Transcript Welcome to Carter - Portland Cement Association

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Cement Outlook: 2009
Ed Sullivan, Chief Economist PCA
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Key Questions
 How deep will retrenchment go ?
 How long will it last ?
 What recovery to expect?
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Portland Cement Consumption
Thousand Metric Tons
Declines Continue Through 2010.
One Year Later than Previously Expected
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Portland Cement Consumption
- Annual Change, Thousand Tons
Peak (2005)-to-Trough (2010) Decline:
41 MMT (Worst in History)
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Capacity Expansion
Thousand Metric Tons
Stated Capacity
Expansions
Potential Increases
From Specification
Changes
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Market Imbalances
- Changes in Cement Consumption Tons + Capacity Expansion Tons
25,000,000
20,000,000
15,000,000
2007
1974
1991
10,000,000
1981
2002
5,000,000
0
-5,000,000
-10,000,000
1980-82
1990-91
2000-01
2007-2010
-15,000,000
1970
1973-74
1980
1990
2000
2010
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Import Volume
Thousand Metric Tons
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Capacity Adjustments *
Thousand Metric Tons
Capacity
Adjustments Due to
Delayed Expansions
and Plant Closures
* Adjustments Include Five Delays in Plant Commissioning and Seven Plant Closures
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Average Days Supply Inventory
Cement Inventory/ Daily Selling Rate
35
30
17 Days Supply = Historical Average
25
20
15
10
5
0
2003
2005
2007
2009
2011
2013
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Capacity Utilization Rates
Clinker Production/Clinker Capacity
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Economic Outlook
It is a Recession, and going to last longer than previously expected
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Economic Outlook: Five Factors
Sub-Prime
Mortgage
Payments
Financial
Crisis
Energy/
Inflation
Defaults
Structural Global
Realities
Write-Downs
Credit Cards
Gasoline Prices
Risk Aversion
Defaults
Tight Lending
Standards
Home Price
Declines
Reliance on
Home Equity
Gone
Heating Prices
Tight Lending
Standards
Fertilizer/Biofuels
hit Ag Prices
Commercial,
Consumer,
homeowner
capital access
reduced
Supply Side
Costs Ingrained
Cost of Business
Global
Adds Weakness
to Dollar
Labor
Markets
Slower Economic
Growth
State
Deficits
Slower Job
Revenues Slow
One Million Job
Loss in 2008
Housing Recovery
Delayed
Nonresidential
Declines
State Fiscal Crisis
Looming
Public Declines
Entitlement
Programs Continue
Deficits
Drag on Recovery
Offsets Possible
Federal Stimulus
Package
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Economic Adversity
2006
Sub-Prime
Energy
Financial
Crisis
Inflation
Labor
Markets
State
Deficits
2007
2008
2009
2010
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Net Job Creation (Loss)
- Annual Change, Thousand Net Jobs
Job Loss 2008 = 1.4 Million
Job Loss 2009 = 1.9 Million
Unemployment Peaks at 7.5% Mid-2009
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Economic Growth Outlook
Percent Change, GDP Growth Rate
Tax Rebate
Bump
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Economic Policy Impacts
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Left to Itself…Adverse Economic
Momentum will
Accelerate….Leading to Potentially
the Worst economic Downturn in
Post-War Era…
The Effectiveness of Policy Will
Determine the Character of the
Economy during the Two Years
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Transmission Mechanism: Simple/Effective
$700 Billion
Increased
Liquidity
Banks
Stronger
Stronger
Economy
Averts Economic Meltdown: But May have Muted
Impact in Stimulating Economy
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Transmission Mechanism: Longer/Weaker
$700 Billion
Increased
Liquidity
Banks
Stronger
Reduced
Risk
Aversion
Compromises
Liquidity
Lending Risk
Increases
Further
Write
downs
Economy
Weakens
Stronger
Economy
Longer Financial Adjustment Period Than Many
Expect: Begins late 2009
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Policy Assessments
 Rebate impact of spring has dissipated.
 Stimulatory impact of rate cuts waning and not as effective as historical
measures.
 Issue not level of interest rates
 Financial bailout is a stop gap measure not a true stimulus policy.
 Economic adversity gains momentum in absence of a major fiscal
policy initiative.
 First half 2009 action.


$150 Billion.
Infrastructure – Higher “Multipiers”
 Will increased Federal spending work in the face of large cuts in state
and local spending?
 Aid to States
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Residential Outlook
Recovery Delayed
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Single Family Housing– United States
000 Starts
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Residential Cement Consumption
- Annual Change, Thousand Tons
Peak (2005)-to-Trough (2010) Decline:
19 MMT = 63% of Total Decline
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Future Weakness
 Residential Weakness is largely over.
 Most of Future Weakness Tied to
Nonresidential & Public Cement
Consumption.
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Nonresidential Construction
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Nonresidential: Portland Cement Consumption
Thousand Metric Tons
Declines Continue
Through 2010.
Colorado Nonresidential
Cement Consumption
2007: +7.8%
2008: +6.5%
2009:-22.0%
2010: -11.3%
2011: +4.6%
Recovery Could be
Strong
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Nonresidential Cement Consumption
- Annual Change, Thousand Tons
Peak (2005)-to-Trough (2010) Decline:
5 MMT
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Public Construction
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Fiscal 2009 Revenue Outlook
District of
Columbia
Pessimistic
Concerned
Source: National Conference of State Legislatures
Stable
Optimistic
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Public Cement Consumption
- Annual Change, Thousand Tons
Peak (2005)-to-Trough (2010) Decline:
12 MMT
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Mid-Term Recovery
2011-2013
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Portland Cement Consumption
Thousand Metric Tons
Declines Continue Through 2010.
One Year Later than Previously Expected
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The “V” Economic Recovery:
2008
Sub-Prime Drag Abates
Bank Lending Aversion
Improves
Stimulus Gains
Employment Traction
Lending Risk Declines:
Credit Easing
Energy Stimulus
State Deficits
Improve
Pent-Up Demand
Released
2009
2010
2011
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Single Family Housing– United States
000 Starts
Pent-Up Demand
Interest Rates low, Decline in Home Price, Job
Recovery Translate into Improved Affordability
Excess Inventories Worked Off
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Nonresidential Long Term Trend
Million Real $, 1996
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Current:
Gasoline Prices Vs Asphalt Prices Per Barrel
Price Per Barrel
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Gasoline - Asphalt Margin Per Barrel Differential
- Net Threshold of $14 Per Barrel
Price Differential Per Barrel
Threshold Differential = $14 per barrel Estimated on a
Ten Year Payoff for Coker Investment
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Announced New Coker Installations
Cumulative: Thousands of Barrels Per Day
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Liquid Asphalt Supply
Thousands of Barrels
44 Million
Barrel Decline
by 2011
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Projected:
Initial Bid Concrete Vs Asphalt Paving Costs
Per Two Lane Road Mile - Urban
Asphalt
Concrete
Parity Achieved in Fiscal 2009
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Projected:
Life Cycle Concrete Vs Asphalt Paving Costs
Per Two Lane Road Mile - Urban
Asphalt
Concrete
Concrete Advantages Materialize in Fiscal 2009
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Portland Cement Consumption
Thousand Metric Tons
140,450
120,450
100,450
80,450
60,450
40,450
20,450
450
1998
2000
2002
2004
2006
2008
2010
2012
Count on Concrete
Cement Outlook: 2009
Ed Sullivan, Chief Economist PCA