Cement in the USA

The United States of America is the third largest¹ and third most populous¹ nation on the planet and is the richest in terms of GDP.² It has achieved steady economic growth throughout most of its history through the application of free-markets to almost every area of its economy. Historically a strong manufacturer, the country has suffered during the ongoing economic crisis, which has strongly hit construction and the cement industry.

Introduction

The United States of America is a federal constitutional republic that stretches from the Atlantic to Pacific Oceans across the continent of North America. It has borders with Canada to the north and Mexico to the south west.

The 48 contiguous states (and the District of Columbia) stretch for more than 3000km east to west and 2700km north to south. The state of Hawaii consists of an island chain in the Pacific Ocean and Alaska, the largest state, is separated from the contiguous states by western Canada.

The country is the third most populous in the world, although historical factors and its varied terrain means that the population is very unevenly distributed.¹ With European settlers originally coming to the fertile and temperate plains in the north and east of the country, the first US cities were established on or near to the east coast. These have since been developed extensively. The Mississippi River system, which stretches throughout the east and south east, aided early movement into the area now known as the mid-west.

The western states, in contrast, are sparsely populated, especially in the north. A combination of mountains and deserts made early exploration here difficult. Exceptions to this rule include Washington, California and Hawaii.

History

The land that comprises the USA was 'discovered' by Christopher Columbus in 1492, although the USA itself was not formed until the signing of the Declaration of Independence on 4 July 1776. Prior to 1776, the eastern side of the modern US territory had been under the control of the British, who had fought with France, Spain and other colonial powers for control of the 'new world'.

Based in the east of the current USA, the 13 original states acquired land slowly-but-surely across the rest of central North America by the mid-1800s. The most notable acquisitions included the Louisiana Purchase of 1803 (from France), the Mexican Cession of 1819 (from Mexico) and the annexation of Texas, which was an independent republic until 1845.

The most notable period of unrest was the Civil War. In 1861 11 states in the south east of the country attempted to leave the Union in a dispute with President Lincoln over the abolition of slavery. The war was fought mainly in the southern states as the north looked to regain control, something that it achieved in 1865 after four years of bloody conflict.

A late-entry to both the First World War and to the Second World Wars, (following the Japanese attack on Pearl Harbor in Hawaii), the US provided a decisive boost to Allied forces in both conflicts.

The USA's longest conflict to date was the Cold War with the USSR, the defining backdrop to the second half of the 20th Century. This unconventional conflict saw both sides fight to contain one another's ideology through a variety of means. These included a mixture of military strategy, an arms race, espionage, the provision of aid to venerable allies and proxy wars in Afghanistan, Korea and Vietnam, until the collapse of the USSR in 1991.

The country's longest conventional war to date is the ongoing conflict in Afghanistan.

Economy

The US economy is the largest in the world with GDP of over US$15tn in 2011, although the country ranks behind a small number of developed nations in terms of GDP/capita.

The US has a service-based economy (77% in 2011) with an historical emphasis on production and manufacturing, particularly of oil/gas, vehicles, domestic appliances and high-end electronics.¹ Despite taking up 22% of the economy and maintaining a steady contribution to the US economy from the 1950s onwards, the labour force engaged in manufacture has dropped by two thirds in 60 years, from 33% of employees in 1947 to around 10% in 2009.⁴

This decline, the result of improved technology, higher efficiency and the importation of cheaper manufactured goods from the Far East, has left some areas, notably in the north east and New England, with high unemployment and social deprivation.

A switch to modern and more high-tech research and manufacturing has only partly helped the situation, especially in cities like Detroit, nicknamed Motor City, and Motown in the 1950s and 1960s due to the prevalence of the motor industry. While the city still hosts the worldwide headquarters for General Motors, it also reported unemployment of 20% in May 2011.⁵

Economy - General trends

For long periods of its history, the growth of the nation's economy has been steady and rapid. This has been based on free market policies in most areas of its economy. Despite bringing overall wealth, such free markets have caused income-distribution to be far from even. Compared to many other developed nations there is relatively little in the way of welfare provision. Indeed, the US ranked only 82nd in a global study of income equality in 2011, behind most European nations and some countries in the Middle East and Asia, including India.

