US recovery on a roll

US recovery on a roll
23 January 2015

Continued, steady improvements are anticipated for US cement volumes and pricing through 2015. A widespread increase in construction activity is anticipated, but falling energy prices could present headwinds in certain areas.

The US is expected to be the main source of global economic strength in 2015 by most forecasters with indicators trending upwards. The economy has been growing faster than previously forecast, and the IMF says a stronger housing market and business investment suggest the rebound is becoming more sustainable.

The country is also being seen as a powerful driver this year for cement companies operating in the region. The cement market is expected to perform strongly in 2015 and achieve some of the best growth rates worldwide. US consumption growth reached 4.2 per cent in 2014, according to the latest assessment of the sector by the Portland Cement Association (PCA). This year, the growth rate is expected to almost double to nearly 8.2 per cent, followed by similar levels in 2015 and 2016, according to the association’s forecasts.

Broader-based recovery
Construction recovery in the US continues to expand and all regions are expected to participate in growth this year, according to the PCA’s State Construction and Cement Forecast 2014-15. Favourable demographics, pent-up demand and improved confidence will help fuel the stronger relative growth, it notes. The strongest rates of cement growth are expected to occur in the West and South, with increases of 7.6 and 7.4 per cent, respectively. The Midwest will grow by six per cent, led by the Great Lakes, while the Northeast is projected to increase 6.3 per cent, according to the report.

The main driver behind cement consumption growth is expected to be an acceleration of the residential housing sector. In 2014 the country experienced a slowdown in residential building primarily as a result of higher interest rates. However, housing should reaccelerate in 2015 and improving demographics and growing incomes are expected to propel the market on the way towards a structural demand level of close to 1.5m units per year, according to estimations by Morgan Stanley. There is also a forecast of faster growth in non-residential building where public construction has been in recession since 2009 until recently. This year, the segment will begin contributing as an additional source of growth. PCA believes public construction spending will slowly improve in 2015 and start to reflect the improving state fiscal climate.

Impact of falling energy prices
While the falling price of oil is largely being seen as positive for most of the US, it will differ across the country in terms of production costs and oil-related income. The PCA has expressed caution that declining energy prices add downside risks in select energy states and the largest negative impact is likely in the Northern Plains “given their higher production costs and outsized dependence on the energy sector.”

Cement prices gain traction
In terms of cement pricing, Exane BNP Paribas notes the cement pricing outlook is the strongest in the US. Price increases announced in many regions through 2014 in the US have gained traction and several producers have announced pricing increases for 2015. Price hikes of at least USD7.50/t have been announced for this year in most states, according to the research house.

A measured approach
These encouraging conditions have led a number of cement producers to embark on a number of expansion projects but with a measured approach. The US cement industry operates 106 cement plants, comprising 99 clinker-producing facilities and seven grinding units (PCA’s 2013 Plant Information Summary.) This includes just under 100Mta and 126Mta of clinker and cement capacity, respectively.

As at September 2014, the PCA reported that 6Mta of new capacity has been planned to come online over the 2016-18 period. Further projects are being considered, such as the possibility of St Mary’s modernising its cement plant in Michigan or reopening its Dixon facility in Illinois. The domestic industry is taking a more balanced approach to bringing new capacity online. The PCA comments: "Given a domestic capacity scenario still characterised by furloughed plants and annual expansions under the historical average, utilisation rates are expected to recover in tandem with more robust cement shipments."

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