cement outlook: 2007 longbow research boston, massachusetts ed sullivan staff vice president and pca...
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Cement Outlook: 2007
Longbow Research
Boston, Massachusetts
Ed Sullivan
Staff Vice President and PCA Chief Economist
For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve
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Economic Comfort Index *
1996=100
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
•Combines Real GDP With the Levels Interest Rates, Inflation and Unemployment
Most Favorable Economic Conditions Since the 1960’s
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Bottom Line: Baseline
Economic Growth Slows to 2.4% (Real GDP) Economic Growth Slows to 2.4% (Real GDP)
Construction Declines = – 3%Construction Declines = – 3% Housing Starts Decline = -18%Housing Starts Decline = -18%
Cement Consumption Declines = -1.5%Cement Consumption Declines = -1.5% May be optimisticMay be optimistic
Downside Risks IncreasedDownside Risks Increased 1.3% GDP Growth1.3% GDP Growth Housing & Sub-Prime Worse than ExpectedHousing & Sub-Prime Worse than Expected Risk Regarding Intensity GainsRisk Regarding Intensity Gains
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Bottom Line: Risks/Adjustments
Even Slower GrowthEven Slower Growth Sub-Prime leakageSub-Prime leakage Energy PricesEnergy Prices Weak 1Weak 1stst Quarter Quarter
Construction Declines in Excess of – 4%Construction Declines in Excess of – 4% Sub-Prime Default Rate….Larger inventory problemsSub-Prime Default Rate….Larger inventory problems Housing Starts decline even deeper and more prolongedHousing Starts decline even deeper and more prolonged Slower economy = Slower NonresidentialSlower economy = Slower Nonresidential
Cement Consumption Declines LargerCement Consumption Declines Larger Larger decline in construction spendingLarger decline in construction spending Intensity Gains may not be as strongIntensity Gains may not be as strong
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Portland Cement Outlook
Thousand Metric Tons
450
20,450
40,450
60,450
80,450
100,450
120,450
140,450
160,450
1995 1997 1999 2001 2003 2005 2007 2009
2006 – 2007: A Pause Before A Resumption in Growth
You Can Argue Depth of Housing Decline, Timing of Recovery…Not
Fundamentals of Longer Term Growth
Growth Slows When One of Three Sectors (Residential,
Nonresidential & Public Declines)
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Key Points of Analysis
U.S. Economic Outlook
Construction Outlook
Cement Outlook
Residential
Nonresidential
Public
Demand
Operating Conditions
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Economic Outlook
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Economic Outlook
Economic Fundamentals SoundEconomic Fundamentals Sound Unemployment, Inflation, Interest Rates Low Unemployment, Inflation, Interest Rates Low
Current Strength Cushions Against Current Strength Cushions Against Downside RisksDownside Risks
Past Growth of 3.3% is UnsustainablePast Growth of 3.3% is Unsustainable
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Economic Outlook
Consensus 2007 GDP Forecast: 2.7%Consensus 2007 GDP Forecast: 2.7%
2006 Real GDP Growth: 3.3%2006 Real GDP Growth: 3.3% 11stst Quarter: 5.5% Quarter: 5.5% 22ndnd Quarter: 2.6% Quarter: 2.6% 33rdrd Quarter: 2.0% Quarter: 2.0% 44thth Quarter: 2.2% Quarter: 2.2% 11stst Quarter 2007: 1.3% Quarter 2007: 1.3%
Past Four Quarter Average: 2.0%Past Four Quarter Average: 2.0%
What is going to Propel Growth Beyond the What is going to Propel Growth Beyond the Past Four Quarter Average?Past Four Quarter Average?
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Economic Outlook
What is going to Propel Growth Beyond the What is going to Propel Growth Beyond the Past Four Quarter Average?Past Four Quarter Average?
Budget Deficits Prevents Government Spending from Budget Deficits Prevents Government Spending from Being the Growth Driver.Being the Growth Driver.
