national & regional construction & cement outlook david e. czechowski - manager, sr....
TRANSCRIPT
National & Regional Construction & Cement
Outlook
David E. Czechowski - Manager, Sr. Economist
Economic Research
Portland Cement Association
March 3, 2006
La Crosse, WI
Key Points of Analysis
The Economy
Construction Spending
Cement Outlook
Residential
Nonresidential
Public
Demand
&
Supply
Regional Perspective
U.S. Economic Outlook
Consumer Confidence
40
70
100
130
160
Index1985=100
00 01 02 03 04 05
Consumer 70% of Overall Economy
(Change from prior month)
Nonfarm Employment
-400
-200
0
200
400
600Thousands
00 01 02 03 04 05 06
Job Growth
2004: +2.2 Million
2005: +2.0 Million
2006: +2.2 Million
Construction Employment
-60
-40
-20
0
20
40
60
80
100Thousands
00 01 02 03 04 05 06
(Change from Prior Month)
Consumer Spending Outlook
Job Creation
Affordability
Income Gains
Consumer Confidence
Inflation Moderate
Favorable Factors
No Tax Stimulus
Less Home Refinancing Activity
High Energy Prices
Rising Interest Rates
Growth in ARM’s
Slower Automotive Spending
Unfavorable Factors
Strong, But Slower Consumer Spending Growth
Corporate Profit Recovery
200
500
800
1100
1400$ Billion
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Real InvestmentNonresidential Structures & Equipment
-20
-10
0
10
20
30
40
Qtr/Qtr% Change
90 92 94 96 98 00 02 04 06
Shaking off Skittishness!Pent Up Demand
Investment Spending Outlook
Higher Expected ROI
Pent Up Demand
Higher Profits = Internal Funds
Low Interest Rates = External Funds
Favorable Factors Unfavorable Factors
Strong, But Slower Investment Spending Growth
Energy Prices
Federal Funds Rate Outlook
0.0
2.0
4.0
6.0Percent
03 04 05
Fed Gradualism
Restrictive Stance
Accommodative Stance
06
GDP Growth
-2
0
2
4
6
8
10
Qtr-Qtr% Change
00 01 02 03 04 05 06
2.7%1.6% 4.2%
Inflationary Pressures
Auto/Housing/Consumer survived
2006: 3.3%
2007: 2.9%
3.5%
Economic Outlook: Summary
Economic Growth Will Be SustainedEconomic Growth Will Be Sustained
and Prevents Recessionand Prevents Recession
Consumers Maintain Spending at Slower PaceConsumers Maintain Spending at Slower Pace Investment Spending ContributesInvestment Spending Contributes Labor Markets Keep PaceLabor Markets Keep Pace
Risks are DistantRisks are Distant
High Energy Costs Lower Spending ActivityHigh Energy Costs Lower Spending Activity Rapid Rise in Interest RatesRapid Rise in Interest Rates
U.S. Construction Outlook
Changing Composition of Construction Spending
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: NonresidentialGrowth Laggard: Nonresidential Weak EconomyWeak Economy
Growth Leader : NonresidentialGrowth Leader : Nonresidential Steady EconomySteady Economy
PublicPublic State Tax Revenues Recovery State Tax Revenues Recovery
Due to Economic GrowthDue to Economic Growth
Growth Laggard : ResidentialGrowth Laggard : Residential Rising Interest RatesRising Interest Rates
2001-2005 2006-2009Low Interest Rates
Weak Economy
Rising Interest Rates
Steady Economy
US Construction Markets Do Not Lose Momentum With Rising Mortgage Rates and Slowdown in Housing
Residential Construction
New Home Sales
0.70
0.90
1.10
1.30
1.50
MillionUnits
98 99 00 01 02 03 04 05 06
Existing Home Sales
+ 4.2% (2005)
Single-Family Housing Starts3 Month Moving Average
1.0
1.2
1.4
1.6
1.8
MillionUnits
98 99 00 01 02 03 04 05 06
Multi-Family has benefited from condo activity!
Seeking a Peak!
4
5
6
7
8
9Percent
00 01 02 03 04 05 06
Mortgage Rate
Tripping Rate = 6.5%
Year
2006 6.5%
2007 7.0%
Gradual & Modest Increases in Mortgage Rates Gradual & Modest Increases in Mortgage Rates Prevent a Bubble BurstPrevent a Bubble Burst
Inventory Draw RequiredHomes on Market/Monthly Selling Rate
Ten Year Average
Inventory Build Required
3.0
3.5
4.0
4.5
5.0
5.5
6.0
00 01 02 03 04 05 06
Ten Year Average
Inventory Build Required
New Home Order Cancellations on the Rise!
