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Cement Outlook: 2010-2014
Ed Sullivan, Chief Economist PCA
PCA Spring Board Meeting April 2010
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009
Overview
Portland Cement Consumption Thousand Metric Tons
- 54 MMT
Growth Rates
2007: - 9.6
2008: - 15.1
2009: - 26.9
Point One Market May have reached a Trough Point – Earlier Than
Expected
Portland Cement ConsumptionSAAR, Thousand Metric Tons
2008 2010
Portland Cement Consumption: No Snow, No ARRASAAR, Thousand Metric Tons
2008 2010
No Snow, No ARRA
Portland Cement Consumption: Trough PointSAAR, Thousand Metric Tons
2008 2010
Trough Point May Have Materialized – Earlier Than Expected
Trough point for market may have materialized during Oct 2009 – Feb 2010
PRELIMINARY ESTIMATE Two months – Early estimate
Snow effects
Depressed Jan-Feb
Inflated March-April March up 1.5%, Snow Adjusted down 6%
Core market conditions have improved
SAAR less snow, less ARRA
Growing at a 7% annual rate during past two months. Residential, Oil, Farm and possibly a flattening in state discretionary spending
Point Two
First Quarter Weakness In Context of Full Year Results
Portland Cement Consumption2010 First Quarter Performance: 2 MMT in the Hole
SA
AR
Vo
lum
e C
han
ge
Ver
sus
2009
-943 -2,104
-2,067
Portland Cement Consumption2010 Performance: Fourth Quarter
SA
AR
Vo
lum
e C
han
ge
Ver
sus
2009
+ 642 +909
+1,422
2009 Total
First Quarter Losses Are Offset by Fourth Quarter Gains First Quarter:
Down 15% from 2009 levels
- 2,067,000 metric tons from 2009 levels
Fourth Quarter;
Weak 2009 performance = 62,500,000 SAAR
+ 1, 422,000 from 68,400,000 SAAR (2009 total)
14% Gain over 2009 levels
Net: -645,000 from flat performance
Note: April = +300,000 to +600,000 based on anecdotal information
First Quarter Losses Are Offset by Fourth Quarter Gains
Fourth Quarter;
Weak 2009 performance = 62,500,000 SAAR
+ 3,000,000 from 75,000,000 SAAR (PCA Forecast)
20% + Gain over 2009 levels
Net: +1,000,000 from 2009 levels
+1.5% Year total growth if flat conditions persist in 2nd/3rd quarters
Point Three Tepid Expected National Gains – Vary Significantly by
Region/State
Portland Cement Consumption Thousand Metric Tons
- 54 MMT
Growth Rates
2007: - 9.6
2008: - 15.1
2009: - 26.9
2010: + 5.2
2011: + 13.4
2012: + 18.4
2013: + 12.4
2014: + 8.2
National Outlook National outlook relatively unchanged at +5%, or, +3.5 MMT.
Growth is dependent on:
Tepid single family housing recovery: +815,000 MT
Oil gains: +375,000 MT
Farm gains: +280,000 MT
Increased ARRA highway spending and intensities: +3,600,000 MT
Increased ARRA non-highway spending including; airports, water, conservation : +300,000 MT to +500,000 MT
This growth more than offsets nonresidential, multifamily & state discretionary drags
National versus Regional Outlook
States with:
High foreclosure exposure will not fully participate in the modest housing recovery.
High ARRA resurfacing priorities will see less stimulatory impact.
Little exposure to oil or farm sectors will bare brunt of nonresidential declines.
ARRA Highway Intensities
1. ARIZONA 0.859
2. IDAHO 0.848
3. FLORIDA 0.781
4. ARKANSAS 0.774
5. TEXAS 0.726
6. MISSOURI 0.712
7. HAWAII 0.631
8. DELAWARE 0.600
9. OHIO 0.585
10.LOUISIANA 0.572
11.KANSAS 0.571
12.NORTH CAROLINA 0.558
50. OREGON 0.135
49. NORTH DAKOTA 0.147
48. MASSACHUSETTS 0.159
47. SOUTH DAKOTA 0.163
46. WYOMING 0.183
45. RHODE ISLAND 0.189
44. MARYLAND 0.198
43. MAINE 0.204
42. CALIFORNIA 0.208
41. ILLINOIS 0.216
40. ALASKA 0.222
39. VERMONT 0.252
Top States
Lowest States
Point Four
Operating Conditions Remain Adverse
Cumulative Market ImbalancesMillion Metric Tons
Portland Cement : Utilization Rates Percent Utilization Based on Clinker Capacity
Slow Demand Improvement, Digestion of New Capacity & Inventory Reductions Will Delay Utilization Recovery
The Economic Recovery Process: How & When
There is light at the end of the tunnel….it’s just a really long tunnel
Sub-Prime
FinancialCrisis
Energy
Labor Markets
2006 20082007 2009 2010
State Deficits
Economic Adversity Abates Mid-2010Economic Adversity Abates Mid-2010
Economic Growth & Job Creation Percent Change & Thousand Jobs
Net Other GDP Growth
Net Other = All, excluding inventory changes and ARRA impacts
% Jobs
Point Five Cement recovery will occur in the context of slow
economic growth
Point Five: Cement Market Recovery Will Take Place in the Context of Slow
Economic Growth Recent strong GDP growth distorts the underlying fundamentals of the
economy…..
