Recent US cement news paints disappointing picture

Recent US cement news paints disappointing picture
26 March 2010

According to the US Geological Survey, in 2009 about 70Mt of Portland cement and 2Mt of masonry cement were produced at 107 plants in 37 states, including two plants in Puerto Rico. Ongoing plant closures left the year-end plant count at 101. Sales volumes fell sharply, down 27 per cent, but prices were down only modestly. The overall value of sales was about US$7.3bn. Most of the cement was used to make concrete, worth at least US$40bn. About 72% of cement sales went to ready-mixed concrete producers, 13% to concrete product manufacturers and 7% to contractors (mainly road paving). In descending order, Texas, California, Missouri, Pennsylvania, Alabama and Michigan were the six leading cement-producing states and accounted for about 50% of US production.

For January 2010, total shipments of Portland and blended cement in the US and Puerto Rico were about 3.4Mt and masonry cement some 120,000t. This was about 22% lower compared with shipments for January 2009. Clinker production was also down to 3.8Mt in that same month.

Not surprisingly, US cement producer TXI’s third quarter results to end-February 2010 were disappointing. The net loss for the quarter was US$27.1m. Net income for the same quarter ended February 28, 2009 was down to US$10.9m. "Net cash provided by operating activities was a positive US$6.9m during the quarter despite sales being down US$60.8m or 34% and all three cement plants incurring scheduled maintenance expenses," stated CEO Mel Brekhus. Total segment sales for the three-month period ended February 28, 2010 were US$57.6m compared to US$81.4m for the prior year period. Cement sales decreased US$23.2m as construction activity continued to decline in both its Texas and California market areas. Abnormally inclement weather in Texas also contributed to the contraction in construction activity during the current period. Company shipments decreased 25% in Texas and 20% in California. Average cement prices were down 8% and 13% in Texas and California, respectively.

Standard & Poor’s Ratings Services on Thursday lowered its corporate credit rating on TXI deeper into junk status, citing declining demand for cement and falling prices. S&P also noted that the company is heavily reliant on Texas and California for a majority of sales, with the latter still in the throes of a severe housing downturn. As business weakens, the company will be squeezed more by its high debt load. S&P’s rating on Texas Industries’ US$550m senior notes due 2013 was lowered to "B" from "B+" as well. The company’s recovery rating stayed at "4", which means debt holders can expect to recoup 30-50% of what they loaned to Texas Industries if it defaults on payment.

Meanwhile, at Cemex, shares have tumbled following preliminary announcements of an expected first quarter net loss, versus the same period a year ago, with the company hit by the global slump and bad weather in the US and also Europe. 

After the market closed on Wednesday, Cemex said it sold US$650m in convertible subordinated bonds due in 2015 as part of its wider refinancing effort. The notes will be convertible into American Depositary Shares (ADSs) at an initial conversion rate of 73.5402 ADSs for every US$1000 in notes," Cemex stated.

Analysts say the bond offer will dilute an already weak share price, while the Mexican peso softened on Wednesday and sales of newly built US homes fell for a fourth straight month in February. Cemex stock closed down 4.9% at US$10.46 in New York and 4.06% lower at MXN13.22 in Mexico City.
Published under Cement News