Notable exceptions to the US economy's strong growth have included the Great Depression in the 1930s, which saw industrial production drop to 52% of previous levels and unemployment rise by over 600%, and the recent economic downturn, which began in 2008, which continues still in 2012.

Economy - Recent developments

In the past four years, the US economy has been badly buffeted by the current economic turmoil.⁶ In 2007 GDP expanded by nearly 2% year-on-year, but in 2008 growth was flat and in 2009 the country saw a 3.5% contraction in its economy. In 2010 the majority of this contraction was reversed, with 3% growth. In 2011 the economy grew slightly more slowly, growing by 1.6% between the fourth quarter of 2010 and the fourth quarter of 2011. In some quarters this has led to speculation of a new recession in 2012, although the first quarter of 2012 saw a provisional year-on-year improvement of 2.1% compared to the start of 2011.⁶

This level was down on analysts' predictions, but the US Federal Reserve seems to know otherwise, increasing its 2012 growth forecast from 2.2-2.7% (made in January 2012) to 2.4-2.9% in late April 2012.7

Cement Industry

Cement - Overview

The US cement industry is one of the largest in the world, with an estimated installed capacity over 100Mt/yr. The 2012 edition of the Global Cement Directory puts the country third in terms of active and mothballed capacity (>113Mt/yr), behind China (>1400Mt/yr) and India (>230Mt/yr).⁸

Its rise to this position started in the second quarter of the 19th Century, with the introduction of intermittent and continuous shaft kilns in the areas surrounding New York city.⁹ In 1825 the Erie Canal, between Buffalo to Lake Erie, an ambitious 584km-long construction project, was completed. Its construction was in large part thanks to recently discovered 'meagre lime' in the area.

An increasing number of limestone discoveries in the east and the ease of transport along the Mississippi River system in the mid-west led to the rapid establishment of a cement industry. Much of the industry is still concentrated in this area, with 25% of US cement being involved in some way with the system.¹⁰

Above: Summary data for the United States of America and its cement industry.

Cement - Rotary revolution

It was in the early 1900s however, that cement production really took off in the US, with the introduction of the rotary kiln. As early as 1900 there are accounts of the Lehigh Valley having 29 rotary kilns, which though small by modern standards, each produced at more than twice the rate of previous methods.9 Incremental improvements led to higher and higher outputs, with the industry experimenting with preheaters and precalciners from the 1950s onwards and increasingly sophisticated automated production since then.

The industry has been overseen for the majority of its existence by a nationwide association, first known as the Association of American Portland Cement Manufacturers (AAPCM). The AAPCM was formed in 1902 to safeguard the interests of the industry. It was renamed the Portland Cement Association (PCA) in 1916.⁹

Cement - 2005 to 2011

Despite its high modern capacity, the cement industry in the US is currently operating well below its headline figures. The PCA reports that in 2005, before the onset of the current fiscal problems, the US consumed approximately 122Mt of cement.¹¹

In 2006 this value held steady at 122Mt, in 2007 it dropped to 110Mt and in 2008 it fell to 93Mt. Even worse consumption was seen in 2009 and 2010, when the country consumed just 67-68Mt, nearly half of the level just five years previously. This represented a capacity-utilisation rate of just 67%.¹¹

The extent of the damage inflicted by the current economic downturn on the US cement industry can be seen by looking at cement consumption statistics from 2005, the peak of US cement demand, and 2010. Please refer to the tables below.

Over these five years 48 out of the 50 US States observed a decrease in cement consumption. Most badly affected were Arizona, (-69%), Florida (-68%), Nevada (-68%), Georgia (-61%) and California (-60%).

In terms of raw figures, Florida appears to be the worst affected state. Its drop in consumption coincided with a capacity increase from 5.1Mt/yr in 2005 up to 9Mt/yr in 2010!

In addition to the states in the 'over 60%' bracket, a further 23 states; Alabama, Colorado, Connecticut, the District of Columbia, Hawaii, Idaho, Illinois, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Mississippi, New Hampshire, New Jersey, North Carolina, Ohio, Oregon, Washington, Rhode Island, South Carolina, Tennessee and Virginia, saw drops of 40% or more. Notable among these is Missouri, which, like Florida, saw its installed capacity increase massively in the middle of 2009 with the arrival of Holcim's 4Mt/yr Ste. Genevieve plant on the Mississippi River.