0.5
1.0
1.5
2.0
MillionUnits
98 99 00 01 02 03 04 05 06 07 08 09
Single Family Starts
Year
2005 1.71
2006 1.63
2007 1.52
Nonresidential Construction
100
130
160
190
220
Billions1996$
93 95 97 99 01 03 05 07 09
Nonresidential Construction
Year
2004 - 1%
2005 2%
2006 7%
2007 10%
Nonresidential Construction
20032003 20042004 20052005 2006 2007 2006 2007
LodgingLodging -10%-10% 8% 8% -4%-4% 6%6% 13%13%Health CareHealth Care -2%-2% -3%-3% 5% 5% 9%9% 4%4%ReligiousReligious -3%-3% -12%-12% -11%-11% -1%-1% 3%3%EducationalEducational -3%-3% -12%-12% -4%-4% 4%4% 9%9%
Public Construction
-80
-40
0
40
80$Billion
89 91 93 95 97 99 01 03 05
State & Local Government Surplus
Public Construction
20032003 20042004 20052005 2006 2007 2006 2007
BuildingsBuildings -3%-3% -4%-4% -2%-2% 4%4% 5%5%HighwayHighway -5%-5% -5%-5% 5% 5% 5%5% 5%5%SewerSewer 1% 1% -1% -1% 8% 8% 6%6% 4%4%WaterWater -1%-1% -8%-8% 6% 6% 8%8% 7%7%
Public Construction
120
140
160
180
200
220
Billions1996$
93 95 97 99 01 03 05 07 09
Year
2004 -5%
2005 2%
2006 4%
2007 5%
Maybe Recession Proof but Not Budget Proof
500
600
700
800
900
Billions1996$
93 95 97 99 01 03 05 07 09
U.S. Construction Outlook
Year
2004 3.2%
2005 3.3%
2006 1.3%
2007 1.2%
Overall construction Activity will not recedeOverall construction Activity will not recede
even in the face of rising interest rates and declining residentialeven in the face of rising interest rates and declining residential
Construction: Conclusions
Residential Easement ModestResidential Easement Modest Mortgage Rate Increases SubduedMortgage Rate Increases Subdued 6.5% Threshold Does Not Materialize Until 20066.5% Threshold Does Not Materialize Until 2006 Cement Intensity GainsCement Intensity Gains
Nonresidential RecoveryNonresidential Recovery Turning Points Already AchievedTurning Points Already Achieved Still Weak from a Historical PerspectiveStill Weak from a Historical Perspective Amplified by Intensity GainsAmplified by Intensity Gains Recovery within Sectors Differ Recovery within Sectors Differ
Retail/Hotel/Industrial LeadRetail/Hotel/Industrial Lead Institutional/Office LagInstitutional/Office Lag By End of 2006... All segments in GrowthBy End of 2006... All segments in Growth
Public Waiting In WingsPublic Waiting In Wings State Fiscal RecoveryState Fiscal Recovery Pent-up DemandPent-up Demand SAFETEASAFETEA
Cement Intensity
Favorable Relative Price ConditionsFavorable Relative Price Conditions Concrete prices relative to steel Concrete prices relative to steel Material substitution in designMaterial substitution in design
Cyclical RecoveryCyclical Recovery Larger, more cement intensive projects Larger, more cement intensive projects
typically associated with economic recoverytypically associated with economic recovery
Construction MixConstruction Mix Outlook favors nonresidential and public Outlook favors nonresidential and public
construction with typically higher cement construction with typically higher cement intensityintensity
Portland Cement Consumption
60
70
80
90
100
110
120
130
140
MillionMetric Tons
89 91 93 95 97 99 01 03 05 07 09
Year
2003 3.6%
2004 6.8%
2005 5.2%
2006 3.7%
2007 2.7%
2008 2.5%
2009 2.4%
Cement SupplyIn Perspective
Cement Supply Dynamics
92.291.5Clinker Capacity
21.3%22.3%Import Share %
23.924.1Total Imports
21.922.2Cement Imports
2.01.9Clinker Imports
88.686.1Domestic Shipments
112.3108.2Cement Consumption
20032002
93.4
22.8%
27.3
25.6
1.7
120.1
2004
90.2
No Shortage Tight Supplies
Pre-Katrina Cement Supply Survey
Spot Tight Supplies
No Shortage Tight Supplies
Current Cement Supply Survey
Spot Tight Supplies
Demand Pressures
Ratio of Cement Consumption to Construction
