The PCA: supplying direction
To coincide with the 2012 IEEE-IAS/PCA Cement Industry Technical Conference taking place in San Antonio, Texas, in May, International Cement Review took the opportunity to discuss the latest developments in the US cement industry with the Portland Cement Association’s chairman, Aris Papadopoulos. Topics covered included the current status of the industry and sentiment among producers during what is turning out to be another challenging year for the industry, to NESHAP and the role of cement in sustainability.
Aris Papadopoulos has a lot on. As CEO of Titan America, the US subsidiary of the Titan Cement Group, he oversees its US operations, which are currently engaged in the complex process of permitting for a future plant at Castle Hayne, North Carolina. Meanwhile, he shuttles back and forth between headquarters in Greece and the USA on a regular basis to take his seat on the Executive Committee.
In addition to this demanding role, he is also serving a term as chairman of the Portland Cement Association (PCA) at a crucial time when the industry is facing tough challenges, including the collapse in domestic demand that followed the Great Recession, plus the threat of aggressive new regulatory restrictions resulting from the US EPA’s National Emission Standards for Hazardous Air Pollution (NESHAP) legislation. He also chairs the Concrete Joint Sustainability Initiative, a consortium of 28 US industry associations, as well as chairing the Private Sector Advisory Group for the United Nations’ International Strategy on Disaster Reduction, a global effort to promote resilience.
To coincide with the IEEE-IAS/PCA conference in Texas, ICR took the opportunity to find out how the industry is faring in 2012, and what initiatives the PCA is taking to support producers.
ICR: Looking at how the US economy is performing, what is the outlook for 2012?
Aris Papadopoulos (AP): The PCA is forecasting a modest increase in demand. Even though we have benefited from a mild winter in the US there’s a lot of uncertainty in the current year and visibility is not very good.
Obviously, it’s an election year in the US and the political debate is taking centre-stage and is affecting public spending in big ways. We’ve seen that in the last few months with trying to get even a modest transportation bill passed. I think a lot of long-term planning has been put on hold in terms of infrastructure. This won’t change until we have a serious multi-year, five-year transportation programme.
The election is also affecting the private sector with the uncertainty it’s creating. Of course, from state to state, you can have bigger variations. The states which are very energy rich, not just with oil but also with gas fracking activity, are creating some demand – states like Western Pennsylvania, the Dakotas, and so forth, but overall we expect a flat year.
ICR: So the fracking industry really is having an impact on cement demand at a state level?
AP: Yes, and what people miss is, that to do all that drilling and development, you need to have some infrastructure, you need to have roads that can transport all that heavy equipment. And it’s stimulating jobs, and with jobs comes spending for many things including housing.
ICR: How would you describe industry sentiment at present?
AP: One of caution. The industry has suffered for over five years now, and that volume impact has affected profitability. I don’t think anyone in our industry is making money in the US today. That applies not just to cement, but to the concrete producers in this business. Everyone has suffered from higher energy costs, higher costs of regulation, higher health care costs. The cost side has really put a squeeze on margins for this industry. And as cash flow is at a similar level, it is very hard to sustain capex in this environment. It’s a really tough time for the industry.
ICR: How has the industry responded?
AP: We have all, including my own company, reduced costs, freezed compensation and benefits and in most cases made reductions. We’ve seen plants being mothballed, shutdown. Some plans to build new plants have shipped their equipment overseas, to Latin America for example, so everyone’s gone into survival mode in this period.
ICR: What will happen to cement consumption over the coming 2013-15 period?
AP: Everybody’s saying this is the bottom. There’s no question that at some point the demand is going to go up. The big unknown is how fast that is going to happen. It’s so dependent, not just on US government policy, but internationally. All economies are linked and Europe, Asia and the Middle East can all have an impact on the pace of US recovery. Everybody believes the US will be the first economy to recover, but given how long it’s taken so far, we’re not sure we can predict the rate of recovery at this point.
ICR: NESHAP is calling for a significant reduction in emissions by 2013. How much progress has the PCA made in securing better terms for the industry?
AP: The PCA has followed a three-prong approach regarding NESHAP and several other related regulations, such as CISWI [Commercial/Industrial Solid Waste Incinerators]. On the one hand, there’s litigating, that’s taking the EPA to court. Secondly, going to Congress and trying to get legislature to ease off time-wise to give the industry more time to recover from the recession and adapt some of the requirements of the regulations. And the third approach is a negotiation dialogue with the EPA. So we have made progress in the last year-and-a-half on all three fronts and there are discussions at this point going on with the EPA, but I can’t really comment on them until they’re finalised because it’s uncertain at this point what the outcome will be.
The PCA has estimated that the industry will have to invest almost US$3.5bn to address NESHAP at a time when revenues for the whole industry are not even US$6bn. As I’ve testified many times during hearings in Congress, it equates to a huge tax on the US cement industry, and will force the industry to offshore. This is an industry that has made significant investments and modernisations reducing environmental impact over the last 20 years. It’s not a static industry that’s stood still for the last quarter century. Unfortunately, nobody in the public domain has given the US industry credit for what its achieved previously.
So at a time when nobody’s making money, when it’s hard to sustain even required capex, very few businesses are going to be able to make the huge investments that NESHAP requires. We’re definitely going to be faced with more shutdowns of capacity in the US if the EPA insists on rules that are going to hurt the US economy further down the road.
