest producers of recycled aggregates remain in the South East of England and London where primary aggregates are in short supply and it has been estimated that the region consumes 25-30% of all recycled aggregates used in Britain. There is evidence of an increase in recycling throughout the United Kingdom. In Cornwall and the Southwest of England the use of waste materials from the china clay industry has increased, mainly due to the fact that these materials are exempt from the Aggregates Tax, and this has had some impact on sales of hardrock in the area. Nearly 400 companies are now involved in aggregate recycling across the UK according to research with at least 540 static aggregate recycling plants of which over half are less than 10 years old. In London and the South East there are over 100 companies operating with upwards of 140 plants. The industry is dominated by independent businesses primarily involved in sectors such as demolition, skip hire, plant hire or waste management. Materials suitable for use as recycled or secondary aggregates fall into broad groups:
Currently within the southern part of England including Greater London and the South East 55% of Secondary Aggregate Recycling Sites are held in freehold occupation. The majority of rental information indicates that the terms of occupation for the leasehold sites are held on a lease for the land area taken rather than on a rate/tonne for material recycled. Coal Market View To obtain the outlook for the UK’s coal industry it must be viewed in line with other energy sources. Currently there seems to be no let up in China’s energy demand as it seeks to fuel the continued expansion of its manufacturing and heavy industry. At the same time the USA, which consumes the greatest percentage of the worlds oil production, is seeking to increase stocks of oil in anticipation of shortages at the summer peak demand period. This has caused new highs in oil prices with potentially more increases to follow which could take the price in excess of $60 per barrel. This has resulted in all energy prices remaining high and with continued unease in the Middle East there appears to be no end to the increases in sight. In a market which has barely seen prices over £1.25/GJ since the mid 1990’s, the high price of competing energy forms has meant the average delivered price of coal imports over the last 12 months have remained between £1.70 to £1.80/GJ. The comparatively lower cost of coal fired power generation has ensured the demand for indigenous coal supplies and this should have placed UK’s coal producers in an advantageous trading position. However, with this background the prospects for coal should be booming but with further colliery closures taking place, poor performance in the deep mine sector and the difficulty in securing opencast planning permissions, supplies of indigenous coal continue to fall. Over the years society has become used to uninterrupted supplies of energy at reasonably affordable prices and if this is to continue then a balanced coherent energy policy will need to be developed. Five out of the nine older Magnox nuclear power stations will reach their 40 years retirement age over the next six years. With a minimum 10 year lead in time for new stations it is clear that coal will have to continue providing at least at its current level of 40% of the electricity generation market. Since the mid 1990’s the Government’s planning policy has been a presumption against opencast coal mining in an attempt to support the beleaguered deep mined section of the industry . However, with the continued exhaustion of deep mined capacity and if the country is not to rely wholly on imported supplies of coal then action will be necessary through mineral planning guidance in England and Scotland (MPG3 and draft SPP16) in order to make mining permissions quicker and easier to obtain , in line with the policy for the other extractive industries. Coal Production to March 2005* (thousands of tonnes) -
* information supplied by the DTI Deep Mine Production Deep mine production fell by 21.5 % over the last 12 months to 11.5 million tonnes and for the first time opencast production exceeded that from deep mines. This was mainly due to the phased closure of the Selby Coalfield (Nov 2004) and the flooding of workings at Ellington Colliery, the last deep mine in the North East, resulting in its closure in January 2005. Other difficulties arose from geological problems at Rossington and Welbeck Collieries, poor performance at Tower Colliery, revision of working methods at Harworth to overcome methane problems and industrial action at Kellingley as UK Coal attempted to revise working practices and wages structure. UK Coal with seven deep mines, five opencast mines providing 14 million tonnes or 60% of UK output remains the countries largest producer. The company has pursued a policy of seeking long term contracts to secure the future of its collieries but this has left it in a position unable to take advantage of the current high market prices. There were two main reasons for this the first was that due to poor performance and programmed closures UK Coal had run down stocks to meet contractual liabilities so no additional coal was available to sell. Secondly with average contracted selling prices of £1.18 but