Housing Contraction Prevents Investment Spending Housing Contraction Prevents Investment Spending
from Being a Growth Driver.from Being a Growth Driver. Net Exports are Improving. Sector So Small In Context Net Exports are Improving. Sector So Small In Context
of Overall Economy Prevents this from Being a Growth of Overall Economy Prevents this from Being a Growth Driver.Driver.
That Leaves Only Consumer Spending.That Leaves Only Consumer Spending.
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Snap Shot of Economic Activity
Investment15%
Government18%
Consumer69%
Consumption acts as the anchor for US economic activity.Consumption acts as the anchor for US economic activity.
Any retrenchment in consumer spending will lead to slower economy-wide growth rates
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Economic Outlook
That Leaves Only Consumer Spending.That Leaves Only Consumer Spending.
To Reach 2.7% Consensus Real GDP Growth….To Reach 2.7% Consensus Real GDP Growth….
Consumer Spending Must Grow at a Rate of More Consumer Spending Must Grow at a Rate of More than 3.5%.than 3.5%.
During Past Three Quarters, Consumer Spending During Past Three Quarters, Consumer Spending Averaged 3.2% Growth.Averaged 3.2% Growth.
And…And…
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Economic Outlook
Consumer Spending has Relied On Debt.Consumer Spending has Relied On Debt. Net savings rate has been negative for years.Net savings rate has been negative for years.
Consumer Debt Burdens Near Historical HighsConsumer Debt Burdens Near Historical Highs Often a precursor to reduction in consumption growth.Often a precursor to reduction in consumption growth.
Sub-Prime Defaults Force a Tightening in Lending Sub-Prime Defaults Force a Tightening in Lending StandardsStandards
Reflects a new assessment of risk-return philosophy – beyond Reflects a new assessment of risk-return philosophy – beyond mortgages and perhaps globally.mortgages and perhaps globally.
Tapping Home Equity Not as Viable As In the PastTapping Home Equity Not as Viable As In the Past
Can Debt Based Consumer Spending Thrive In This Can Debt Based Consumer Spending Thrive In This Environment?Environment?
If not, growth in consumer spending slows.If not, growth in consumer spending slows. Income Growth is Improving – but perhaps not fast enough.Income Growth is Improving – but perhaps not fast enough.
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Consumer Worksheet
Pay Increase Averages 3.5%.Pay Increase Averages 3.5%. Health Insurance Premiums Rise 7%-11%.Health Insurance Premiums Rise 7%-11%.
State and Local Property Taxes Rise.State and Local Property Taxes Rise. Reassessments based on high home appreciationReassessments based on high home appreciation
Energy Prices Take a Large Bite.Energy Prices Take a Large Bite. Even in context of recent improvement.Even in context of recent improvement.
Inflation Running near 2.5%Inflation Running near 2.5% Slowdown in Job Creation – 180K Per Month is Not Slowdown in Job Creation – 180K Per Month is Not
Sustainable.Sustainable. If Job Creation Drops Below 100K on Sustained Basis – Expect If Job Creation Drops Below 100K on Sustained Basis – Expect
a Significant Downward Revision in Forecast.a Significant Downward Revision in Forecast.
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Economic Outlook : Real GDP Growth
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----------2005---------- -------2006------- -------2007------
2005: 3.5%
Real GDP Annual Growth Rate
-------2008-------
2006: 3.3%
2007: 2.4%
2008: 2.4%
NABE Consensus 2007: 2.7%
Fed Eases
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Risks: Sub-Prime Mortgages
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Housing Threat
Real threat to economic growth not Real threat to economic growth not the decline in housing…..the decline in housing…..
But…..But…..
The way we financed the past The way we financed the past boom…boom…
And…And…
Its impact on consumer Its impact on consumer spending…..spending…..
