cement outlook: 2010-2015 ed sullivan, chief economist pca pca fall meetings september 2010 named...
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Cement Outlook: 2010-2015
Ed Sullivan, Chief Economist PCA
PCA Fall Meetings September 2010
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009
Overview
Portland Cement Consumption Thousand Metric Tons
- 54 MMT
Growth Rates
2007: - 9.6
2008: - 15.1
2009: - 26.9
2010: + 2.6
2011: + 6.7
2012: + 8.1
2013: + 14.3
2014: + 5.9
Ingredients for a “Recovery”
Residential Public
Late 2010 Recovery in Starts.
ARRA continues to accelerate. Cement projects materialize
2nd half 2010
Cement Consumption: + 2.6% 2010This Implies continued weak consumption levels during first half of 2010
PCA’s growth in 2010 translates into 1.7 MMT. This “recovery” must be considered in the context of a
54 MMT peak-trough decline.
Portland Cement ConsumptionSAAR, Thousand Metric Tons
2008 2010
Portland Cement ConsumptionSAAR, Thousand Metric Tons
2010
Tepid Expected National Gains – Vary Significantly by Region/State
National versus Regional Outlook
States with:
High foreclosure exposure will not fully participate in the modest housing recovery.
High ARRA resurfacing priorities will see less stimulatory impact.
Little exposure to oil or farm sectors will bare brunt of nonresidential declines.
Cement recovery will occur in the context of slow economic growth
Economic Growth: Transitory Contributors Impact on GDP Growth, Percent Change
-2000
-1500
-1000
-500
0
500
1000
-3
-2
-1
0
1
2
3
4
5
6
2009 I 2009 II 2009 III 2009 IV 2010 I 2010 II 2010 III 2010 IV
ARRA & Inventory Change
Factors that Drove Strong Growth Earlier Are Dissipating
%
Economic Growth & Job Creation Percent Change & Thousand Jobs
-2000
-1500
-1000
-500
0
500
1000
-5
-4
-3
-2
-1
0
1
2
3
4
2009 I 2009 II 2009 III 2009 IV 2010 I 2010 II 2010 III 2010 IV
Net Job Creation
Net Other GDP Growth
Net Other = All, excluding inventory changes and ARRA impacts
% JobsSynchronized Growth
Sub-Prime
FinancialCrisis
Energy
Labor Markets
2006 20082007 2009 2010
State Deficits
Economic Adversity Abates Mid-2010Economic Adversity Abates Mid-2010
Stimulus: Job Creation Estimates: Jan. 2009
Million Jobs Obama Obama EconomistsEconomists
2009-20102009-2010
PCAPCA
Unemployment: Unemployment: 7.0%7.0%
Unemployment: Unemployment: 8.8%8.8%
Job Estimates have large impacts on Job Estimates have large impacts on Cement/Concrete recovery assessments.Cement/Concrete recovery assessments.
Stimulus Overview: Jan. 2009 Obama’s $800 billion plan may not be enough.
Obama economists expect an additional 2.8 million jobs lost. And plan aimed at creating /saving 3.7 million jobs.
PCA estimates that 8.5 million jobs may need to be created/saved.
Stimulus plan required = $1.5 trillion (conservative)
And….Obama Economists implied it…..
Taxpayer pushback, politics prevented full initiation for now…
Don’t be surprised if a second stimulus plan materializes.
New Highway Bill may fit requirement ($400 Billion = PCA)
Delayed passage dovetails with 10% unemployment and may fly under radar and taxpayer pushback
Criteria For Housing Recovery
Ingredients for a Starts Recovery
Inventory no higher than 5
months supplyPrice stability
Carry costs erode expected ROI.
Weaker the price increases…lower the months supply
trigger point.
Homebuilders Expected ROI
Foreclosures Accelerate
Foreclosure Impacts
Add to Inventory
Depress Prices
2.8 Foreclosures in 2009.
871K Bank possessions.
Equates to one out of every 5 homes on the
market.
Depressed Homebuilder
ROI
Adds supply.
Bank owned properties discounted.
Pressures new home prices.
Longer carry costs.
Lower revenues.
Erodes expected ROI.
Delays recovery in starts.
Single Family: Foreclosure Analysis
Residential: Re-Set Scenario$ Billion
Subprime Resets
Alt-A
Option Adjusta
ble
Residential: Bank Possession ProjectionsMillion Homes
Bank Possession Rates were depressed in 2008-2009 Due to
Moratoriums. Banks take care backlogs in
2010-2011. Possession rates decline to
“normal”.
Threat to Inventories, PricingPCA considers…. PCA considers….