production costs increasing from £1.16GJ to £1.30 UK Coal was left with pre tax losses of around £51.6 million. The company is convinced they have now put in place measures to ensure a return to profit in 2006 but clearly without continuing investment aid some of the surviving collieries would also be closed. Opencast Production Over the last 12 months opencast coal production was fairly static with just a 1.3% increase to 11.8 million tonnes during 2004/5. The bulk of the output was split between Scotland producing 7.6 million tonnes and England producing 2.7 million tonnes. It was notable that during the year production in England reduced by 26% or almost 1 million tonnes but this was compensated by a similar increase in output mainly from Scotland and Wales. The last data supplied by the Coal Authority (March 2004) assesses reserves of opencast coal in license at 51 million tonnes or around 4 years of reserves with a further 154 million tonnes identified. Permitted reserves in England now stand at 4.7 million tonnes whilst in Scotland there are 36.5 million tonnes and Wales 12 million tonnes. Opencast coal royalties comprise two elements one is payable under licence to the Coal Authority and is fixed at 10p per tonne across the board. The other is payable to the surface owner for access, occupation and disruption of his land. The small amount of evidence available on surface royalties at greenfield sites indicates a range of royalties between £1.50 to £2.50 but generally it remains around £2.00 per tonne as it has done for over 10 years. Surface royalties at brownfield and reclamation sites vary considerably according to the amount of contamination or dereliction to be dealt with. Many of the reclamation sites attract grant aid and without full details the analysis of royalty payments is difficult. On shore Oil and Gas General Overview The price of oil continues to dominate the headlines. In 2004 we reported that the UK oil marker Brent was trading around US$35/bbl, currently it is touching new highs of over US$58/bbl, a rise of over 65% on the year. Speculation continues as to the future for the oil prices with many commentators pointing towards US$75/bbl in the next few years. Lord Browne of BP has gone on record as saying that he expects world prices of oil to remain at over $US40/bbl until new supplies come on stream in three or four years time. All of this is set against a series of factors that include global production of 80 million barrels/day with the US consuming 20million barrels and China 9 million barrels, having displaced Japan as the worlds second largest consumer, and the expectation of this increasing by another 1 million barrels this year and next. Link this to geopolitical instability and tight refining capacity which all contribute to the upward pressure on the oil price. The situation with the UK onshore oilfields is very much one of continuing declining production levels. Exploration activity continues but development is confined mainly to infill drilling in the established oilfield areas. It is likely that without the high oil price to sustain it, both exploration activity and production would be at much lower levels. In the 12th Onshore Licensing Round there were 30 applications for onshore licences which is a considerable increase on the previous round Wytch Farm ,Dorset, which despite falling production is still by far the largest producing onshore based oilfield in the UK. With declining production levels it is expected that the export of LPG through the Furzebrook Rail Terminal will cease in 2005 and be replaced by a road tanker facility situated within the Wytch Farm Gathering Station. Humbly Grove (Hampshire) operated by Star Energy has begun the further development of the field for the storage of gas within the former underground reservoir. The facility is expected to commence commercial operations in late 2005. The underground gas storage capacity is put at 10 billion cubic feet. A benefit of this gas storage within the former oil reservoir is expected to be re-pressurisation of the reservoir which will extend the life of the field from less than 10 years to around 20 years. Following on from its experience mentioned above ,Star Energy has plans for a similar facility at Welton oilfield in Lincolnshire. Midmar Energy have brought into production small oilfield site at Brockham , Surrey, which has been laid dormant for many years. Landfill The market for waste and landfill continues to experience rapid change. Augean has become one of the biggest names in the hazardous waste sector with their acquisition in late 2004 of Atlantic Waste holdings and Zero waste. A £200m management buyout of Cory Environmental from Excel PLC in April 2005 may see the company grow and develop into new markets. Consolidation in the landfill gas sector continues with Novera Energy Ltd acquiring United Utilities Green Energy in the autumn of 2004. The size of some of the long term PFI waste contracts in the pipeline is surprising and will probably only be won by the larger of the waste management companies such as Cleanaway, WRG and Biffa although a consortia could be formed bringing together knowledge in all the various areas. The Landfill Allowance Trading Scheme (LATS) launched in England in April 2005 will increasingly reduce the amount of