After only water, cement is the second most used substance in the world. In the U.S., it comprises an $11.8 billion industry. The country produces 127 million tons of cement in 113 plants across 37 states. Most of this cement goes into the production of concrete, a $60 billion industry. With the housing market leading the U.S. into a possible recession and supply of cement on the rise due to an increase in domestic production, the short-term outlook for the industry is very troubling. Long-term, demand is expected to grow and pricing recover.
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Over the next five years, domestic capacity is expected to grow 27% as facilities currently under construction come online. These new plants will contribute an additional 25 million metric tons of cement. However, the geographic locations of these facilities must be examined since the typical land-locked plant is limited to a distribution range of 250 miles.
New plants are being constructed in regions of the country where housing demand has been greatest, like the South and Western Mountain states. Unfortunately, these are the same regions hardest hit by the housing crisis. The result is supply coming online in regions where there is weakened demand. This effect is already being seen in Florida where a 40% decline in demand is being forecasted, from a record 11.5 million tons to 7 million tons in 2009, just as 4 million tons of additional capacity is coming online.
Imports comprise 25% of the U.S. supply of cement. At the same time, domestic companies control 93% of the terminals. This gives terminals incredible control to switch on and off import volume. In 2006, imports totaled 36 million tons, but that number dropped substantially by 40% in 2007. This 14 million ton supply correction is expected to grow in the next couple of years further reducing the supply of imported cement to help support domestic pricing.
The impact of 'green' legislation is a hot topic in the cement industry. Every ton of cement produced results in an increase of a net ton of C02 emissions. While this is an unavoidable part of the current production process, producers must consider the impact of legislation aimed at capping these emissions. The result would ultimately impact the cost of supplying the cement market regardless of the downstream benefits cement has on the environment, like improving energy efficiency of structures built with this material.
The current housing market woes are the single largest factor currently affecting demand in the cement market. This has driven an overall decline in demand of 8% in 2007 and further declines are projected in 2008. Though the commercial market remains steady, the direct effect the housing market has on the overall industry is impossible to ignore.
Led by an expected 20% increase in the U.S. population to 363.5 million by 2030, long-term domestic cement consumption is expected to rise 43% to 183 million tons. Fifty percent of this gain is expected to be driven by pure population expansion, while the remaining is driven by per capita cement expenditures. Per capita expenditures arise due to two main factors - transportation and building techniques. An estimated 49 million additional U.S. drivers will hit the roads, requiring an additional 400,000 lane miles be built. Building techniques are expected to shift towards more energy efficient options - like insulated concrete walls. Today, only 7% of new homes are built with insulated concrete walls, but this number is expected to rise to 30%.
While the housing demand for cement fluctuates, guaranteed federal spending on transportation infrastructure will continue to provide a steady source of demand domestically. In the short-term, this support has been guaranteed in large part by the $286.4 billion SAFETEA-LU legislation signed in 2005 that assured an allocation of funds for five years. This was a 30% increase over the previous five years. Current calls to improve domestic infrastructure will continue to mount, though this could be negated if recessionary pressures result in spending cuts due to decreased tax receipts. Conversely, democratic rhetoric suggests there may be a new "New Deal" in the works to provide economic stimulus from infrastructure construction and repair, a plan similar to that conceived by Roosevelt in 1930's.