Many other states saw decreases well into double-digits over the same period, with only two states seeing a net increase in cement consumption over the same time period. These were Louisiana, where consumption increased by over a quarter, and North Dakota, where consumption was up by 17%, albeit at a low level. Neither of these states has its own integrated cement plant and their combined consumption in 2010 was 3.15Mt, just 4.5% of the total consumption in the US in 2010. The only state to come out of the analysis relatively unscathed is South Dakota, one of the least populated states in the country, with an apparent drop in consumption of 6% between 2005 and 2010.

In 2011 cement consumption was again low at just 66Mt, still far down on the record production levels seen in 2005. Of the 50 US states, the top seven producers (in desending order by volume: Texas, California, Missouri, Florida, Pennsylvania, Michigan and Alabama) accounted for 53% of total US cement production for the year.

Above: Map of 48 contiguous US states showing major cities, neighbouring countries and areas of water and integrated cement plants.⁸

Above: Cement consumption (Mt) for US states and D.C. in 2005 and 2010 and net percentage change.¹²

Cement - Multinationals

Like many countries in the world, the USA has significant amounts of cement produced by the major multinational cement firms, Lafarge, Cemex, Holcim and HeidelbergCement. Between them the big four control around 40% of the integrated cement plants and 48-50% of the operational and mothballed capacity.8 Smaller multinationals like Titan and Buzzi Unicem and homegrown producers like Ash Grove Cement and Texas Industries take up the remaining share of the market.

Cemex: Cemex entered the US market in 1994 with the acquisition of the Balcones plant in Texas, which had previously been owned by Lafarge. The plant, located in the extreme south of the US close to the Mexican border was a strategic first move. In the autumn of 2000 Cemex acquired the interests of the Texas-based cement, concrete and aggregates producer Southdown, Inc. The US$2.6bn purchase was Cemex's largest acquisition to date. At the time Southdown had a further eight cement plants and numerous cement terminals across the southern half of the US. With the addition of other acquisitions, and 18 years after its first entry into the US, Cemex now has 13 plants and 46 terminals stretching from California to Florida and up into the mid-west.

According to the 2012 edition of the Global Cement Directory, Cemex has an integrated cement capacity of 12.6Mt/yr, although plants in Davenport, California and Brooksville, Florida are currently mothballed due to the severe downturn in construction in both states. Between them the plants contribute 2.5Mt/yr to Cemex's US cement capacity.

In the first quarter of 2012 Cemex reported that it had seen sales growth in its US operations, which along with changes in its Caribbean and South American operations had helped it to reduce its loss compared to the first quarter of 2011.

"The favourable performance in most of our regions leads us to believe that we are in the initial stages of a turnaround," said Fernando Gonzalez, Cemex's executive vice president of finance and administration, who added that the quarter marked Cemex's sixth consecutive quarter of top-line growth.

In 2011 the group net sales in the US increased by 1% year-on-year to US$2.5bn. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) was a loss of US$100m. Cement sales volues were down year-on-year by 2%. In the final quarter of 2011 Cemex's US operations reported net sales of US$682m, an increase of 19% over the same period in 2010.

In the first quarter of 2012 the US operations reported net sales of US$684m, up by 35% from the same period in 2011. Operating EBITDA for the quarter was a loss of US$24m, an improvement on the US$45m loss made in the same quarter of 2011.

Lafarge: The French building materials group Lafarge originally entered North America when it set up a plant in Richmond, Canada in 1956. Having established a strong Canadian base, Lafarge entered the US in 1981 with the takeover of US-based cement producer General Portland. Today Lafarge has a strong presence in the US cement market, with a total of 10 cement plants and 10.4Mt/yr of integrated cement capacity. At present 1.65Mt/yr of this capacity (0.4Mt/yr at Seattle, Washington and 1.25Mt/yr at Joppa, Illinois) is mothballed due to continued low cement demand during the economic downturn. The company also sold assets in the south east of the US to Cementos Argos from Brazil. The US$750m deal saw the transfer of the Harleyville, South Carolina and Roberta, Alabama cement plants, a cement grinding station in Altanta, Georgia, cement terminals and ready-mix units.

