Transcript Welcome Insert Title Here - Portland Cement Association

Cement Outlook: 2011-2015
World of Concrete
January 2011
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009
Portland Cement Consumption: Fall
Thousand Metric Tons
140,450
Growth Rates
120,450
2007: - 9.6
100,450
2008: - 15.1
80,450
2009: - 26.9
2010: + 0.7
60,450
2011: + 1.3
40,450
2012: + 3.7
20,450
2013: + 16.6
450
2014: + 18.0
1998
2000
2002
2004
2006
2008
2010
2012
2014
Early 2011 Characterized by Large Y-O-Y Percentage Gains
PCA believes this will be a false read for 2011 Performance
Capacity Utilization
Percent Capacity Utilized
100%
80%
60%
40%
20%
0%
2002
2004
2006
2008
2010
2012
2014
NESHAP
Closures
Economic Outlook
Economic Adversity Abates 2011/12
2006
2007
2008
2009
Sub-Prime/Exotics
Energy
Lending
Standards
Labor
Markets
State
Deficits
The abatement of the
conditions that put us in
recession…are
receding…but remain in
place.
2010
2011
Synchronized Recovery Theory
Job creation
determines how
quickly the recovery
cycle spins.
Heals
Structural
Restraints
Incremental
Demand Gains
Lending Standards
Ease & Hiring
Accelerates
Defaults &
perceived
lending risks
decline
In the context of
moderating
productivity
Gains Leads to:
Job Gains
Sentiment
Gains
Sentiment
includes
Consumer,
Business &
Banks:
Housing Recovery
Residential Contribution to Recovery Muted
Thousand Metric Tons
10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
-6,000
-8,000
-10,000
-12,000
27.7 MMT Decline
19 MMT Gain
or
68% Recapture
1999
2001
2003
2005
2007
2009
2011
2013
2015
Ingredients for a Starts Recovery
Homebuilders Expected ROI
Inventory no
higher than 5
months supply
Carry costs erode
expected ROI.
Price stability
Weaker the price
environment…lowers
the months’ supply
trigger point.
Foreclosures Accelerate
Foreclosure Impacts
Add to
Inventory
2.8 Foreclosures in 2009.
871K Bank possessions.
Equates to one out of
every 4 homes on the
market.
Depress
Prices
Depressed
Homebuilder
ROI
Adds supply.
Longer carry costs.
Bank owned properties
discounted.
Lower revenues.
Erodes expected ROI.
Pressures new home
prices.
Delays recovery in
starts.
Residential: Re-Set Scenario
$ Billion
40
35
30
Alt-A
25
Subprime
Resets
20
15
Option
Adjustable
10
5
0
2007
2008
2009
2010
2011
2012
2013
2014
Months’ Supply: Single Family
Number of months required to burn off existing inventory at current selling rates
Projected
12
10
8
6
Desired Months Supply
4
2
0
Jan 2006
Jan 2007
Source: PCA Projections
Jan 2008
Jan 2009
Jan 2010
Jan 2011
Single Family Starts Projections
Thousand Homes
1,400.0
Slow job growth,
tight lending
standards & high
level of foreclosures
prevent a significant
increase in starts.
1,200.0
1,000.0
800.0
600.0
400.0
200.0
0.0
2007
2008
2009
2010
2011
2012
2013
2014
Single Family Starts Projections
Thousand Homes
1,400.0
Stronger job growth,
easier tight lending
standards &
foreclosures abate but
lag to burn off
inventories – delaying a
signal to build
1,200.0
1,000.0
800.0
600.0
400.0
200.0
0.0
2007
2008
2009
2010
2011
2012
2013
2014
Single Family Starts Projections
Thousand Homes
1,400.0
Strong job growth,
easier tight lending
standards foreclosure
issue gone. Pent-up
demand release is
moderated by mortgage
rates increases.
1,200.0
1,000.0
800.0
600.0
400.0
200.0
0.0
2007
2008
2009
2010
2011
2012
2013
2014
Nonresidential Drag
Commercial Nonresidential Drag Lessens
Thousand Metric Tons
6,000
13.1 MMT Decline
4,000
2,000
0
-2,000
8.4 MMT Gain
or
64% Recapture
-4,000
-6,000
-8,000
1999
2001
2003
2005
2007
2009
2011
2013
2015
Nonresidential Conclusions

No longer a significant drag on cement consumption
growth.

