national & regional construction & cement outlook florida independent concrete and...
TRANSCRIPT
National & Regional Construction & Cement
Outlook
Florida Independent Concrete and Associated Products Association
January 30, 2007
David E. Czechowski - Manager, Sr. Economist
Economic Research
Portland Cement Association
Key Points of Analysis
The Economy
Construction Spending
Cement Outlook
Residential
Nonresidential
Public
Demand
&
Supply
Florida Overview
Key Near Term Issues
Oil PricesOil Prices
Is the recent rundown sustainable?Is the recent rundown sustainable?
International Demand/Disruptions/OPECInternational Demand/Disruptions/OPEC
Inflation Inflation
Will it subside enough to satisfy the Fed?Will it subside enough to satisfy the Fed?
Interest RatesInterest Rates
Resumption in increases? Resumption in increases?
Housing DeclineHousing DeclineHard or Soft landing?Hard or Soft landing?
Job CreationJob Creation
Federal Funds Rate
0.0
2.0
4.0
6.0Percent
03 04 05 06 07
Fed Gradualism
Restrictive
Accommodative
Overall Economy & Overall Economy & Job Growth SlowingJob Growth Slowing
Dilemma:Dilemma:Inflation or Growth?Inflation or Growth?
Don’t discount further Don’t discount further Fed TighteningFed Tightening
Risk of Over-reaction Risk of Over-reaction
(Change from prior month)
Nonfarm Employment
Job Growth
2005: +2.03 Million
2006: +1.91 Million
2007: +1.60 Million
-400
-200
0
200
400
600Thousands
00 01 02 03 04 05 06 07
Consumer Under Pressure
Pay Increase Averages 3.5%.Pay Increase Averages 3.5%. Health Insurance Premiums Rise 7%-11%.Health Insurance Premiums Rise 7%-11%. State and Local Property Taxes Rise.State and Local Property Taxes Rise.
Reassessments based on high home appreciationReassessments based on high home appreciation
Energy Prices Take a Large Bite.Energy Prices Take a Large Bite. Even in context of recent improvementEven in context of recent improvement
Interest Rates Rising in Context of Record Consumer DebtInterest Rates Rising in Context of Record Consumer Debt
Tapping Home Equity Bank Not as Viable As In the PastTapping Home Equity Bank Not as Viable As In the Past Slowdown in Job CreationSlowdown in Job Creation
Real InvestmentNonresidential Structures & Equipment
-20
-10
0
10
20
30
40
Qtr/Qtr% Change
90 92 94 96 98 00 02 04 06
Investment Spending
Higher Expected ROI
Pent Up Demand
Corporate Profits = Internal Funds
Low Interest Rates = External Funds
Unfavorable Factors Favorable Factors
Strong, But Slower Investment Spending Growth
Construction Costs
Energy Prices
Real GDP Growth
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----------2005---------- -------2006------- -------2007------
3.5%
Real GDP Annual Growth Rate
-------2008-------
3.1% 2.6% 2.4%
Risks On Downside
Economic Outlook: Summary
Economic Growth Will Be SustainedEconomic Growth Will Be Sustained
but Slowedbut Slowed
Consumers Maintain Spending at Slower PaceConsumers Maintain Spending at Slower Pace Investment Spending Slow and SteadyInvestment Spending Slow and Steady Labor Market growth SlowingLabor Market growth Slowing
RisksRisks
Exotic Mortgage Resets Retrenches ConsumersExotic Mortgage Resets Retrenches Consumers
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 2006-2010Low Interest Rates
Weak Economy
Rising Interest Rates
Steady Economy
Starts Activity More Than Low Rates…
The Cyclical Upside: 2001 - 2005The Cyclical Upside: 2001 - 2005
Low mortgage rates Low mortgage rates Emergence of exotic mortgagesEmergence of exotic mortgages
Easy credit conditionsEasy credit conditions Speculators add froth to the marketSpeculators add froth to the market