While fundamentals are improving, many of the factors that gave rise to the collapse are still operating…..
Sluggish gains in GDP growth are expected…
Yet….
GDP Growth = 2.7%
Nearly one million jobs created (170K in first quarter)
Tightening of credit winds down, outright easing materializes in some sectors
Vacancy rates marginally improve from current levels – beginning the process of nonresidential recovery.
Deterioration in state deficits may be better than expected
Ingredients for a “Recovery” in Cement
Ingredients for a “Recovery”
Residential Public
Late 2010 Recovery in Starts.
ARRA continues to accelerate. Cement projects materialize
2nd half 2010
Cement Consumption: + 5.2% 2010This Implies continued weak consumption levels during first half of 2010
PCA’s 5.2% growth in 2010 translates into 4 MMT. This “recovery” must be considered in the context of a
54 MMT peak-trough decline.
Point Six
First Half weakness, Second half Strength
Point Six
First half of 2010 characterized by year-over-year declines.
Turning point may have materialized sooner than expected.
Second half gains reflecting a backend recovery.
Very large percentage gains characterize fourth quarter.
Criteria For Housing Recovery
Residential Cement Consumption Thousand Metric Tons
- 29.6 MMT
55% of Total Cement Consumption decline is attributed to residential
Residential sector’s adverse
impact on cement consumption has run its course.
Ingredients for a Starts Recovery
Inventory no higher than 5
months supplyPrice stability
Carry costs erode expected ROI.
Weaker the price increases…lower the months supply
trigger point.
Homebuilders Expected ROI
Foreclosures Accelerate
Foreclosure Impacts
Add to Inventory
Depress Prices
2.8 Foreclosures in 2009.
871K Bank possessions.
Equates to one out of every 5 homes on the
market.
Depressed Homebuilder
ROI
Adds supply.
Bank owned properties discounted.
Pressures new home prices.
Longer carry costs.
Lower revenues.
Erodes expected ROI.
Delays recovery in starts.
Point Seven
Upside Risk?
PCA’s projections lie below consensus estimates by a
significant margin.
May imply upside risks to cement consumption …
Roughly 1.5 million metric tons in 2010 and 2011
Pricing recovery for new homes.
Foreclosure assessments.
Ingredients for a Public Recovery
AaaA
Ingredients for a Public Cement Recovery
Highway/Street Cement Consumption
ARRA Stimulus
State Fiscal Sterilization
Outlays accelerating.
Design & concrete intensive projects
roll out last.
Decline in discretionary state
cement consumption have been massive
during past three years.
2009: 0.6 MMT 2009: -5.4 MMTAaaA
2010: 4.1 MMT 2010:-0.5 MMT
State Sterilization
Sterilization by State Fiscal Conditions
State Fiscal Conditions Real 1996$
State Deficits Worsen in 2010.
Highway Construction as Percent of Total Budget Real highway/Real State Expenditures
PCA ‘s Assumptions Extremely Conservative.
Decline in State Discretionary Construction Spending Percentage Change Real $
Discretionary State Highway Cement Consumption Thousand Metric Tons
Point EightDespite a worsening in state deficits, cement drags will
lessen
Point Eight State fiscal conditions are expected to worsen.
Cutbacks in discretionary state construction spending will continue.
State construction spending strategies aimed at resurfacing and stretching scarce dollars will continue.
State cement consumption will decline ….but less so that 2009.
Some suggest state cement consumption bottomed in 2009…
Suggesting upside risk to PCA projections of 500,000 metric tons
ARRA-Led Recovery
ARRA Spending AssumptionsBillion $
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2009 2010 2011 2012
ARRA Spending Composition AssumptionsBillion $
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2009 2010 2011 2012
Resurfacing Widening & New Route Bridge
Chart Excludes “Other” Spending
Point Nine
Point Nine
ARRA spending will more than double in 2010.
Even at same 2009 intensities, implies a 700,000 to 800,000 metric ton increase in 2010.
Composition of obligated ARRA spending is disappointing.
Nevertheless, more cement intensive projects will materialize in 2010 – raising cement intensities.
ARRA will be a much more potent contributor to consumption in second half of 2010.
Nonresidential Drag
Commercial Nonresidential Drag Thousand Metric Tons
0
5,000
10,000
15,000
20,000
25,000
30,000
1998 2000 2002 2004 2006 2008 2010 2012 2014
Oil & Farm Cement Consumption Thousand Metric Tons
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1998 2000 2002 2004 2006 2008 2010 2012 2014
Oil & Farm Conditions are
Favorable. Gains in these sectors partially offset nonresidential
weakness.
Nonresidential Drag Commercial nonresidential cement consumption is
expected to decline 29% in 2010, following 50% decline in 2009.
Drag on 2010 cement consumption is less due to extremely low 2009 base.
2009 = -6.1 MMT
2010 = - 1.8 MMT
Assumes intensity constant. They should increase.
Starts versus continuing construction intensities
Nonresidential Farm & Oil cement consumption are expected to increase.
2009 = -3.0 MMT, 2010 = +600,000 MT
Beyond the Crisis
Ten Year Peak-to-Peak Recovery
Cement Outlook: 2010-2014
Ed Sullivan, Chief Economist PCA
PCA Spring Board Meeting April 2010
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009