In the final quarter of 2011 Lafarge reported North American cement sales of Euro320m, 1% down on the same period of 2010 (Euro324m). Its operational income for the quarter was Euro38m, a 192% improvement over the Euro13m that the unit made in the same period of 2011 and less of a drop when compared to 2011 as a whole.

In its full 2011 annual report, Lafarge said that its North American markets remained flat, reflecting the uncertain economic environment. It sold 13.5Mt in the US and Canada, down on 13.6Mt sold in 2010. The group's operating income for cement in North America was US$98.2m, also a slight drop on 2010 when it had an operating income of US$104.8m. In the US Lafarge's total operations brought in US$1.89bn, again down on 2010 when it took US$2.06bn.

HeidelbergCement (Lehigh Hanson): Germany's HeidelbergCement (HC) made its move into the US in 1977 when it acquired the domestic cement manufacturer Lehigh Cement. Prior to that Lehigh had been a pioneer of US cement production, making cement and experimenting with new technologies in the Lehigh Valley and elsewhere since 1897. HC acquired aggregate producer Hanson Inc. in 2007 and merged the two into Lehigh Hanson (LH). Today the company has a variety of cement plants across 11 locations in the US with a total cement capacity of 11.5Mt/yr.

LH saw its cement and clinker sales volumes in the US and Canada increase to 10.6Mt/yr in 2011 compared to 10Mt/yr in 2010, an increase of 6.4%. In its 2011 Annual Report HC said that its LH plants in California recorded sales growth above 10% and that the US as a whole had performed better than expected, albeit from a low base.

HC said that inclement weather in early 2011 had hindered revenue growth in its North American cement interests in 2011. In Euro terms revenue was flat at Euro886m (compared to Euro883m in 2010). With exchange rate effects its revenue in terms of US Dollars increased by 5.3%.

Holcim: Swiss-based Holcim has operated in the US for the longest of the multinationals. Following the end of the Second World War it set up several companies under its former name, Holderbank. Today it has eight plants at locations across the country, employs over 1800 people and has a capacity of 15.3Mt/yr. Its plants are well spread out, in Alabama, Colorado, Missouri, Montana, South Carolina, Texas, Oklahoma and Utah.

The group has the highest average US plant capacity among the multinationals, at 1.8Mt/yr. Part of this is due to its 4Mt/yr Ste. Genevieve development in Ste. Genevieve County, Missouri, which came on stream in July 2009.

While Holcim saw a 5.6% increase in its total cement sales in 2011 compared to 2010 and increased its sales in its North American cement interests by 2.9%, the US saw only a minimal increase in cement sales. Holcim reported that its sales in the southern states had fallen but had been more than made up for by increased volumes in the north of the country. Overall US sales rose by 2.7%, taking volumes from 11.1Mt in 2010 to 11.4Mt in 2011. The company said that the US construction sector had only seen a slight improvement.

In monetary terms, its sales and EBITDA in North America were both down in 2011, to US$3.27bn and US$380m from US$3.55bn and US$504m respectively.

Cement - Domestic players

Due to the country's size and the ineffectiveness of transporting low-value bulk materials over long distances, the US cement industry historically consisted of local and regional cement producers. Some of these, like General Portland, Southdown and Lehigh, have been bought out by the multinationals above, but other major regional players remain.

Ash Grove Cement: With its influence now spreading across much of the western US from Washington to Tennessee, Ash Grove cement has been a major participant in US cement industry since it was founded as the Ash Grove White Lime Association in Missouri in 1882.

The company opened its first cement plant in Chanute, Kansas in 1908. Today the company is the largest US-owned cement producer, with nine cement plants, a capacity of 9Mt/yr and around a sixth of the domestic market. It is privately owned.

Texas Industries: Founded on 1 September 1951, Texas Industries (TXI) began as a producer of light-weight aggregates in Texas and Louisiana. Within a few years, it had expanded into producing pre-formed concrete products and readymix concrete and later added sand, gravel and steel to its portfolio.

In 1959, faced with the difficult task of sourcing cement while maintaining its low cost and margins, TXI made the bold move into cement production. It built the Midlothian cement plant, located close to the Dallas-Fort Worth Metroplex in the north of Texas and achieved its aim of becoming a fully-integrated company in the early 1960s.