The Cyclical Downside: 2006 - 2009The Cyclical Downside: 2006 - 2009 Mortgage rates risingMortgage rates rising
Inventory DrawInventory Draw Exotic mortgages losing favorExotic mortgages losing favor
Defaults/delinquencies deteriorate credit quality and tighten credit conditionsDefaults/delinquencies deteriorate credit quality and tighten credit conditions
Speculators reduced/disappear in lower appreciation rate environmentSpeculators reduced/disappear in lower appreciation rate environment
Mortgage Rate
4
5
6
7
8
9Percent
00 01 02 03 04 05 06 07
Peak to Peak to Trough Trough
294 Basis 294 Basis Point Point
DeclineDecline
Tripping Rate = 6.5%
Last 12 Last 12 Months Months
Reflect a Reflect a 100 Basis 100 Basis
Point Point IncreaseIncrease
Year
2006 6.41%
2007 6.90%
2008 6.92%
2009 6.88%
Sub-Prime Mortgage Resets
Total Loans Scheduled for Reset
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Period of Emerging Period of Emerging TroubleTrouble
Inventory Draw Required
Homes on Market/Monthly Selling Rate
Ten Year Average
Inventory Build
Required
Inventory Draw
Required
Highest Level Highest Level Since 1997Since 1997
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2000 2001 2002 2003 2004 2005 2006
Affordability Squeeze
Annual Growth
Home Prices
Household Income
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1990 1992 1994 1996 1998 2000 2002 2004 2005
Affordability Index
Most Affordable
Pacific
MountainWest North Central East North
Central
SouthAtlantic
East South
Central
West South Central
NewEngland
Middle Atlantic
Affordability Ratio
2nd Tier 3rd Tier 4th Tier Least Affordable
0.5
1.0
1.5
2.0
MillionUnits
98 99 00 01 02 03 04 05 06 07 08 09
Single Family StartsYear
2005 1.72
2006 1.49
2007 1.29
2008 1.30
Nonresidential Construction
Underlying nonresidential Underlying nonresidential drivers improving drivers improving
Despite large percentage Despite large percentage gains for 2006, most gains for 2006, most markets weak from markets weak from historical perspectivehistorical perspective
Slower growth outlook Slower growth outlook depresses expected ROI depresses expected ROI and tempers recoveryand tempers recovery
High material costs reduce High material costs reduce
growth growth 100
130
160
190
220
Billions1996$
95 97 99 01 03 05 06 07 08 09
Year
2005 3%
2006 12%
2007 8%
2008 4%
2009 5%
Nonresidential Construction
20042004 20052005 20062006 2007 2008 2007 2008
LodgingLodging 9%9% 4% 4% 38%38% 11%11% 5%5%Health CareHealth Care -5%-5% 2%2% 23% 23% 5%5% 1%1%ReligiousReligious -12%-12% -10%-10% 1%1% 4%4% 6%6%EducationalEducational -12%-12% -6%-6% 1%1% 2%2% 4%4%
Public Construction
93% of public 93% of public construction performed construction performed at state/local levelat state/local level
State/Local fiscal State/Local fiscal
problems fadingproblems fading
Revenue growth Revenue growth improves with economy improves with economy and job growthand job growth
Surpluses will re-emerge.Surpluses will re-emerge.
Pent-up demand releasedPent-up demand released Highway Bill adds Highway Bill adds
strengthstrength -80
-40
0
40
80
$Billion
89 91 93 95 97 99 01 03 05 07
State & Local Government Surplus
MARI
NH
State Deficit Estimates FY 2005
0-9% 20-29% 30-39%
Pacific
MountainWest North Central
East North Central
SouthAtlantic
East South
Central
District of Columbia
West South Central
NewEngland
Middle Atlantic
10-19%
Deficit as percentage of budget
$0
$0
$0
$0
$.3
$1.1
$.17
$15
$0
$2
$.5
$.34
$.71
$.19
$.0
$.6
$.62
$.17
$.9
$0
$5.1
$5
$.14
$0$1.5$.19
$.74
NJ$.2CT
MD$.93
$.8
Secondary Source: National Association of Budget Officers
Dollar figures, in billions, indicate amount states had to save to balance 2005 budget.