waste going to landfill, as Local Authorities unable to meet their targets have to either buy or borrow allowance or face supplementary fines (reportedly of £150 per tonne). One of the biggest changes in landfill has been in hazardous waste disposal following the end of co-disposal and the implementation of the new waste acceptance criteria. These changes have resulted in both increased segregation of wastes and problems in finding landfill sites that will accept certain hazardous waste streams. A dedicated website on hazardous waste, www.hazardouswaste.org.uk provides information relating to changes in hazardous waste, and the excellent www.netregs.co.uk site developed by the Environment Agency will help guide smaller companies through the waste regulation maze. One of the other major changes to the industry in recent years is the continual reduction in the overall numbers of all types of landfill sites. One of the major influences has no doubt been the new stricter PPC (Pollution Prevention and Control) regime. Currently almost 30% of the applications for the new PPC landfill permits have been refused by the Environment Agency. Recycling of waste continues to increase but markets are crucial. Composting sites are now common, and range from simple windrows to the more sophisticated in-vessel systems. There are over 300 composting sites in the UK producing over 2 million tonnes per year but only 40% of this compost is currently being sold. Whilst the trend is definitely towards bigger and better composting facilities, the majority are however, currently located on farms with many not requiring either planning consent or waste management licences and utilise their product on site. The first household battery recycling plant capable of processing over 1000 tonnes per year is now in use with this market predicted to grow to 10,000 tonnes per year over the next four years. Waste to energy The Institute of Civil Engineers (ICE) and The Renewable Power Association (RPA) issued a joint report in April 2005 titled Quantification of the Potential Energy from Residual in the UK which indicated the potential for greater generation of energy from waste. The report concludes that there is an opportunity to produce up to 17% of the UK anticipated demand for electricity in 2020 from certain types of waste which are recognised as a source of renewable energy by EU law. The development of Waste to Energy plants continues with plants nearing completion at Sheffield , Fawley Southampton ,Marchwood Portsmouth and Allington There is a planning application for new plant at Bexley which is meeting opposition but which is the subject of a fourth coming Public Inquiry scheduled for July 2005. Contaminated land Since the implementation of Part IIa of the Environmental Protection Act 1990, Local Authorities have determined 304 sites as at April 2005 as, “contaminated land”. In addition the Environment Agency have also designated 22 special sites. The Environment Agency issued two new reports covering volatile organic compounds and new Soil Guidance Values covering contamination from toluene and ethyl benzene. Increased focus is being given by the Environment Agency to produce Soil Guidance Values. A year on from the introduction of the co-disposal ban of landfilled materials, on 16 July 2005 the introduction of full waste acceptance criteria for landfilled hazardous waste will take place. Since the ban on co disposal last year, the range of contamination remediation technology and techniques have advanced and increased to meet the demands resulting from the reduction in the number of facilities able to dispose of contaminated soils. Natural contamination is becoming an increasing liability, particularly the growth of Japanese Knotweed, an intrusive weed, where eradication by removal from a site can be significant in monetary terms on a small development area or costly in terms of time as existing chemical spraying techniques take up to three seasons to eradicate the weed. However, development on new techniques is ongoing which should eventually improve the situation. In November 2004 ODPM published Planning Policy Statement 23: Planning and Pollution Control. Planning Policy Statements (PPSs) set out the Government’s core policies and principles on the most important aspects of land use planning. The policies in this statement and the advice in the accompanying Annexes (Annex 1: Pollution Control, Air and Water Quality; and Annex 2: Development on Land Affected by Contamination) should be taken into account by Regional Planning Bodies (RPBs) and Local Planning Authorities (LPAs) in preparing Regional Spatial Strategies (RSSs) and Local Development Documents (LDDs) – referred to in this Statement as “development plans”. PPS23 covers a wider range of receptors than Part 11a by examining development which may give rise to pollution, either directly or indirectly and it also ensures that other uses and developments are not, as far as possible, affected by major existing or potential sources of pollution. Wales Aggregates (Hard Rock and Sand/Gravel) The Market The large companies dominate the industry in Wales and consequently individual property market transactions are limited. In November 2004 Aggregate Industries acquired Allt-y garn Quarry situated between Swansea and Carmarthen