US price increase holding in aggregates but falling in cement
A 3-5 per cent mid-year price increase currently looks achievable in US aggregates but the mid-year price increase in cement appears to failing, writes Mike Betts, analyst at Jefferies International in a recent industry note.
Last week the author visited and spoke with several building materials companies in the US, both those headquartered there and the US subsidiaries of European-based companies.
The magnitude of the mid-year price increase in US aggregates varies significantly between different markets, but the prospects of a meaningful price increase appears to be good, with a 3-5 per cent increase predicted by all those companies Jefferies International spoke with. The companies that are vertically integrated into ready-mixed concrete also confirmed they intended to pass the aggregate price increase on to their own ready-mixed concrete businesses and were expecting these business to also have to pay external suppliers of aggregates a similar percentage increase. The impact may though only appear in the reported numbers in 4Q due to already contracted deliveries.
The Cemex-led US$11/t (around 11 per cent) US price increase from 1 July appears, on the basis of Jefferies discussions, likely to fail. On the West Coast, California Portland Cement, a subsidiary of Taiheiyo Cement, delayed its implementation to October and Jefferies were informed that neither Holcim nor Lafarge have yet announced a mid-year price increase. Three of the companies Jefferies spoke with planned to announce a US cement price increase for early 2011.
Meanwhile, the US Census Bureau reported on 1 June a 1.7 per cent increase in private non-residential construction output in April, on a seasonally adjusted basis. The aggregates and cement companies that Jefferies spoke with generally reported that demand from this sector had troughed, but none had seen an upturn suggesting that the April improvement may not be sustained.
In the aggregates and ready-mixed concrete industries in the US, Jefferies were told that the flow of potential acquisitions is sizeable with the owners of many family businesses keen to sell. However, pricing the potential transactions remains the main problem with the seller looking back towards peak profitability and the high multiples paid in 2006-08, and the purchaser aiming to pay lower multiples based on the currently depressed profitability.
Published under Cement News