KEY
No availabledata
DE $0
$0
$.9
$0
$.6$.2
$.9
$0
$.21
$0
$0
$0
$.3
$0
$.5
$0
$0
VT $0
$.12
$0
Primary Source: Center on Budget Policy and Priorities Feb / 04
Public Construction
120
140
160
180
200
220
Billions1996$
93 95 97 99 01 03 05 07 09
Year
2005 0.7%
2006 4.7%
2007 3.7%
2008 3.9%
2009 3.6%
Improving State Fiscal Improving State Fiscal PicturePicture
Release of Pent-Up, Release of Pent-Up, Postponed ProjectsPostponed Projects
Infusion of SAFETEA Infusion of SAFETEA ($286Billion)($286Billion)
Public Construction
20042004 20052005 20062006 2007 2008 2007 2008
BuildingsBuildings -6%-6% 1% 1% 2%2% 3%3% 4%4%HighwayHighway -6%-6% 3%3% 10% 10% 6%6% 5%5%SewerSewer -4%-4% 2%2% 11%11% 4%4% 5%5%WaterWater -8%-8% -2%-2% 8%8% 4%4% 4%4%
U.S. Construction Outlook
500
600
700
800
900
Billions1996$
93 95 97 99 01 03 05 06 07 08 09
Year
2005 3.7%
2006 1.1%
2007 -1.8%
2008 1.2%
2009 2.9%YTD 1.0%
Construction: Conclusions
Residential Easement ModestResidential Easement Modest Mortgage Rate Increases SubduedMortgage Rate Increases Subdued 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 Recovery within Sectors Differ Recovery within Sectors Differ
Retail/Hotel/Industrial LeadRetail/Hotel/Industrial Lead Institutional/Office LagInstitutional/Office Lag
Public Waiting In WingsPublic Waiting In Wings State Fiscal RecoveryState Fiscal Recovery Pent-up DemandPent-up Demand SAFETEASAFETEA
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
2004 6.8%
2005 5.6%
2006 0.6%
2007 0.3%
2008 2.9%
2009 3.6%
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
Demand Pressures
Cement Intensity
Favorable Relative Price ConditionsFavorable Relative Price Conditions Concrete prices relative to steel/asphalt Concrete prices relative to steel/asphalt 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
Code Changes/Green BuildingCode Changes/Green Building Fiscal HealingFiscal Healing
Residential Exposure
Residential Cement Consumption as % of Total State Cement Consumption
1 DELAWARE 68.0%
2 MAINE 67.7%
3 FLORIDA 64.0%
4 NEW HAMPSHIRE 63.3%
5 IDAHO 46.6%
6 NORTH CAROLINA 46.0%
7 VERMONT 45.9%
8 NEW JERSEY 45.8%
9 N. CALIFORNIA 45.3%
10 HAWAII 44.7%
NATIONAL 37.8%
Portland Cement Consumption
-20
-10
0
10
20
30
Year-Year
% Change
02 03 04 05 06 07
Harsh Winter
Mild Winter
Mild Winter
YTD 0.9%
15
25
35
45
$/TonAsia-Gulf
10
20
30
40
50
60
01 02 03 04 05 06
Imports
Freight Rates
Metric TonsSAAR
Imports Flowed Despite Constraints
Import Mix Shift
5.3%Mexico
20.9%Latin America
19.7%Europe
21.1%Canada
29.5%Asia
2004
3.6%Other
6.5%
17.4%
18.5%
16.0%
36.0%
2005
5.5%
6.3%
11.1%
13.0%
13.1%
55.3%
2006YTD
1.2%
U.S. Cement & Clinker Imports(Percent Change)
October 2006 YTD
Great Lakes
SouthAtlantic
District of Columbia
NewEngland
Middle Atlantic
-21%
12%
3%20%
20%
18%
- 13%
- 38%
Florida
California
NorthwestCanadian Border
Gulf Coast
Mexican Border
6%
U.S. + 9.6%
10%
Cement and Clinker Imports
0
10
20
30
40
50
MillionMetric Tons
89 91 93 95 97 99 01 03 05 07 09
Year
2004 27.3
2005 33.6
2006 35.4
2007 34.7
2008 32.1
2009 32.1
Mexican Support
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
Announced Capacity Increases(Million Metric Tons)
-1
0
1
2
3
4
5
6
7
8
96 98 00 02 04 05 06 07 08 09 10
Net Expansion 2006-2010
22.5 MMT
$5.0 Billion
Looking Forward
Tight market conditions dramatically reducedTight market conditions dramatically reduced
Characterized by high operating ratesCharacterized by high operating rates
Inventories lean and well managedInventories lean and well managed
Major expansion does not materialize until 2008.Major expansion does not materialize until 2008.