Potentially more profound in Potentially more profound in historyhistory
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Growing Home Price & Income Gap
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1990 1992 1994 1996 1998 2000 2002 2004
Annual Growth Rate Comparison
Home Prices
Household Income
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Emergence of Exotic Mortgages
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2003.4 2004.1 2004.2 2004.3 2004.4 2005.1 2005.2 2005.3
Interest Only Loan Share of Sub-Prime Market
Share by Principle Share by Principle Balance: Solid GreenBalance: Solid Green
Share by Loan Count: Share by Loan Count: Striped YellowStriped Yellow
Note: Sub-Prime accounts for 36% total mortgage market
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Sub-Prime Mortgage Resets
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Total Loans Scheduled for Reset
Period of Emerging Period of Emerging TroubleTrouble
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Impact on Economic Growth
Monthly Payments Increase 50% or More.Monthly Payments Increase 50% or More.
Credit Card Debt Increases As Consumers Try Credit Card Debt Increases As Consumers Try
To Preserve Standard of Living.To Preserve Standard of Living.
Delinquencies Increase.Delinquencies Increase.
Defaults Increase.Defaults Increase.
Adverse Impact on Consumer Spending. Adverse Impact on Consumer Spending.
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Impact on Economic Growth
Adverse Impact on Consumer Adverse Impact on Consumer Spending can be Contained.Spending can be Contained.
As Long As….As Long As….
Relatively Strong Job Growth Persists.Relatively Strong Job Growth Persists.
And…And…
Interest Rates Remain Stable. Interest Rates Remain Stable.
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Worst Case Scenario PCA Scenario
Exotic Market 1,782,000,000,000 1,782,000,000,000
Default Rate 30.00% 6.00%
Homes Into Default 2,227,500 445,500
GDP Growth 0.3% 2.4%
Risk to Baseline Construction
Government Intervention Will Materialize Well Before 30% Default Rate
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Conclusion
Economic Growth SlowsEconomic Growth Slows
Extent of Slowdown UncertainExtent of Slowdown Uncertain
Sub PrimeSub Prime EnergyEnergy 2.4% Real GDP now seems strong2.4% Real GDP now seems strong
Risk Hinges Largely on Sub-Prime “Leakage”Risk Hinges Largely on Sub-Prime “Leakage”
Threat not to be dismissedThreat not to be dismissed
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Construction & Cement OutlookOverview
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Total Construction
Billion 1996 $
450
500
550
600
650
700
750
800
1990 1992 1994 1996 1998 2000 2002 2004 2006
2007: Decline projected …BUT.. based off record levels
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Changing Composition of Construction Spending Growth
Growth Leader: ResidentialGrowth Leader: Residential Low Interest RatesLow Interest Rates
PublicPublic State Tax Revenues Hurt by State Tax Revenues Hurt by
Anemic Economic GrowthAnemic Economic Growth
Growth Laggard: Growth Laggard: NonresidentialNonresidential
Weak EconomyWeak Economy
Growth Leader : NonresidentialGrowth Leader : Nonresidential Strong EconomyStrong Economy
PublicPublic State Tax Revenues Recovery State Tax Revenues Recovery
Due to Strong Economic Due to Strong Economic GrowthGrowth
Growth Laggard : ResidentialGrowth Laggard : Residential Rising Interest RatesRising Interest Rates
2001-2005 2006-2009
Low Interest Rates, Weak Economy
Rising Interest Rates, Strong Economy
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Cement Intensities
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Composition Of Cement Growth: Construction Activity Vs Cement Intensity Growth
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
2003 2004 2005 2006
Cement Intensity Growth
Cement Intensity Growth Cement
Intensity Growth
Construction Activity Growth
Construction Activity Growth
Annual Percent Change, Real Put-In-Place Construction & Cement Intensity
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Reasons for Cement Intensity Gains
Competitive Price Position Vs Other Building Competitive Price Position Vs Other Building MaterialsMaterials
Compare from 2000Compare from 2000 Large advantage – Even with recent declines in steels and Large advantage – Even with recent declines in steels and
increases in concrete. increases in concrete.
Composition of ConstructionComposition of Construction Gains associated with strengthening of higher intensity construction Gains associated with strengthening of higher intensity construction
sectorssectors
Nonresidential Intensities are CyclicalNonresidential Intensities are Cyclical Type of construction differs on downside and upside of business Type of construction differs on downside and upside of business
cycle.cycle.