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 until 2013
Office Buildings: Recovery Process
Leads to a
recovery in
office
construction.
Asset
Prices Firm
New Office
Hiring
Vacancy
Rates
Decline
Credit Troubles
Ease
Defaults &
perceived
lending risks
decline
1/5 of all jobs in
the office.
Leasing
Rates
Stabilize
After reaching
threshold of
roughly 14%
vacancy rate
Office Buildings Recovery Timing
32.0 Million Office Jobs Equates to Full Occupancy
27.5 Million Office Jobs Equates to Stable Leasing Rates
27.0 Million Office Jobs Today
Implying…..
500,000 Office Jobs must be
created before leasing rates stabilize
Since 1 in 5
Jobs Are In
The Office
2.5 million Jobs
This condition may not materialize until 2012
This equates to a total job creation number of roughly
Public Recovery
ARRA Spending Composition Assumptions
Billion $
Cement
Consumption
2,951,000 MT
12.0
10.0
Cement
Consumption
583,000 MT
Cement
Consumption
2,310,000 MT
8.0
6.0
Cement
Consumption
214,000 MT
4.0
2.0
0.0
2009
Resurfacing
2010
2011
Widening & New Route
Chart Excludes “Other” Spending
2012
Bridge
State Fiscal Conditions
FY 2011 Budget Gaps
WA
NH
MT
ME
VT
ND
OR
MN
ID
NY
SD
MA
WI
RI
WY
MI
CT
IA
PA
NE
NV
UT
IL
IN
DE
CO
MD
WV
CA
KS
NJ
OH
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
GA
LA
TX
FL
HI
Source: PCA/CBPP
Oct. 2010
No Shortfall
Under 11%
11%-20%
Over 20%
State Deficits
$ Real
Slow Job Creation
Leads to Slow
Deficit Heal
300,000,000
200,000,000
100,000,000
0
-100,000,000
-200,000,000
-300,000,000
-400,000,000
1999
2001
2003
2005
2007
2009
2011
2013
Source: NIPI Data
National Estimates: States Do Not Heal in a Synchronized Fashion
2015
Discretionary State Highway Cement Consumption
Thousand Metric Tons
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1998
2000
2002
2004
2006
2008
2010
2012
2014
SAFETEA-LU Math
2010
2011
SAFETEA-LU
- Delay in Extension
- Recapture 2010
Volume Impact
Net Change 2011 (No Delay)
-1 to -2 MMT
0 MMT
-----
+1 to +2 MMT
- 1 to -2 MMT
+1 to +2 MMT
+2 to +4 MMT
PCA Washington: 50/50 Lame Duck Passage
Portland Cement Consumption: Highway
Thousand Metric Tons
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2004
2006
State
Discretionary
2008
Highway Bill
2010
2012
Stimulus
2014
Beyond the Crisis
“New Normal” or “New Headaches”
Portland Cement Consumption
Thousand Metric Tons
Recovery
Occurs in
Context of
“New Normal”
140,450
120,450
100,450
80,450
60,450
40,450
20,450
450
1998
2000
2002
2004
2006
2008
2010
2012
2014
After the Crisis: “New Normal”: Economics
 American consumer, the engine of US economic growth
 May distance from debt spending patterns (lowering GDP).
 Baby boomers may not re-capture wealth
 Higher inflation erodes spending.
 Impacts

Slower growth – Is 50 basis point enough?
After the Crisis: “New Normal”: Policy
 Fiscal Policy

Stimulus spending must be paid for…resulting in higher interest
rates, higher taxes, and potentially higher inflation.
 Monetary policy easing (U.S. & global) & QE2

Could add to inflationary pressures.

QE2 compounds the inflationary risks.

Raises prospects of Federal Reserve tightening.
 Weakens dollar in context of large public debt.

Heightens debt costs.

Opens door for fiscal austerity.
After the Crisis: “New Normal”: Construction
 Not a typical recession recovery.

Amplified by structural corrections.

Amplified by possible policy errors.
 Long impacts
 Pent-Up Demand

Being generated across all sectors.
 Longer period of distress, more pent-up demand

Timing and magnitude of release impacted by economy.

Regional impacts from resulting growth.
 Residential, nonresidential & public synchronized – 2013 & Beyond.

Typically suggests strong cement consumption growth rates.
After the Crisis: “New Normal”: Global
 Emerging economies, led by China/India, account for key growth drivers.

Accounts for larger share of world GDP than OECD by 2014 (IMF).

Exerts “new” potent demand on world markets

“Synchronized” world growth returns 2013-2020.
 Commodity prices (oil), freight rates, trading patterns subject to change.

Impacts concrete competitiveness (oil prices = paving position, residential
ICF)

Impacts sourcing decisions – high freight rates raising import costs.
 New challenges could lead to potentially new economic/political tensions.
Announced New Coker Installations
Cumulative: Thousands of Barrels Per Day
After the Crisis: “New Normal”: MIT
 Researchers at the MIT Concrete Sustainability Hub are working to quantify the
full cradle-to-grave life-cycle environmental and economic costs of paving and
building materials.
 Residential Buildings – More than 90% of the life-cycle carbon emissions are
due to the use phase, with construction and end-of-life disposal accounting for
less than 10% of the total emissions.
 Residential Buildings – Concrete structures built with insulated concrete forms
(ICF) enjoy long-term operational energy savings of 20% or more over woodframed buildings.
 In the context of synchronized world growth, higher oil prices, homebuyers may
increasingly emphasize energy saving aspects of concrete homes.
Per Home, Lifetime C02 Savings ICF Home Over Frame
Co2 Metric Tons, Per Home
100
90
Total Heating & Cooling C02
Saving: 92 Tons per Home
80
70
60
50
40
Additional C02 Emitted
by Cement Production
30
20
10
0
2007
2012
2017
2022
2027
2032
2037
2042
2047
Conservatively Assumes 50 Year Life of Home
2052
2057
After the Crisis: “New Normal”: Regulation
 Activist EPA

Plant shut downs

High compliance costs.

New Source regulations!
 Resumption of demand growth
 Import Dependence Grows

In context of weak dollar

In context of emerging economy demand growth

Higher freight rates.
 Sourcing strategies

Near term, import dependence – longer term?
Cement Consumption: Long Term
Million Metric Tons
190
170
150
130
110
90
70
50
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
Growth in Context of Population Changes, Slower US Economic Growth, Strong
Global Growth, Climate Change Legislation and the “Green” Revolution.
2030
Cement Outlook: 2011-2015
World of Concrete
January 2011
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009