Real GSP - Florida
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Annual % Change
U.S.
(Change from prior month)Nonfarm Employment
Job Growth - Florida
-40
-20
0
20
40
60
80Thousands
00 01 02 03 04 05 06 07
Net Migration - Florida
(000) Persons
0
50
100
150
200
250
300
350
400
1991 1993 1995 1997 1999 2001 2003 2005
Population Growth - Florida
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1994 1996 1998 2000 2002 2004 2006 2008
Growth Rate
U.S.
Key Markets Exposure - Florida
Cement Consumption as % of Total State Cement Consumption
Residential - 64% Residential - 64% National - 30%National - 30%
Nonresidential - 10% Nonresidential - 10% National - 16%National - 16% Commercial – 3% Commercial – 3% National - 13%National - 13% Industrial – 1% Industrial – 1% National - National -
1%1% Office – 5% Office – 5% National - 2%National - 2%
Public – 23% Public – 23% National - 46%National - 46% Highway – 16% Highway – 16% National - 32%National - 32%
Cement per Capita U.S. - .409
Cement per Capita Florida - .632
Construction Permits - Florida
0
5,000
10,000
15,000
20,000
25,000
Units (NSA)
00 01 02 03 04 05 06 07
Single Family
Multifamily
3 Month Moving Average
Single Family Permits - Florida
0
50,000
100,000
150,000
200,000
250,000
2002 2003 2004 2005 2006 2007 2008 2009
Units
Multi-Family Permits - Florida
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2002 2003 2004 2005 2006 2007 2008 2009
Units
Contract Awards - Florida
20032003 20042004 20052005 2006 2006
BuildingsBuildings 17%17% 23%23% 21%21% -15%-15%PublicPublic 3% 3% -3%-3% 3% 3% 30% 30%CommercialCommercial -1%-1% 20%20% 4% 4% -2%-2%
Public WorksPublic Works 13%13% -10%-10% 13%13% 10%10%HighwayHighway 9% 9% 8% 8% 9% 9% 4% 4%Water/WasteWater/Waste -22%-22% 3% 3% 16%16% 35%35%UtilitiesUtilities 336%336% -78%-78% 140%140% -50%-50%OtherOther -6%-6% 9% 9% -8%-8% 26% 26%
TotalTotal 17%17% 18%18% 20%20% -12%-12%
20032003 20042004 20052005 2006Ytd 2006Ytd
FloridaFlorida 8.598.59 9.709.70 11.2311.23 %Change%Change 9.7%9.7% 12.9%12.9% 15.8%15.8% 3.8%3.8%
GeorgiaGeorgia 3.453.45 4.114.11 4.394.39% Change% Change 11.6%11.6% 19.2%19.2% 7.0%7.0% 3.9%3.9%
AlabamaAlabama 1.601.60 1.641.64 1.741.74 %Change%Change 8.1%8.1% 2.8%2.8% 5.7%5.7% 3.9%3.9%
South CarolinaSouth Carolina 1.501.50 1.741.74 1.781.78 %Change%Change 9.6%9.6% 16.2% 16.2% 2.1%2.1% 6.0%6.0%
U.S.U.S.%Change%Change 3.63.6%% 6.86.8%% 5.65.6%% 0.90.9%%
Regional Portland Cement Consumption(Million Metric Tons)
20032003 20042004 20052005 2006Ytd 2006Ytd
FloridaFlorida .766.766 .879.879 1.0521.052 %Change%Change 12.512.5%% 14.6%14.6% 19.7%19.7% 2.0%2.0%
GeorgiaGeorgia .321.321 .354.354 .357.357% Change% Change 9.8%9.8% 10.3%10.3% 0.8%0.8% 13.0%13.0%
AlabamaAlabama .162.162 .172.172 .183.183 %Change%Change 11.6%11.6% 6.1%6.1% 6.4%6.4% 8.7%8.7%
South CarolinaSouth Carolina .138.138 .147.147 .166.166 %Change%Change 2.02.0%% 6.6% 6.6% 12.9%12.9% 11.5%11.5%
U.S.U.S.%Change%Change 7.07.0%% 9.09.0%% 6.16.1%% 1.61.6%%
Regional Masonry Cement Consumption(Million Metric Tons)
Region accountsfor 32%of U.S.
