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Cement Outlook Ed Sullivan, Chief Economist PCA PCA’s Fall Board Meeting November 2011 Named Most Accurate Forecaster By Chicago Federal Reserve, 2009
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Cement Outlook
Ed Sullivan, Chief Economist PCA
PCA’s Fall Board MeetingNovember 2011
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009
Portland Cement Consumption Thousand Metric Tons
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
450
20,450
40,450
60,450
80,450
100,450
120,450
140,450 Fall Fore-cast
Summer Forecast
Economic Outlook
Synchronized Recovery Theory
Incremental Demand Gains
Job Gains
Sentiment Gains
Lending Standards Ease & Hiring Accelerates
Heals Structural Restraints In the context of
moderating productivity
Gains Leads to:
Sentiment includes
Consumer, Business &
Banks:
Defaults & perceived
lending risks decline
Job creation determines how
quickly the recovery cycle spins.
False Hopes: Net Job CreationAnnualized Net Job Creation
Jan
2005
Jun
2005
Nov 2
005
Apr 2
006
Sep
2006
Feb
2007
Jul 2
007
Dec 2
007
May
200
8
Oct 2
008
Mar
200
9
Aug
2009
Jan
2010
Jun
2010
Nov 2
010
Apr 2
011
-12000-10000-8000-6000-4000-2000
02000400060008000
3.7 Million Annualized 3 month Moving Average
2.7 Million Annualized 3 month Moving Average
Real GDP OutlookAnnualized Growth
2010 Q1
2010 Q2
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
2012 Q3
2012 Q4
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Employment OutlookAnnual Change, Thousands Employed
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-6000
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
Source: BLS
Recession Recoveries: 3 Years Following, Annual Average1991: 3.08 Million, 2001: 2.22 Million, Current: 1.35 Million
Housing Recovery
The Residential Recovery Process
Mortgage Resets
Working Through Structural Repair of
Housing Market Will Take Time Before Impacting
Housing Starts.
Foreclosures
Bank Possessions Shadow Inventories
Heightened Inventories
Inventory Burn Off
Price Stability
Starts Recovery
Single Family Sales Outlook
Thousands of Units
2003 2004 2004 2005 2006 2007 2008 2009 2010 2011 20122000
3000
4000
5000
6000
7000
8000
Single Family Months Supply
Thousands of Units
2003 2004 2004 2005 2006 2007 2008 2009 2010 2011 20120
2
4
6
8
10
12
Desired Month’s Supply
Single Family Home Price Outlook
Y-O-Y Percent Change
2003 2004 2004 2005 2006 2007 2008 2009 2010 2011 2012-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Single Family Upside Risk?
Single Family Starts Projections ComparisonThousand Starts
2011 2012 2013
PCA 421 443 567Mortgage Bankers Association 420 474 619NAHB 424 495 723National Association of Realtors 416 480 ----
Other Associations’ Average 420 483 671Tons Per Start 19.2 19.2 19.2Upside Risk (000 Tons) --- 768 1,997
Portland Cement Consumption Thousand Metric Tons
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
45,000
55,000
65,000
75,000
85,000
95,000
105,000
115,000
125,000
135,000 Fall Fore-cast
Summer Forecast
Nonresidential Drag
Nonresidential Construction
Real 1996 PIP $
2003 2003 2004 2005 2006 2007 2008 2009 2010 2010 2011 $40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
-50%
Source: Dept of Commerce, PCA
Nonresidential Conclusions No longer a significant drag on construction activity.
Large imbalances exist in before a positive NOI
materializes Slow job growth implies slow healing process
Credit environment hostile.
Conditions for positive ROI years off.
Not a significant contributor to cement consumption
growth near term.
Office Buildings: Recovery Process
New Office Hiring
Vacancy Rates
Decline
Leasing Rates
Stabilize
Credit Troubles Ease
Asset Prices Firm
1/5 of all jobs in the office.
After reaching threshold of roughly 14% vacancy rate
Defaults & perceived
lending risks decline
Leads to a recovery in
office construction.
Office EmploymentThousands Employed
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
25,000
26,000
27,000
28,000
29,000
30,000
31,000
Vacancy Rate: 12.7%
Vacancy Rate: 18.3%
Vacancy Rate: 11.3%
Source: BLS
Office Building ValuationProperty Value Index, 2000=100
50
70
90
110
130
150
170
190
Source: Moody’s
-36%
REIT OfficeDow Jones REIT Index, Total Return, 1990=100
2003200320042005200520062007200820082009201020100
200
400
600
800
1,000
1,200
-69.9%
Source: Dow Jones REIT Index
Recap
tured
70%
Public Recovery
State Deficits $ Real
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-200,000,000
-100,000,000
0
100,000,000
200,000,000
300,000,000
Source: NIPI Data
National Estimates: States Do Not Heal in a Synchronized Fashion
ARRA Sterilization: State SpendingChange in Spending, Real Million 1996$
2009 2010-3000
-2000
-1000
0
1000
2000
3000
4000
ARRA $ ARRA $
State $ State $
76% Sterilization
43% Sterilization
ARRA Sterilization: State SpendingChange in Spending, Real Million 1996$
2009 2010 2011-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
ARRA $ ARRA $
State $ State $
Increase In State Spending Reduces
Adverse Impact
ARRA $
State $
Discretionary State Highway Cement Consumption Thousand Metric Tons
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Highway Bill Cement Consumption ProjectionsSpring Versus Summer Assumptions
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000Spring
Forecast
Summer Forecast
Obama Initiatives: Impact
Infrastructure spending = ARRA
Infrastructure Bank
No/limited direct impact 2011-2012.
Modest impact 2013-2014
Proposals do not change near term outlook
Beyond the Crisis
Initial Bid Concrete Vs Asphalt Paving CostsDollars Per Two Lane Road Mile - Urban
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
Oman Data US Aver-
age: 13.5%
Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)
Concrete
Asphalt
Initial Bid Concrete Vs Asphalt Paving CostsDollars Per Two Lane Road Mile - Urban
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
Oman Data US Aver-
age: 13.5%
Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)
Concrete
Asphalt
Oman Data US
Average: 15.3%
Initial Bid Concrete Vs Asphalt Paving CostsDollars Per Two Lane Road Mile - Urban
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000 Oman Data US Aver-
age: 13.5%
Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)
Concrete
Asphalt
Oman Data US
Average: 15.3%
15% Advantage
18% Disadvantage
42% Advantage
New Paving Realities: Impact
Cost Advantages will Increase
“Free Market, Lowest Cost Material” Doesn’t Always Win.
Escalators, LCCA Discount Rates, ADAB, MEPDG
State/Local Advocacy Focus
Upside Forecast Risks?
Cement Outlook
Ed Sullivan, Chief Economist PCA
PCA’s Fall Board MeetingNovember 2011
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009
