Climate change a bigger threat than recession for US cement producers

Climate change a bigger threat than recession for US cement producers
21 October 2020

Ed Sullivan, PCA senior vice-president and chief economist, gave an economic outlook for the USA and a cement business forecast on the opening day of the IEEE East Coast meeting yesterday. He advised that the current recession is not comparable to the 2008 Great recession when dozens of cement plants shut down and cement consumption decline year after year. The declines now at the most are about five per cent and that suggests that the risks coming from the recession might be small.

“I think the greater risk comes from long-term threats. Again, those are the policies that may address climate change. That’s where my mind is, and the greater risk is. Less so on the cyclical portions,” said Mr Sullivan.

He added that the regulation that will be forced upon the cement industry will make cement producers respond to climate change by innovating. "These new challenges will be the biggest challenges for the cement industry," he said.

Scenarios going forward
Mr Sullivan gave three possible scenarios for the USA’s economic recovery as there are tremendous risks and assumptions that have to be taken into account. The most likely outcome he suggested would be a ‘U-shaped’ recovery with sharp decline and a modest growth recovery that would occur in 2H21 and would be dependent on Federal support of US$1.5trn. This would result in 1.3 per cent contraction in cement consumption compared to 2019 in the USA and -0.5 per cent in 2021, before rising by 1.6 per cent in 2022.

Less likely, a ‘W-shaped’ recovery would be seen if federal support was less than US$1trn, and that would see tepid consumer spending and a slower recovery. US cement consumption would decline by 1.8 per cent in 2020, 3.4 per cent in 2021 before advancing by 1.3 per cent in 2022 in this scenario.

A third scenario would emerge if a vaccine was found to work and was distributed. But this may not happen until the 3Q21, assumed Mr Sullivan. However, it would lead to a dramatic improvement in the economy. This would still see a 1.3 per cent decline in US cement consumption in 2020, but followed by 0.7 per cent growth in 2021 and a 5.1 per cent increase in 2021. He believes the vaccine will follow the U-shaped recovery.

Mr Sullivan also remarked on beyond the near-term outlook. Some scarring of the economy could become permanent, ie the ability of the economy to continue its growth path could be impacted. Federal borrowing may increase perhaps to US$6-8btrn in the next two years and that level of debt will have to be financed, which will hurt housing, car buying and consumer spending. The deficit will slow economic growth as policymakers will have to borrow from future growth.

Published under Cement News