masonry consumption
Residential Cement ConsumptionFlorida
MMT
0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Nonresidential Cement ConsumptionFlorida
MMT
0
.2
.4
.6
.8
1.0
1.2
1.4
1.6
1.8
2.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Public Cement Consumption Florida
MMT
0
.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Cement Outlook - Florida
0
5
10
15
MillionMetric Tons
90 92 94 96 98 00 02 04 06 08 10
Year
2004 12.9%
2005 15.8%
2006 2.0%
2007 -0.9%
2008 1.2%
2009 2.5%
YTD 3.8%
Downside RiskFor 2007
Blended Cement Consumption Florida
NebraskaFlorida
0
300
600
900
1200
ThousandMetric Tons
98 99 00 01 02 03 04 05 06
693 (Est.)
Florida Cement & Clinker Imports
0.0
0.7
1.4
2.1
2.8
3.5
MillionMetric Tons
89 91 93 95 97 99 01 03 05 07 09
Tampa
SourcesChina/ThailandBrazil/Columbia
Miami
SourcesChina/SwedenGreece/Mexico
Regional Cement & Clinker Imports
0.00
0.20
0.40
0.60
0.80
1.00
MillionMetric Tons
89 91 93 95 97 99 01 03 05 07 09
MobileSources
Greece /China/Thailand
SavannahSources
Columbia
Florida Cement & Clinker Imports
0
100
200
300
400
ThousandMetric Tons
01 03 05 07
Tampa
Miami
3 Month Moving Average
06
Miami YTD0.3%
Tampa YTD4.6%
Clinker Capacity – Southeast Region (000 Metric Tons)
20002000 20042004 FloridaFlorida 4,653 4,653 5,489 5,489GeorgiaGeorgia 1,316 1,316 1,020 1,020AlabamaAlabama 4,366 4,366 5,375 5,375South CarolinaSouth Carolina 2,732 2,732 3,480 3,480RegionRegion 13,06713,067 15,36415,364 + 18%+ 18%
Regional Expansions
Suwannee – Branford, FL .675 ’03Giant – Harleysville, SC .113 ’04Holcim – Holly Hill, SC .765 ’04Titan – Medley, FL .675 ’04
American – Sumterville, FL .990 ‘08Florida Rock – Newberry, FL .675 ‘08Rinker – Brooksville, FL .900 ’08
Lafarge – Harleysville, SC .972 ’09National – Ragland, AL 1.17 ’09Sumter – Center Hill, FL 1.35 ’09
MMT Year
Outlook Summary
Slowing Economic GrowthSlowing Economic Growth Rising Inflation, Interest Rates, Energy Prices, Slower Job CreationRising Inflation, Interest Rates, Energy Prices, Slower Job Creation
Construction Market Flattening Construction Market Flattening Residential Weak Residential Weak Slower Nonresidential & Public RecoveriesSlower Nonresidential & Public Recoveries Higher Material CostsHigher Material Costs Potential for Market Contraction in 2007Potential for Market Contraction in 2007
Cement Supply Cement Supply
Tight Market Conditions Dramatically ReducedTight Market Conditions Dramatically Reduced
Add Extra Dose of Conservatism to Forward PlansAdd Extra Dose of Conservatism to Forward Plans Florida’s sensitivity to the Housing cycleFlorida’s sensitivity to the Housing cycle Prepare Contingency Plans Incorporating Downside Risks.Prepare Contingency Plans Incorporating Downside Risks.