US cement: time for cautious optimism?

This week saw the publication by the PCA of US Portland and blended cement demand and trade data for March. The figures reveal that the US cement market continued to grow in the first quarter of 2019, with deliveries recorded at 19.439Mt, up 2.4 per cent YoY (versus 2.2 per cent in 1Q18). However, in spite of the the slightly higher quarterly growth rate, February and March YoY growth rates fell by 1.9 per cent and 1 per cent, respectively.

While the latest figures suggest that the US cement market will sustain healthy sales volumes, domestic cement producers may have to contend with relatively lower sales, particularly when taken into account that 1Q growth appears to have mainly benefited cement importers. Import volumes increased by 14.5 per cent YoY to 2.439Mt in the 1Q19, while sales by domestic producers have edged up by less than one per cent to 16.999Mt. But compared with a YoY contraction of 0.7 per cent the 1Q18, US cement companies appear to at least hold their own.

Outlook
Going forward, growth in the US economy is forecast to decelerate. GDP growth is set to slow from 2.9 per cent in 2018 to 2.5 per cent this year, and further to 1.8 per cent in 2020. In addition, unemployment is expected to fall from 3.8 per cent in 2018 to a forecast 3.5 per cent in 2019 and 3.4 per cent the year after.

However, with interest rates predicted to rise from their sustained low base, private construction is expected to show only limited improvement. Growth in the residential sector has been modest in the past few months. Housing starts continued to decline with a 0.9 per cent MoM fall and a 4.7 per cent YoY fall in May although the MoM drop was attributed partly to a higher base (+19 per cent) in May 2018. While residential building permits saw a 0.5 per cent drop YoY, on closer examination, they were up 0.3 per cent MoM in May, the highest rate since December 2018. This follows a MoM advance of 0.2 per cent in February.

While employment in recent times has risen, and as a result, tax receipts have increased in the growing US economy, there has also been a relatively larger rise in state expenditure. Combined with the need to reduce budgets, state spending has been reprioritised from infrastructure and transportation projects to entitlement projects, to the detriment of the country’s infrastructure construction and cement demand from this construction segment.

Therefore, following the latest US construction data, analysts such as Bernstein Research remain cautious on the sector’s growth but expect an improvement in the YoY data when considering the decline seen in the 2H18.