120
130
140
150
160
170
180
Thousand Tonsper $Billion
93 95 97 99 01 03 05 07 09
Residential Exposure
Residential Cement Consumption as % of Total State Cement Consumption
1 DELAWARE 43.0%
2 MAINE 42.4%
3 FLORIDA 42.1%
4 GEORGIA 40.8%
5 NEW HAMPSHIRE 35.6%
6 MARYLAND 35.1%
7 VIRGINIA 32.4%
8 ARIZONA 32.1%
9 TENNESSEE 30.3%
10 KENTUCKY 30.2%
NATIONAL 24.7%
Portland Cement Consumption
-20
-15
-10
-5
0
5
10
15
20
25
Year-Year% Change
02 03 04 05
Harsh Winter
Mild WinterMild Winter
Require Import Support
Cement and Clinker Imports (Thousand Metric Tons)
Country of Origin
5,753
2,808
3,215
2,123
1,729
27,305
2003 2004
+44%
+20%
-16%
+3%
-1%
+17%
5,601
3,344
2,228
1,766
1,745
23,241
-2%
+12%
-21%
+8%
+7%
-4%
Canada
Columbia
Korea
U.S. Total
China/Taiwan
Thailand
Mexico +62% (2004) +52% (2005)
+104%
-13%
+3%
-6%
+55%
+23%
2005
33,652
Import Composition2005 Increasers
0 100 200 300 400 500
Switzerland
Thailand
Indonesia
Norway
Middle East
Yugoslavia
Mexico
Peru/Ecuador
China/Taiwan
Greece
Korea
3,348
944
775
746
403
Tonnage Change (000)
Import Compositional Shift
5.3%3.8%Mexico
20.9%17.9%Latin America
19.7%20.6%Europe
21.1%24.1%Canada
29.5%33.3%Asia
20042003
3.6%0.3%Other
6.5%
17.6%
18.5%
16.1%
37.0%
2005
4.3%
U.S. Cement & Clinker Imports(Percent Change)
2005
Great Lakes
SouthAtlantic
District of Columbia
NewEngland
Middle Atlantic
13%
25%
17%43%
25%
2%
- 5%
3%
Florida
California
Northwest
Canadian Border
Gulf Coast
Mexican Border
41%
U.S. + 23.2%
48%
Cement and Clinker Imports
New Orleans
0
200
400
600
800
ThousandMetric Tons
04 05Katrina
Cement and Clinker Imports
0
10
20
30
40
50
MillionMetric Tons
89 91 93 95 97 99 01 03 05 07 09
Year
2003 23.2
2004 27.3
2005 33.6
2006 35.2
2007 35.7
2008 32.1
2009 32.5
And Flowed Despite
Constraints
Dry Bulk Carrier Fleet
Cement Carrier Fleet Worldwide: 260 @ 2.4 MMT (DWT) Average Age: 23
Cement Carriers over 15,000 DWT: 40
Average Age: 28Source: Belden Shipping
Worldwide
Fleet Size
5,800 Ships
Freight Rates
Europe
Asia
Freight Rate
$ Per Ton, to Gulf
0
20
40
60
01 02 03 04 05
Slack Markets
Easy Availability
Market Economics at Work
How Is The Industry
Responding?
Cement Inventories
2
4
6
8
10
MillionMetric Tons
93 95 97 99 01 03
Inventory Days
Industry Average: 20
2005e: 17
04
Blended Cement Consumption
0.5
1.0
1.5
2.0
2.5
MillionMetric Tons
98 99 00 01 02 03 04 05
Nov 2005 YTD 2.24 MMT
Blended Cement Consumption Wisconsin
MissouriWisconsin
0
5
10
15
20
ThousandMetric Tons
98 99 00 01 02 03 04 05 06
Nov 2005 YTD 60,000 MT
Announced Capacity Increases(Million Metric Tons)
-1
0
1
2
3
4
5
6
7
8
95 97 99 01 03 04 05 06 07 08 09
Net Expansion 2006-2009
16.1 MMT
$3.21 Billion
Industry Investment(1994-2004)
$7.4 Billion
Mexican Cement - No Silver Bullet
2005 2006 2007 2008
Portland Cement Consumption 120,693 125,138 128,512 131,709
Market Growth 3.7% 2.7% 2.5%
Total Mexican Imports 3,200 3,310 3,394
Hurricane Relief 200 200 200
Total Mexican Quota 3,000 3,110 3,194
California 150 156 160
Arizona 1,250 1,296 1,331
New Mexico/El Paso 725 752 772
Rest of Texas 215 223 229
Louisiana 280 290 298
Mississippi/Alabama 55 57 59
Florida 200 207 213
Rest of United States 125 130 133
Supply Conclusions
Domestic Supply Increases Face Limited GrowthDomestic Supply Increases Face Limited Growth Characterized by high operating ratesCharacterized by high operating rates Equipment stretched to their limitsEquipment stretched to their limits Persistently lean inventory positionPersistently lean inventory position Major expansion does not materialize until 2008Major expansion does not materialize until 2008 Murphy’s Law (Katrina!)Murphy’s Law (Katrina!)