ICR: Generally, do you believe that an acceptable solution can be reached?
AP: I think one way or the other, we’re going to have to succeed at something, because the alternative is what I mentioned to you.
ICR: Just looking broadly at energy, how big an impact is fracking having on the American energy supply and economy, and are there benefits for the cement industry?
AP: It is a significant impact, if you look at how natural gas prices have dropped in the last year. The amount of gas capacity that has come on-stream is pretty significant. Electric power plants are switching more and more of their capacity from coal to gas, even though they have plenty of coal capacity. There’s a strong preference, both economically and environmentally, for burning gas.
Indirectly, that’s impacted the availability of fly ash, which is both a raw material feed for cement plants, but is also a supplemental cementitious material for concrete. Even though today we’re in a surplus of capacity of cement, we’re seeing shortages of fly ash in various parts of the country, interestingly enough. The availability and the cost of fly ash is going to be affected by this. Fly ash today has become an important ingredient in both feeds, cement plants and in concrete production. It’s not as discretionary a material as it was 15 or so years ago.
ICR: Are energy costs decreasing on average for cement producers across the country?
AP: A lot of our cement capacity still is in coal. Coal is the primary fuel for running the kilns and prices have not come down as quickly as natural gas prices. Some plants are looking at natural gas as an alternative to coal, particularly those that are located close to gas-producing locations. And liquid fuels, such as diesel and gasoline, have not been affected yet. So there’s quite a dichotomy in the energy market today, between natural gas, coal and the other oil-based fuels.
ICR: What are the general trends in terms of alternative fuel usage in the US industry, and to what extent is the regulatory environment still restricting usage?
AP: Alternative fuels are being looked at a lot more these days. Anything from urban waste, to biofuels, to woodchips, agricultural byproducts – anything that has an energy value and is accessible. Unfortunately, the regulatory environment is very slow, averse to innovation and has a command-and-control mindset.
For example, one of our own plants has been trying to burn some wooden railroad ties, which have been piling up near a town in a landfill, and are a big eyesore and concern to that community. And the environmental authorities don’t even want to have a test.
It’s difficult to progress if regulators won’t allow companies to experiment or try things, or agree to work together to find new approaches.
ICR: What is the level of alternative fuel usage in the US?
AP: Compared to Europe, it is very low. I’d be surprised if on a national average it’s more than 15 per cent at this point. I think in Europe we’re talking over 35 per cent.
ICR: How will the industry be able to go beyond this level?
AP: It requires a change in mindset and philosophy. In other words, we’ve got to have people in these agencies that are willing to work with industry, and not just see themselves as command-and-control authorities. I think that’s been successfully done in Europe but in the US we’ve gravitated towards a model of regulation and then litigation.
ICR: What progress has the US industry made in terms of sustainability in recent years?
AP: On sustainability overall, this industry has made tremendous strides over the last several years. For example, the cement and ready-mix industry teamed up with MIT to create the Concrete Sustainability Hub and is funding a five-year joint applied research programme. We’re in the middle of those five years, and there’re really some great things that are starting to come out of that, which could both improve the production and use of cement and concrete.
And over the last two or three years, the industry has looked at how concrete roads and highways can bring more sustainable benefits to society. With oil prices having tripled, there’s a great opportunity for concrete paving compared to asphalt, and today where the industry has a level playing field it’s the lower first cost alternative, not mentioning life-cycle costs where you don’t have the maintenance intensity of asphalt. So the industry’s really pushing hard to open the minds of state DOTs [Department of Transportation] to this. Obviously there’s a lot of resistance to change, but the economics are just overwhelming at a time when states don’t have money to spend like they used to. If you really have an equivalent design, then even the first cost is better for concrete. In some cases, we’re going to the state legislatures and telling them basically that the tax payer money is being wasted by the DOT.
ICR: The PCA is also an active member of the Concrete Joint Sustainability Initiative. What does this hope to accomplish?
AP: Another area of concern, when we talk about sustainability, is the topic of resilience. In other words, if you have to build a structure two or three times, that’s not very sustainable. For example, natural hazards such as hurricanes and tornados hurricanes can destroy entire communities, requiring the rebuilding of what you had in place, not to mention the burden on landfills of debris. Therefore, creating resilient communities with resilient structures is an integral part of sustainability. And concrete is the ultimate material for resilient construction.
In 2011, out of the eight largest natural disasters in the world, three of those eight were in the US itself. Tornadoes and storms in April and May, Hurricane Irene in August: they all took a huge human and economic toll. I think the economic cost was over US$25bn and more than 500 people lost their lives.
A few years ago, 28 US industry associations, all related to concrete, teamed up to create the Concrete Joint Sustainability Initiative, with the goal of forming a common front in communicating sustainability and the social value of concrete structures to the world outside of our industry. This group also shares resources and has developed common programmes. One such initiative which was launched this month is a series of workshops in various cities to provide training on resilient construction. You can check www.sustainableconcrete.org for more info.
Aris Papadopoulos will address the 2012 IEEE-IAS/PCA Cement Industry Technical Conference in San Antonio, Texas, on 16th May 2012.
• For more information on initiatives being undertaken by the PCA, please visit: www.cement.org
Article first published in International Cement Review, May 2012.