The Hunt for Concrete Answers

When it Comes to Cement, Nothing is Hard and Fast

By Lesley Hensell

As shipping costs rise and imports fall, the lack of adequate cement supplies continues to worry the construction industry.

The situation in Texas is not as bad as in other parts of the country where a lack of cement has halted major building projects. Additionally, record-breaking rainfall levels in late spring and summer have eased the state's demand in the short term.
But what will happen, in the future remains to be seen, and predictions are mixed.

"Everything has been subdued because of the rain," said Marshall Thompson, president of the Cement Council of Texas and sales group manager for the Irving office of Holcim Inc., one of the country's largest suppliers of Portland and blended cements.

"Things are much worse in the Southeastern and Western United States, and a little more painful up north. Texas is better off than most areas."
Weather notwithstanding, there is still significant pressure for more cement supplies.
"All of the cement companies in Texas are looking at a good backlog right now," said Barrett Reese, vice president of marketing for Dallas-based TXI's division of cement, aggregate and concrete.

The state's demand for cement significantly outstripped supply last year. In 2003 Texas consumed a little more than 14 million tons of cement, with only 11 million tons produced within the state, Reese said.

"The construction economy is so good right now, particularly in Texas, that we're going to be facing these issues sooner or later. It's just been put off by the rainfall," Reese added. "Texas is still a high-demand state, and our per-capita consumption of cement is high. I would guess that we will finish this year at 15 million tons, if the weatherman is good to us."

Texas brings in some cement from other states, including New Mexico and Oklahoma. But since the state manufactures the vast majority of its own cement supply, Texas construction firms can avoid massive amounts of foreign imports that have created severe shortfalls in other states.

The need for cement across the country likely will only rise as the economy picks up. In March construction spending hit an all-time high, with a seasonally adjusted rate of $944.1 billion, according to the U.S. Department of Commerce. This was a 1.5 percent increase over February and exceeded the expectations of most economists.

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This increased construction activity will further drive demand for cement, already in short supply. In 2003 the United States used 107.5 million metric tons of Portland cement, according to the U.S. Geological Survey. Of that, 23.2 million tons, or 22.6 percent, was imported cement, according to the Portland Cement Association.

Yet the global economy also continues to grow. And with it, the availability of imported cement will shrink further. Over the past year, China has gobbled up almost all available cement on the market, leaving the United States without crucial supplies.

"China is undertaking a tremendous amount of construction, like nothing anyone has ever seen before," said Rick Johnson, president and CEO of Dallas-based Centex Construction Co.. "Once they've made their purchases of raw materials, there's not much left for anyone else."

Two factors affect cement imports: availability of materials and availability of ships. Strong economic growth in the Far East, particularly China, forced freight rates to rise 200 percent between January 2003 and April 2004, according to the Portland Cement Association.

So far, cement prices have remained largely stable. Yet the increase in international shipping costs has made the U.S. a less attractive market to foreign suppliers, Reese said. Eventually, prices will rise, until they become more attractive to these international suppliers, he added.

Some economists expect China's economic growth to ease during the coming year, freeing more cement and shipping capacity for U.S. imports. Yet continued growth in developing nations and continued forecasts of shortages in the United States has prompted some American firms to consider expanding their plants.

While many cement companies would appreciate a chance to increase their manufacturing capacity, doing so can be close to impossible. Ash Grove Texas of Houston and Alamo Cement Co. of San Antonio have announced plans to bring in another 1.5 million tons per year, but that will only make a dent in some industry forecasts. Reese predicted that demand could jump as high as 17 million tons per year in Texas over the next few years.

"We are definitely going to need additional capacity, but it is hard as heck to get permits to build that new capacity," Reese said. "You're talking about a big investment on the part of the cement company, plus a lot of legal battles. Our industry has plants with smokestacks, and people don't want us next door. But they also don't want to pay an extra $25,000 for a house if concrete costs get out of control."

Thompson expects to see demand outstripping supply in the state through next year, but not to the extent of other parts of the country.

But no matter how much cement prices rise, they are unlikely to match the volatility seen in the steel and lumber markets. Skyrocketing steel prices of the last 12 months have affected everyone from suppliers and subcontractors to the insurance and surety markets, Johnson said.

"We may see a little more pressure in the cement market here in Texas, but I really think those challenges will be overshadowed by what we're seeing happen with steel," he said. He added that Centex has not yet had difficulty obtaining the cement needed for its construction activities.

In the short term, rising interest rates may put enough downward pressure on residential construction to ease pressure on the cement market. But with a soaring economy predicted for the foreseeable future, a stable foundation remains unlikely.