It added a third cement kiln at Midlothian in 1967 and announced the Hunter cement plant near New Braunfels in south Texas in 1978. Hunter reached its 1Mt/yr capacity in 1981.

Having already established plants in its many other business areas, in the 1990s the company expanded its cement production to California, acquiring Riverside Cement Company in 1998. Today TXI has four cement production sites across Texas and California with a total cement capacity of around 5.7Mt/yr. (The 0.12Mt/yr plant at Riverside is currently mothballed).

TXI's cement capacity will increase by a further 1.4Mt/yr to approximately 7.1Mt/yr in the early part of 2013, when the company commissions kiln 2 at its Hunter cement plant. "We remain on track to complete the construction on the expansion of our central Texas cement plant this fall," said company CEO Mel Brekhus. "The new kiln will enhance our ability to meet the growing customer needs in this very attractive market."

In the three months to 29 February 2012 the company made a net loss of US$24.3m across all of its operations compared to a net loss of US$20.9m for the same period of 2010-11. It sold 743,000t of cement but despite marginally improved sales (US$57.8m against US$54.0m) and a relatively steady market in its native Texas, the company still made a loss of US$2.83m. However, this loss was significantly lower than that made in the same period of 2010-11 when its cement operations lost US$12.4m.

TXI attributed the improvement in gross profit to the timing of cement clinker production, noting that the company will be well placed when the US economy enters a more significant recovery.

Cement - Other multinationals

Buzzi Unicem: Italy's Buzzi Unicem group operates nine cement plants in the US, with a total capacity of 9.5Mt/yr. It shares ownership of the Louisville, Kentucky plant with Cemex. Buzzi reports that it has approximately 9% of the US market.

Essroc (Italcementi): The Italcementi group operates cement plants in the US and the rest of North America under the Essroc name. It has 6.5Mt/yr of cement capacity in the US.

In 1976 Essroc and various associated companies came under the control of Ciments Français, at the time a leading force in global cement production. In 1990 Ciments Français' US interests were grouped under the name Essroc. They were taken over by Italcementi when it took over in 1992.

GCC Rio Grande: GCC Rio Grande is controlled by Mexico-based Grupo Cementos de Chihuahua. It operates 2.5Mt/yr of cement capacity across three sites in the US.

GCC entered the US market in 1994 when it acquired the Tijeras plant in New Mexico. The company acquired the Dacotah Cement plant in Rapid City, South Dakota in 2001 and commissioned its first new-build plant at Pueblo, Colorado in 2008.

Giant Portland Cement Company: Giant is a cement producer based in the Lehigh Valley in Pennsylvania. It formed out of the assets of the Copely Cement Company and the American Cement Company in 1914. Now with three plants in the north east, the company has been controlled since late 1999 by Cementos Portland Valderrivas in Spain, itself controlled by Spain's Fomento de Construcciones y Contratos FCC.

A proposed sale of Giant was delayed in March 2012 when FCC made the decision to concentrate on restructuring the debts of CPV.

Titan America: Titan America is operated by the Greek company Titan Cement Company SA, which expanded to the US in 1992 by taking a controlling stake in the Roanoke Cement Company. In 2000 the company acquired the rest of the company and also bought Tarmac America. Titan's US interests are controlled by Titan America LLC through its subsidiaries.

Cement - EPA regulations 2013

The US cement industry is currently preparing for new sets of EPA regulations that are due to come in on 1 January 2013. These include the apparently contradictory Commercial/Industrial Solid Waste Incinerators (CISWI), National Emission Standards for Hazardous Air Pollutants (NESHAP) and Maximum Achievable Control Technology (MACT) standards, all of which are to be applied to cement plants.