Mortgage Reset Volume
Toxicity of Mortgage Reset Portfolio
Sensitivity to Unemployment
Estimates put into PCA estimates for job growth and unemployment
Bank Possession Rates
PCA concludes….No Substantive Housing PCA concludes….No Substantive Housing
Starts Recovery Until 2012 Starts Recovery Until 2012
Single Family: Where Does It Recover
Regional Timing & Magnitude
Mortgage Delinquency 90 Days +
Source: FRB
1 North Dakota 1.2 1 North Dakota 4.1 1 Oklahoma -3.0 1 North Dakota2 South Dakota 1.8 2 South Dakota 4.8 2 Texas -5.2 2 South Dakota3 Vermont 2.1 3 Nebraska 4.8 3 Louisiana -5.8 3 Iowa4 Montana 2.2 4 Kansas 6.5 4 Iowa -5.8 4 Nebraska5 Wyoming 2.3 5 Vermont 6.6 5 South Dakota -6.6 5 Oklahoma6 Nebraska 2.3 6 Iowa 6.7 6 North Dakota -6.7 6 Vermont7 Iowa 2.9 7 Oklahoma 6.7 7 Nebraska -6.8 7 Kansas8 Kansas 2.9 8 Hawaii 6.9 8 Pennsylvania -9.6 8 Texas9 Colorado 3.0 9 Montana 6.9 9 Kentucky -10.4 9 Louisiana
10 Oklahoma 3.0 10 New Hampshire 7.0 10 North Carolina -10.9 10 Hawaii11 Oregon 3.2 11 Utah 7.0 11 South Carolina -11.0 11 Arkansas12 New Mexico 3.3 12 Virginia 7.1 12 Kansas -11.1 12 Montana13 Wisconsin 3.4 13 Louisiana 7.2 13 Arkansas -11.4 13 Wyoming14 Idaho 3.4 14 Minnesota 7.3 14 Vermont -12.4 14 Colorado15 Arkansas 3.4 15 Wyoming 7.5 15 Hawaii -12.6 15 New Mexico16 Minnesota 3.5 16 Maryland 7.6 16 Tennessee -13.3 16 Pennsylvania
17 Virginia 3.5 17 Colorado 7.7 17 Alabama -14.1 17 Wisconsin
18 District Of Columbia 3.6 18 Arkansas 7.7 18 Wisconsin -14.7 18 Kentucky19 West Virginia 3.7 19 Texas 8.2 19 New Mexico -15.0 19 New Hampshire20 Kentucky 3.7 20 Maine 8.2 20 Mississippi -15.0 20 Delaware21 Hawaii 3.7 21 New Mexico 8.7 21 Indiana -15.7 21 Virginia22 Texas 3.8 22 Wisconsin 8.7 22 Delaware -16.1 22 Maine23 New Hampshire 3.8 23 New York 8.7 23 Colorado -17.2 23 Utah24 Pennsylvania 3.8 24 Pennsylvania 8.9 24 New Jersey -17.6 24 North Carolina25 Delaware 3.8 25 Delaware 9.1 25 Missouri -17.7 25 Minnesota26 Utah 3.9 26 Connecticut 9.1 26 Maine -19.5 26 Oregon27 Maine 4.0 27 Idaho 9.4 27 Wyoming -21.0 27 Missouri28 Missouri 4.0 28 Washington 9.4 28 Washington -21.2 28 Tennessee29 North Carolina 4.2 29 West Virginia 9.4 29 Montana -22.1 29 South Carolina30 Washington 4.2 30 Missouri 9.4 30 New Hampshire -22.3 30 West Virginia31 Louisiana 4.3 31 Arizona 9.4 31 Connecticut -22.3 31 Washington32 Connecticut 4.3 32 Massachusetts 9.4 32 New York -22.4 32 Alabama33 Alabama 4.4 33 Indiana 9.8 33 Oregon -22.5 33 Connecticut
34 South Carolina 4.5 34 New Jersey 9.9 34 Utah -24.1 34 Idaho
35 Tennessee 4.6 35 Georgia 10.5 35 West Virginia -24.6 35 Indiana36 New Jersey 4.7 36 Oregon 10.6 36 Massachusetts -24.7 36 New Jersey37 New York 4.7 37 Tennessee 10.7 37 Maryland -25.0 37 New York38 Ohio 4.8 38 Kentucky 10.8 38 Virginia -25.2 38 Maryland39 Massachusetts 4.9 39 Ohio 10.9 39 Ohio -28.1 39 Mississippi40 Indiana 5.0 40 Alabama 11.1 40 Rhode Island -28.4 40 Massachusetts41 Maryland 5.4 41 North Carolina 11.1 41 Minnesota -30.1 41 District Of Columbia42 Rhode Island 5.7 42 Mississippi 11.4 42 Illinois -30.5 42 Ohio43 Illinois 5.7 43 Illinois 11.4 43 Georgia -30.9 43 Georgia44 Mississippi 5.9 44 District Of Columbia 11.8 44 Idaho -32.7 44 Illinois45 Georgia 6.2 45 Florida 12.2 45 Michigan -32.7 45 Rhode Island46 Michigan 6.5 46 South Carolina 12.4 46 District Of Columbia -36.0 46 Arizona47 Florida 6.6 47 California 12.5 47 Florida -44.7 47 Florida48 California 7.0 48 Rhode Island 12.7 48 California -46.6 48 Michigan49 Arizona 7.0 49 Nevada 13.2 49 Arizona -47.6 49 California50 Nevada 9.2 50 Michigan 14.2 50 Nevada -56.1 50 Nevada