Construction Stronger in Southern StatesConstruction Stronger in Southern States Generally higher intensities in Southern statesGenerally higher intensities in Southern states
Green Construction & PromotionGreen Construction & Promotion
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Concrete: Improving Competitive Position
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
2005 5-May 5-Sep 2006 6-May sept 6-Feb 6-Jun oct
Change Relative Price Vs Concrete
Asphalt
Steel
Rapid Improvement in Concrete’s Relative Pricing Position
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Oil Price Outlook
$10
$20
$30
$40
$50
$60
$70
$80
20002002
20042006
20082010
$ Per Barrel, West Texas Intermediate
Projected
Oil Prices Oil Prices Retreat to 2002 levels not going Retreat to 2002 levels not going
to happen.to happen.
Strong International DemandStrong International Demand Japan’s Economic RecoveryJapan’s Economic Recovery Stronger Asian Demand: China Stronger Asian Demand: China
& India& India
Supply Disruptions ContinueSupply Disruptions Continue Middle East Uncertainties, Middle East Uncertainties,
Nigeria, VenezuelaNigeria, Venezuela Iran & Uranium EnrichmentIran & Uranium Enrichment
OPEC ActionsOPEC Actions $60 per barrel target?$60 per barrel target?
2006: $65.85 per barrel WTI 2006: $65.85 per barrel WTI 2007: $60.302007: $60.30
-9 +60
-10 +50
-10 +30
-7 +20
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Competitive Position Vs Asphalt
Sustained high oil pricesSustained high oil prices
Plus…..Plus…..
More efficient refining processesMore efficient refining processes
Suggest…..Suggest…..
New competitive position of Concrete New competitive position of Concrete is sustained…is sustained…
It is not a temporary phenomenon…It is not a temporary phenomenon…
But, other issues could reduce this But, other issues could reduce this advantage advantage
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Intensity Risk
Growth in Intensity to Cushion Construction Growth in Intensity to Cushion Construction DeclineDecline
Cross Price Elasticities Difficult to EstimateCross Price Elasticities Difficult to Estimate
Number of factors & SCM ImpactsNumber of factors & SCM Impacts Data IssuesData Issues
TimingTiming
Lag StructureLag Structure
Less Cushion = Greater DeclineLess Cushion = Greater Decline Gut, Error on DownsideGut, Error on Downside
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Intensity Conclusion
Intensity GrowsIntensity Grows
Cushions Construction DeclinesCushions Construction Declines
Extent this Materializes In QuestionExtent this Materializes In Question
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Residential Construction
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Past Strength in Starts More Than Low Rates…
The Cyclical Upside: 2001 - 2005The Cyclical Upside: 2001 - 2005
Low mortgage rates key factor in single family starts over past few Low mortgage rates key factor in single family starts over past few years.years.
Emergence of exotic mortgages also a key factor…particularly in Emergence of exotic mortgages also a key factor…particularly in
strong home appreciation environment.strong home appreciation environment.
Easy credit conditions contributed to strong home-buying Easy credit conditions contributed to strong home-buying environment.environment.
Speculators add froth to market in light of strong appreciation Speculators add froth to market in light of strong appreciation
rates.rates. Lean inventories supplement demand …add strength to starts.Lean inventories supplement demand …add strength to starts.