The implementation of what cement producers have previously termed an 'avalanche' of regulations, was predicted in the summer of 2011 to cause the closure of 18 cement plants (approximately 20% of US capacity), with the PCA estimating combined implementation costs of more than US$3.4bn for MACT and US$2bn for CISWI. It estimated job losses in the region of 18,000 across the entire construction sector.^12a

In August 2011 the sector lauched the Cement Sector Regulatory Relief Act, which directed the Environmental Protection Agency (EPA) to develop 'achievable and workable standards' for the nation's cement manufacturing facilities.^12b The Act was approved by the House of Representatives in October 2011 and in April 2012 the EPA conceded some legal elements of the Act in relation to the compliance deadlines.^12c

Cement - PCA Spring Forecast 2012

In its 2012 Spring Forecast the Portland Cement Association (PCA) reported that it expects cement consumption to grow by 3.7% in 2012 over the level seen in 2011.¹³ It says that a stronger job creation outlook, a marginal improvement in non-residential constructions, an anticipated 15% improvement in new housing starts (to 700,000) and an increase in the cement-intensity of projects will ensure that 3.7% is a conservative estimate. It expects real-term construction growth in 2012 for the first time in five years.

"Cement usage is greatest at the early stages of construction with foundation work. The retreat of building starts during the recession had a huge impact on consumption and intensity," said Ed Sullivan, chief economist at the PCA in the report. "A construction start rebound in 2012 coupled with concrete's competitive price compared to other building materials translates to increases."

The PCA identified two main potential threats to the continued tentative US economic recovery and associated cement demand growth, namely contagion effects from further Eurozone debt crises and increasing world oil prices. It identifies gasoline prices above US$5.00-5.50 as a point at which the US economy would re-enter recession and, although the most likely threat of the two, did not see that this was likely in the short to medium term.

In terms of recent activity the PCA said that the first part 2012 had seen more cement produced than in the comparable period of 2011, with February 2012 alone consuming 2Mt/yr more cement than February 2011.

The PCA warned that the relative warmth of the 2011-12 winter compared to the 2010-11 winter had resulted in a proportion of the higher sales. It estimates that approximately 0.38Mt/yr of the extra sales were directly attributable to the weather in the fourth quarter of 2011 (compared to the final quarter of 2010) and that 0.85Mt/yr (44% of the total gain) was directly attributable to the improved weather in the first quarter of 2012. The PCA says that 2.6Mt more cement will be consumed in the US in 2012, an additional 0.6Mt throughout the rest of the year. In its words, "a payback in cement consumption could be on the cards."

Beyond 2012 the PCA anticipates more accelerated growth; 7.6% in 2013 and a 14.1% in 2014. Further into the future, it expects that cement consumption will increase by 35Mt/yr compared to 2011's depressed levels by 2016. This puts the estimated 2016 consumption at 107Mt, just shy of the current installed cement capacity of the country, according to the PCA's own statistics.

References

1. CIA World Factbook, https://www.cia.gov/library/publications/the-world-factbook/geos/us.html.

2. World Bank Data Indicators, http://data.worldbank.org/indicator.

3. US Department of Energy, http://www1.eere.energy.gov/vehiclesandfuels/facts/2011_fotw661.html.

4. Rick's Picks website, 'Is Decline of US Manufacturing Exaggerated?' http://www.rickackerman.com/2009/12/is-decline-of-u-s-manufacturing-exaggerated/

5. Michigan Department of Technology, Management and Budget, 'Labor Market Information,' http://milmi.org/cgi/dataanalysis/AreaSelection.asp?tablename=Labforce.

6. Trading Economics website, http://www.tradingeconomics.com/united-states/gdp-growth.

7. BBC website, 'Federal Reserve raises growth forecasts for 2012,' http://www.bbc.co.uk/news/business-17848599.

8. PRo Publications, 'Global Cement Directory 2012,' Epsom, UK, October 2011.

9. PCA, 'Innovations in Portland Cement Manufacturing,' Vol. 1, 2011. ISBN 978-0-89312-271-3.

10. PRo Publications, 'Global Cement Magazine,' Epsom, UK,

May 2011.

11. PCA Website, 'Economic Statistics by State,' http://www.cement.org/econ/ind_stats.asp.

12. Global Cement website, a) http://www.globalcement.com/news/item/445-us-representatives-call-for-simpler-emissions-rules,

b) http://www.globalcement.com/news/item/553-us-house-approves-cement-sector-relief-act,

c) http://www.globalcement.com/news/item/884-epa-and-pca-strike-deal-to-delay-emissions-rulings. PRo Publications, 2011.

13. Sullivan, E. 'Spring Forecast 2012,' Portland Cement Association, 17 April 2012.

Note: Historical information for cement producers from relevant producer website and parent companies thereof.