Market Growth Dependent On ImportsMarket Growth Dependent On Imports Source AvailabilitySource Availability Ship AvailabilityShip Availability Freight RatesFreight Rates Truck/Rail/Waterway DisruptionsTruck/Rail/Waterway Disruptions Congested Ports & Terminal LimitationsCongested Ports & Terminal Limitations Cement not a favored commodityCement not a favored commodity
Supply Constrained MarketSupply Constrained Market No Near Term Relief from Current ConditionsNo Near Term Relief from Current Conditions
The Bottom Line
Economy’s Growth Rate Slows Economy’s Growth Rate Slows Foundations for Growth FirmFoundations for Growth Firm
EmploymentEmployment Consumer/Investment SlowdownConsumer/Investment Slowdown Threats to Scenario are Distant Threats to Scenario are Distant
Construction Sector Sustained GrowthConstruction Sector Sustained Growth Housing StrongHousing Strong Nonresidential Recovery Already UnderwayNonresidential Recovery Already Underway Public Turnaround NearPublic Turnaround Near
Cement Industry Conditions SustainedCement Industry Conditions Sustained Construction Growth Amplified By “Intensity” GainsConstruction Growth Amplified By “Intensity” Gains Plant Capacity Utilization Remains StretchedPlant Capacity Utilization Remains Stretched No Near Term Relief for Tight Inventory ConditionsNo Near Term Relief for Tight Inventory Conditions Imports Remain Key Supply Feed to MarketImports Remain Key Supply Feed to Market
Regional Perspective
Regional Portland Cement Consumption(Million Metric Tons)
2002 2003 2004 2005YTD
Wisconsin 2.05 2.23 2.33
% Change -11% 9% 4% 2%
Illinois 4.11 3.99 3.99
% Change -1% -3% 0% 4%
Indiana 2.08 2.18 2.24
% Change -8% 5% 3% -3%
Iowa 1.73 1.72 1.84
% Change 2% -1% 7% 8%
Michigan 0.08 0.13 0.23
% Change -12% -3% 4% -7%
Minnesota 0.06 0.09 0.14
% Change 1% 4% 0% -1%
U.S. -4% 4% 7% 6%6%
Real GSP - Wisconsin
0%
1%
2%
3%
4%
5%
2001 2002 2003 2004 2005 2006 2007 2008 2009
Annual % Change
U.S.
Net Migration - Wisconsin
0
5
10
15
20
25
30
35
40
1991 1993 1995 1997 1999 2001 2003 2005
(000) Persons
Population Growth - Wisconsin
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1994 1996 1998 2000 2002 2004 2006 2008
Annual Growth Rate
U.S.
Single Family Permits - Wisconsin
0
5,000
10,000
15,000
20,000
25,000
30,000
2001 2002 2003 2004 2005 2006 2007 2008 2009
# of units
Multi-Family Permits - Wisconsin
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2001 2002 2003 2004 2005 2006 2007 2008 2009
# of units
Key Markets Exposure - Wisconsin
Cement Consumption as % of Total State Cement Consumption
Residential: 29% Residential: 29% National: 30%National: 30%
Nonresidential: 17% Nonresidential: 17% National: 16%National: 16% Commercial: 14% Commercial: 14% National: 13%National: 13% Industrial: 1% Industrial: 1% National: 1%National: 1% Office: 2% Office: 2% National: 2%National: 2%
Public: 55% Public: 55% National: 46%National: 46% Highway: 40% Highway: 40% National: National:
32%32%
Cement per Capita U.S.: .368
Cement per Capita Wisconsin: .407
Clinker Capacity (000 Metric Tons)
19951995 20042004
WisconsinWisconsin 0 0 0 0IllinoisIllinois 2,544 2,544 2,770 2,770IowaIowa 2,409 2,409 2,672 2,672IndianaIndiana 2,610 2,610 3,191 3,191MichiganMichigan 4,877 4,877 4,243 4,243MinnesotaMinnesota 0 0 0 0
RegionRegion 12,44012,440 12,876 12,876 + 4%+ 4%
MMT YearRegional Expansions
Monarch – Humboldt, KS .330 ’06Eagle Materials – LaSalle, IL .430 ‘07Buzzi – Festus, MO .900 ’08Continental – Hannibal, MO .600 ’08
Holcim – St. Gen, MO 4.4 ‘08
Residential Cement ConsumptionWisconsin
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Metric Tons
Nonresidential Cement ConsumptionWisconsin
0
100,000
200,000
300,000
400,000
500,000
600,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Metric Tons
Public Cement Consumption Wisconsin
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Metric Tons SAFETEA-LU 2005-20093.56 $Bill (+30%)
Cement Outlook - Wisconsin
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Metric Tons
National & Regional Construction & Cement
Outlook
David E. Czechowski - Manager, Sr. Economist
Economic Research
Portland Cement Association
March 3, 2006
La Crosse, WI