May 7, 2009 - Spain Construction Update

The Cranes in Spain Point Mainly to a Strain

Symbols of Spanish Prosperity Now Serve as Giant Reminders of Economic Gloom; Downturn Ends a Building Frenzy

The Cranes in Spain Point Mainly to a Strain

Juan Sancho Toro made big bucks renting out construction cranes during Spain's 10-year building boom. Today he has 800 tower cranes -- and doesn't know what to do with them.

"If someone calls, I'd sell all of them," Mr. Sancho Toro says as he strolls through a sprawling boneyard of disassembled yellow steel towers near Seville. "I'll even throw in the little dog my wife loves so much. I need to sell -- that's the truth."

For the past decade, the construction cranes dotting the Spanish landscape were a symbol of the country's prosperity. Today, they're a painful reminder of its economic bust. On building sites all over Spain, lumbering cranes stand motionless. Many have ended up on banks' books after the construction firms that owned them went bust.

A woman walks along the beach near an abandoned construction project in Roquetas de Mar, Spain. The glut of construction cranes in the country is a constant reminder of its housing bust and slumping economy. Spain construction Spain construction

With no buyers at home, banks and struggling construction firms are looking abroad to to sell the detritus of Spain's building bubble. In March, Canada's Ritchie Bros. Auctioneers held its biggest-ever auction in Spain. Among the 2,900 lots of items sold to buyers from 58 countries: cranes, trucks, mechanical diggers, tractors, trailers and concrete mixers.

Tower cranes -- which are largely used for building homes, apartments and offices rather than infrastructure such as roads or bridges -- have been particularly hit by Spain's economic downturn.

Rick Nichols, president of Terex Corp.'s crane division, says his company's world-wide crane sales dropped 29% in the first quarter from a year ago. In Spain, however, he estimates sales of tower cranes fell as much as 70%. Even when they do sell, cranes are fetching one-third the prices of just two years ago, builders say.

At that time, with the global economy running full-tilt, crane manufacturers couldn't keep up with demand. Waiting times for some cranes reached three years.

Spain became one of the world's most important markets for cranes. At its peak in 2006, the Southern European country started building 760,000 homes. That was more than half the number started in the U.S., which has a population seven times as large as Spain's.

In 2006, nearly a quarter of the cement used in the 25 nations then in the European Union was poured in Spain. Greenpeace estimated that Spain's coast, where sun-starved Northern Europeans flocked to buy summer homes, was disappearing under concrete at the rate of three soccer pitches a day. Now, the crane graveyards across Spain are a reminder of how long it will take the country to recover. "We went completely crazy in Spain," says Manuel Sánchez, a dealer for equipment wholesaler Maquidemolex España.

Mr. Sánchez now spends his time selling Spanish equipment abroad at a hefty discount. A couple of years ago, a midrange, three-year-old construction crane sold for about €45,000 ($60,000) in Spain, he says. Now, they go for €15,000 -- less than the price of many new cars.

Spanish crane builder Construcciones Metálicas Comansa SA says it has seen sales of tower cranes in its home market plunge more than 90% in the past two years. Liebherr International AG, a German company that sold 900 cranes in Spain in 2006, hasn't sold a single unit this year, says Mr. Sancho Toro, who acts as the company's dealer. Both companies continue to export cranes abroad, albeit at a much slower pace than in years past.

Once-booming places like Dubai are seeing similar surpluses, making it harder to find foreign buyers. "People aren't letting assets sit idle, so they're trying to sell them to other markets," says Terex's Mr. Nichols. "Unfortunately, all markets are down."

Jeroen Rijk, a manager for Ritchie Bros., which organized the March auction, says 90% of the cranes that are sold are being shipped to countries in Eastern Europe, North Africa and the Middle East. Mr. Rijk is facing another problem: His 25-acre lot is too small to fit all the machinery Spanish construction companies want to get rid of.

Ritchie Bros. has no minimum reserve in its auctions so Spanish sellers have to take any price they can get. They don't have much choice: Dealers say construction equipment loses value faster than a used car, so keeping it in warehouses isn't an option.

That's the grim situation facing Mr. Sancho Toro. Of his 800 cranes, more than half are inactive, and he's renting the rest out at half the price he did a year ago. Last year, he was renting a fairly typical midrange crane for €1,200 a month; now it fetches €600.

Mr. Sancho Toro has cut 100 of his 180 staff, and says he wants to end up with no more than 30 former crane assemblers, whom he will retrain as installers of solar panels.

Mr. Sánchez of Maquidemolex has an idea for the unsold cranes: "Maybe we should erect a couple of them permanently -- as a monument to our madness."

Original Story - Wall Street Journal