Composite RankingPeak-Trough Home Price
Declines(%), as of 1Q10
Advance Recovery
National Recovery
Lagged Recovery
2010 Single Family Starts Risk Assessment
Unemployment RateMortgage Delinquency
Rate(%) Loans 90+ Days Past Due, 1Q10 (%), 1Q10
Single Family Cement Outlook
Residential Cement Consumption Thousand Metric Tons
0
10,000
20,000
30,000
40,000
50,000
1998 2000 2002 2004 2006 2008 2010 2012 2014
- 29.6 MMT
55% of Total Cement Consumption decline is attributed to residential
Residential sector’s adverse
impact on cement consumption has run its course.
Ingredients for a Public Recovery
AaaA
Ingredients for a Public Cement Recovery
Highway/Street Cement Consumption
ARRA Stimulus
State Fiscal Sterilization
Outlays accelerating.
Design & concrete intensive projects
roll out last.
Decline in discretionary state
cement consumption have been massive
during past three years.
2009: 0.6 MMT 2009: -5.4 MMTAaaA
2010: 4.1 MMT 2010:-0.5 MMT
State Sterilization
Sterilization by State Fiscal Conditions
Highway Construction as Percent of Total Budget Real highway/Real State Expenditures
PCA ‘s Assumptions Extremely Conservative.
Discretionary State Highway Cement Consumption Thousand Metric Tons
ARRA-Led Recovery
ARRA Spending AssumptionsBillion $
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2009 2010 2011 2012
ARRA Spending Composition AssumptionsBillion $
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2009 2010 2011 2012
Resurfacing Widening & New Route Bridge
Chart Excludes “Other” Spending
Nonresidential Drag
Commercial Nonresidential Drag Thousand Metric Tons
0
5,000
10,000
15,000
20,000
25,000
30,000
1998 2000 2002 2004 2006 2008 2010 2012 2014
Near Term Implications
Portland Cement Consumption Thousand Metric Tons
- 54 MMT
Growth Rates
2007: - 9.6
2008: - 15.1
2009: - 26.9
2010: + 2.6
2011: + 6.7
2012: + 8.1
2013: + 14.3
2014: + 5.9
Market Imbalances - Changes in Cement Consumption Tons + Capacity Expansion Tons
1974
1981
1991
2002
2009
-15,000,000
-10,000,000
-5,000,000
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
1970 1980 1990 2000 20101973-74
1980-82 1990-91 2000-01 2006-2010
Cumulative Market ImbalancesMillion Metric Tons
Portland Cement : Utilization Rates Percent Utilization Based on Clinker Capacity
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
2004 2005 2006 2007 2008 2009
Beyond the Crisis
Ten Year Peak-to-Peak Recovery
Stimulus spending must be paid for…resulting in higher interest rates, higher taxes and potentially higher inflation….
…and…American consumer..the engine of US economic growth may show significantly different spending patterns…
…combining for the potential of slower longer term economic growth (50 basis points).
…But even with these gains…past cyclical peaks are not expected to materialize until 2015.
After the Crisis
Portland Cement Consumption Thousand Metric Tons
- 54 MMT
Growth Rates
2007: - 9.6
2008: - 15.1
2009: - 26.9
2010: + 2.6
2011: + 6.7
2012: + 8.1
2013: + 14.3
2014: + 5.9
New Highway Bill
Regulatory Impacts Most Significant Threat To Domestic Cement Production in
History
Beyond the Crisis: 2013-2015 Plant re-openings.
Not synchronized.
NESHAP
Potential of 15 million metric tons of capacity lost.
CISWI
Costs increase.
Occurs in context of synchronized world growth
High freight rates.
How will market be sourced?
Imports? New Investment?
Cement Outlook: 2010-2015
Ed Sullivan, Chief Economist PCA
PCA Fall Meetings September 2010
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009