Each Factor at Work on Cyclical Downside: 2006 - 2007Each Factor at Work on Cyclical Downside: 2006 - 2007
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No Such Thing as a “National” Market…
Structurally Changed MarketsStructurally Changed Markets
Hurricanes (Louisiana)Hurricanes (Louisiana) Economically Depressed (Michigan)Economically Depressed (Michigan)
Boom/Bust MarketsBoom/Bust Markets Dynamic EconomiesDynamic Economies Strong DemographicsStrong Demographics Robust Appreciation RatesRobust Appreciation Rates High Presence of SpeculatorsHigh Presence of Speculators Large Inventory Overhang, Large Starts Decline, Slow RecoveryLarge Inventory Overhang, Large Starts Decline, Slow Recovery 2009 Surprising Strength2009 Surprising Strength Arizona, Nevada, Florida & California = 28% Cement ConsumptionArizona, Nevada, Florida & California = 28% Cement Consumption
““Normal” MarketsNormal” Markets
More Modest AppreciationMore Modest Appreciation Relatively Low Speculator PresenceRelatively Low Speculator Presence Smaller Inventory OverhangSmaller Inventory Overhang More shallow decline, Quicker RecoveryMore shallow decline, Quicker Recovery
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Home Prices: Will Play a Role in Correction
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Annual Growth Rate, Median Home Price
Price Will Play Strong Role In Recovery
But…
In Context of Tighter Lending Standards
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0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2004 2005 2006 2007 2008
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Inventory of Single Family Homes
Number of Homes for Sale, Thousands: BarMonths Supply: Line
Projected
6.3 Months
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Worst Case Scenario PCA Scenario
Exotic Market 1,782,000,000,000 1,782,000,000,000
Default Rate 30.00% 6.00%
Homes Into Default 2,227,500 445,500
GDP Growth 0.3% 2.4%
Risk to Baseline Construction
Government Intervention Will Materialize Well Before 30% Default Rate
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Single Family Starts Outlook
Percent Change
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
2004M1 2004M7 2005M1 2005M7 2006M1 2006M7 2007M1 2007M7
Projected
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Nonresidential & PublicConstruction
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Construction Spending:NonResidential
0
20
40
60
80
100
120
140
160
180
200
1993 1995 1997 1999 2001 2003 2005 2007 2009
Billions $1996
Annual GrowthAnnual Growth
2005: +2.9%2005: +2.9%
2006: +12.3%2006: +12.3%
2007: +8.6%2007: +8.6%
Source: Department of Commerce, PCA
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Public Construction Outlook
-60
-40
-20
0
20
40
60
80
1979Q1 1991Q1 2003Q1
93% of public construction 93% of public construction performed at state/local performed at state/local level.level.
State/Local fiscal problems State/Local fiscal problems
fading.fading.
Revenue growth improves Revenue growth improves with economy and job with economy and job growth.growth.
Surpluses will re-emerge.Surpluses will re-emerge.
Pent-up demand released.Pent-up demand released. Highway Bill adds strength.Highway Bill adds strength.
Billion $ State Surplus/Deficit, NIPA
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Construction Spending:Public
0
50
100
150
200
250
1993 1995 1997 1999 2001 2003 2005 2007 2009
Billions $1996
Annual GrowthAnnual Growth
2005: 0.0%2005: 0.0%
2006: +5.6%2006: +5.6%
2007: +5.5%2007: +5.5%
Source: Department of Commerce, PCA
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Construction Conclusion
Nonresidential & Public Strong GrowthNonresidential & Public Strong Growth Low RiskLow Risk
Residential CorrectionResidential Correction Baseline May understate DeclineBaseline May understate Decline Inventory & Price Correction KeyInventory & Price Correction Key
Baseline Inventory Probably UnderstatedBaseline Inventory Probably Understated
Total Construction Downside RiskTotal Construction Downside Risk
Risk: Largely Residential InventoryRisk: Largely Residential Inventory Aside from General Economic RisksAside from General Economic Risks
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Market Conditions
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Portland Cement Outlook
Thousand Metric Tons
450
20,450
40,450
60,450
80,450
100,450
120,450
140,450
160,450
1995 1997 1999 2001 2003 2005 2007 2009
2006 – 2007: A Pause Before A Resumption in Growth
Growth Slows When One of Three Sectors (Residential,
Nonresidential & Public Declines)
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Performance So Far….Really That Bad?