as a going concern from a local company Quarrytech UK Ltd. The quarry produces high quality 65 PSV On the 11 May 2005 Lafarge Aggregates Ltd gave a press release of their acquisition of the South Wales company, Minimix who specialise in readymix concrete. It was reported that trading would continue as Minimix, from the four existing sites near Newport, Cardiff, Bridgend, and Neath. The site at Bridgend includes Ewenny Quarry which provide an “in house” supply of limestone aggregates. The company employs 67 people and has a turnover in the region of £11 million. Marine Aggregates The pattern of supply of sand and gravel for construction purposes in SE Wales is unique in the UK because of its dependence on marine dredged resources. There is no active land based extraction of sand and gravel in SE Wales although fine material from crushed rock quarries satisfies part of the demand. In November 2004 the Welsh Assembly published “Interim Marine Aggregates Dredging Policy” which forms the basis for deciding future applications with the objectives: -
It is accepted that it is unlikely that marine dredged material could be replaced in the foreseeable future. So although alternative sources will continue to be researched, aggregate dredging will continue in accordance with this policy and will see:-
Coal Tower Colliery in terms of volume of production remains the only deep mine in Wales. The opencast operator Celtic Energy Ltd which is now in the control of the Walters Group, a Hirwaun based civil engineering and heavy plant company has three operating sites. These are at Margam , Nant Helen and Selar. Planning permission has been obtained for the East Pit extension at Gwaun Cae Gurwen and the company has very recently commenced removal of overburden. The long awaited planning permission to develop an opencast coal site at Ffos-y-Fran, as part of the East Merthyr Reclamation Scheme, was granted by the Welsh Assembly Government in February 2005. Miller Argent now have consent to extract 10 million tonnes of coal over a 17 year period. Waste Wales continues to deposit at landfill sites about 4 million tonnes of waste annually. The Welsh Assembly Government has developed a strategy for waste for Wales under the title of "Wise about Waste". which include, in addition to the targets that the UK as a whole have to meet under EC Directives, specific targets that the Welsh Assembly Government have set. In line with the above strategy on the 8th June 2004 the National Assembly for Wales under the provisions of section 4 of the Waste and Emissions Trading Act 2003 made the Landfill Allowances Scheme (Wales) Regulations 2004. This commenced in October 2004 and saw targets being placed on the amount of biodegradable municipal waste Local Authorities could deposit at Landfill sites. For the period October 2004 to 31st March 2005 the overall target for all Welsh Authorities is quoted at 550,000 tonnes. For the year 2005/06 the target is 1,021,999 tonnes reducing to 710,000 tonnes in 2010. Failure to meet these targets could see local authorities penalised under the Regulations. The full requirements of the Landfill Regulations 2002 was brought into force on the 16th July 2004.This stopped the co-disposal of hazardous and non-hazardous waste in the same landfill. This has resulted in none of the domestic, industrial and commercial landfill sites located within Wales being licensed to take the full range of hazardous waste. The joint venture between HLC (Neath Port Talbot) Ltd and Neath Port Talbot CBC to provide an integrated waste management facility at Crumlyn Bog has yet to become fully operational. Scotland The aggregates market within Scotland remains fairly constant, and Foster Yeoman Ltd, operators of Glensanda, the only UK ‘ super quarry’ have indicated their intention to apply for an extension to the quarry working area. All of Scotland’s coal is now produced by Opencast methods and the major operators are Scottish Coal, GM Mining, ATH and Kier Mining. The opencast coal industry remains healthy with Scottish sites continuing to supply a large proportion of the UK total output and will be strongly influenced by the remaining life of the coal-fired power stations at Cockenzie and Longannet. A number of planning applications for both new sites and extensions to existing sites have been approved and East Ayrshire Council have formalised their planning strategy relating to sustainable opencast coal extraction throughout the whole of East Ayrshire with the publication of ‘The East Ayrshire Opencast Coal Subject Plan’. References
Notes on value ranges quoted below The value ranges quoted are based upon the best information available to VOA during the past 12 months, The number of relevant transactions in the minerals and waste market are limited and where there has been little or no information the ranges are informed by movement in value in adjoining regions and valuer opinion. The ranges are of necessity very broad as they encompass a wide range of categories contained under each class They should not be relied upon as indications of specific value. Back to the topSand and gravel royalties Typical range of values in pence per tonne as at July 2005
Inert waste royalties Hard rock royalties
Active waste royalties
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