Percent Change, Year Ago
Raw Tons, MMT
Average, MMT
WinterWeather
2004 January -4.3 6.2
February 14.8 6.1 6.2 Mild
2005 January 6.9 6.7
February 15.5 7.1 6.9 Mild
2006 January 27.6 8.5
February 12.8 8.1 8.3 Very Mild
2007 January -19.4 6.9
February -20.2 6.2 6.6 Very Harsh
Off 5% from 2005 Record Year…With Harsh Winter
Back Ended Growth
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Market Conditions
Import Volumes: 2007
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No Shortage Tight Supplies
Cement Supply Survey Summer 2005
Spot Tight Supplies
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$0
$10
$20
$30
$40
$50
$60
1/1/2001 7/1/2002 1/1/2004 5-Feb 5-Jul 5-Dec 6-May
Import Volume & Freight Rates
Import Volume, Million Metric TonsFreight $ Per Ton, Handymax, Asia-Gulf
Imports 1st Half 2006: 40 MMT Rate
Imports 2005: 33.6 MMT
Net Increase (SAAR): 8.4 MMT
Consumption Growth Rate: 1 MMT
7 MMT (SAAR) Overhang
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No Shortage Tight Supplies
Cement Supply Survey Summer 2006
Spot Tight Supplies
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Market Balances: Trend
0
20000
40000
60000
80000
100000
120000
140000
160000
2002 2004 2006 2008 2010
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
2002 2004 2006 2008 2010
0
5
10
15
20
25
Inventory Adjustment
Adjusted Supply Vs ConsumptionGreen: Domestic Yellow: Imports
Green: Inventory Red: Day Supply
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Import Outlook
2007 Worksheet2007 Worksheet
Consumption = 1.5% DeclineConsumption = 1.5% Decline
Domestic Utilization = Same as 2006 (94%)Domestic Utilization = Same as 2006 (94%)
Inventory = 19 Days SupplyInventory = 19 Days Supply 770K Draw770K Draw Note: Added 1.1 Million MT in 2006Note: Added 1.1 Million MT in 2006
Imports 2007 = 33.1 MMT (-7.8 %)Imports 2007 = 33.1 MMT (-7.8 %)
Downside Risks Downside Risks
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Imports: SAAR
Million Metric Tons, Seasonally Adjusted Annual Rate
0
5
10
15
20
25
30
35
40
45
50
2006M1 2006M4 2006M7 2006M10
1st Q: 42 MMT Rate
2nd Q: 38 MMT Rate
3rd Q: 34 MMT Rate
4th Q: 31 MMT Rate
2nd Half 2006: Import Rate Contracts
Some Re-Tightening of Market
January: 28.1 MMT SAAR
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Freight Rates
0
10
20
30
40
50
60
$ Per Ton to Gulf
2001 2002 2003 2004 2005 2006
From Europe
From Asia
Source: Intercem
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Import Conclusion
Import Volume DeclinesImport Volume Declines
Freight Rate Risk on VolumeFreight Rate Risk on Volume Larger declines than anticipated very likelyLarger declines than anticipated very likely January Data (latest) = -30.9% (28 MMT SAAR)January Data (latest) = -30.9% (28 MMT SAAR)
Potential Exists for Market Tightening…Even Potential Exists for Market Tightening…Even in Face of Declining Volumein Face of Declining Volume
Single digit declines in volumeSingle digit declines in volume Double digit decline in importsDouble digit decline in imports
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Freight Rates: Note
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Dry-Bulk Ship Retirement
Thousand, Deadweight Tons
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2000 2001 2002 2003 2004 2005 2006
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Dry-Bulk Ship Retirement to Increase
Thousand, Deadweight Tons
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
2000 2001 2002 2003 2004 2005 2006
Actual, Retirement2% Of Fleet Retirement
Potential Additional Retirement: 22 mdwt
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HandySize Fleet Changes
Thousand, Deadweight Tons
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
2000 2001 2002 2003 2004 2005 2006 2007
New Deliveries
Retirements
Source: Simpson, Spence & Young
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Long Term
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US Population
Thousands of Persons
200,000
250,000
300,000
350,000
400,000
1980 1990 2000 2010 2020 2030
US Population Adds Roughly 65 Million People by 2030 ….
a 22% Increase.
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Demographics: 2005-2030
Population Adds 65 Million PersonsPopulation Adds 65 Million Persons
Adds 9.1 Million School Age PersonsAdds 9.1 Million School Age Persons Education ConstructionEducation Construction
Adds 34 Million Retirement Age PersonsAdds 34 Million Retirement Age Persons MedicalMedical
Adds 31 Million HouseholdsAdds 31 Million Households Housing, Retail & Infrastructure.Housing, Retail & Infrastructure.
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Highway Lane Miles
Thousands of Miles
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
11,000,000
1996 2000 2004 2008 2012 2016 2020 2024 2028
Just to Maintain Current Highway Congestion Levels,
Federally Aided Highways Must Expand Nearly 25% by
2030 .. Given 49 Million Additional Licensed Drivers.
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10% + 0% to 1% Share
Total U.S. Population Growth: 65 Million Persons
Share of U.S. Population Growth 2006-2030(Percent Share of Total)
1% to 3%3% to 10%
Note:
47% of Total Population
Growth Occurs in California, Texas and
Florida
Source: U.S. Bureau of Census
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Cement Consumption Per Capita
Tons Per Persons
0.000
0.100
0.200
0.300
0.400
0.500
0.600
1980 1990 2000 2010 2020 2030
Per Capita Consumption Expected to Grow 32% 2005-2030…Compared to Nearly
39% in Previous 25 Year Period
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Cement Consumption: Long Term
50
70
90
110
130
150
170
190
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Million Metric Tons
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U.S. Capacity Growth
-4000
-2000
0
2000
4000
6000
8000
10000
12000
1975 1980 1985 1990 1995 2000 2005 2010
Thousand Metric Tons
2006-2010: Industry Expands by More Than 20% - Adds 24 MMT of Capacity
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U.S. Capacity Growth: Financial Investment History
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
1975 1980 1985 1990 1995 2000 2005 2010
Estimated, Thousands 2005 Dollars
2006-2010: Industry Invests $5.4 Billion in Plant Expansion
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10% + 0% to 1% Share
Total U.S. Capacity Expansion: 24.2 Million Metric Tons
Share of U.S. Plant Expansion 2007-2010(Percent Share of Total)
1% to 3%3% to 5%
Source: PCA
5% to 10%
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Capacity Utilization Vs Import Share“Swing Supply Strategy”
0%
10%
20%
30%
1979 1984 1989 1994 1999 2004 2009 2014
50%
60%
70%
80%
90%
100%
Capacity Utilization
Import Share
Market Digests
New Capacity
Consumption Consumption will Growwill Grow
Utilization Rate Utilization Rate
ReductionsReductions
Import Import ReductionsReductions
RationalizationRationalization
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Conclusions
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Bottom Line
Economic Growth SlowsEconomic Growth Slows Temporary: Stronger Growth 2Temporary: Stronger Growth 2ndnd Half 2008 Half 2008
Construction DeclinesConstruction Declines Temporary: Stronger Growth 2Temporary: Stronger Growth 2ndnd Half 2008 Half 2008
Sector Importance Shifts Away From ResidentialSector Importance Shifts Away From Residential
Global Conditions Face Shipping: Supply PressuresGlobal Conditions Face Shipping: Supply Pressures
Concrete Relative Price Competitiveness SustainedConcrete Relative Price Competitiveness Sustained Advantage Could Be Reduced With Market Tightening Advantage Could Be Reduced With Market Tightening Could Be Reduced Due to Global Import ConditionsCould Be Reduced Due to Global Import Conditions
Cement Consumption: Rough Months AheadCement Consumption: Rough Months Ahead Temporary PhenomenonTemporary Phenomenon
Even Then….Market Balances Could TightenEven Then….Market Balances Could Tighten
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Cement Outlook: 2007
Longbow Research
Boston, Massachusetts
Ed Sullivan
Staff Vice President and PCA Chief Economist
For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve