May 2013 U.S. Cement Consumption Gains 3.1%

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The U.S. Geological Survey (USGS) reported that May 2013 portland and masonry cement shipments were 8.49 million short tons (Mst), a gain of 3.1% compared to May 2012 . This was the strongest performance since January’s 4.4% year-over-year gain. Cumulative 2013 U.S. cement consumption through May totaled 32.69 Mst, up a mere 0.9% from January-May 2012.

Concrete is the most popular and widely-used building material in the world. Hydraulic cement — i.e. hardens in the presence of water — is the glue that binds crushed stone, sand and a few admixtures into concrete. Portland cement is by far the most common form of hydraulic cement. There is a recognized standard so that portland cement is virtually identical throughout the world.

Unique among building materials, concrete is used in virtually all types of construction: residential, nonresidential, and public works. Currently, the strong resurgence of U.S. housing construction is boosting cement and concrete demand but weaker nonresidential markets and declining public works (aka infrastructure) remains a burden.

U.S. cement consumption peaked in 2006, along with most construction markets, and didn’t begin to recovery until 2012. Thus, the Great Recession started earlier and lasted longer for construction, concrete and cement demand than the overall economy.

Examining only cumulative January-May numbers, 2013 U.S. cement consumption of 32.69 Mst was 19.4% above the 2011 trough but remains 40.2% below the 2006 peak.

Cement consumption varies greatly by geography and season: winter shipments are far below summer, the peak of the building season, especially in regions that have four distinct seasons. Weather has a huge impact on construction, concrete and cement activity. Computing 12-month moving totals or averages are the safest ways to control for seasonality.

Bottom line, U.S. cement consumption began to recover from the Great Recession in 2012, six years after the 2006 peak. The rebound in housing construction is a definite positive for construction, concrete, and cement activity, but continued weakness in many nonresidential building markets and outright declines in most public works markets remain a drag on consumption.

Future postings will examine the wide state-by-state differences in construction, concrete and cement demand. Cement and concrete production, as opposed to consumption, will also be discussed.

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Texas, California and Florida lead the pack in U.S. cement consumption

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For many decades three states have led the United States in portland cement consumption: California, Texas, and Florida. The Golden and Lone Star states have been the top two for over a half century. For many years, California was the top cement producer with Texas #2, but Texas has overtaken California in recent years. Florida was always third place though it was narrowing the gap until the Great Recession hit the Sunshine State particularly hard.

The "Big 3" cement-consuming states contributed significantly to the 1992-2006 boom as well as the post-2006 bust.

The “Big 3” cement-consuming states contributed significantly to the 1992-2006 boom as well as the post-2006 bust.

Accounting for about 30% of total U.S. cement demand, the “Big 3” are hugely important to national trends and cycles. Examining 12-month moving totals over the past 40 years, the market share of the Big 3 has ranged from a low of 23.2% to a high of 33.7% with an average of 29.1%. For the “Big 2” — California and Texas — the range has been 17.7%-26.2%, averaging 22.3%, evenly split between the two states. Florida’s share had a 4.7%-9.4% range and a 40-year average of 6.8%.

No other states come close to the Big 3. None has an average market share above 4%, Illinois being the closest at 3.95%. The combined market shares of the next 10 largest states in portland cement demand averaged 30.3% over the past 40 years, about the same as the Big 3. That leaves 40% of U.S. cement sales to the remaining 37 states and the District of Columbia.

California, Florida and Texas are the three largest cement consuming states, accounting on average for about 30% of national cement sales.

California, Florida and Texas are the three largest cement consuming states, accounting on average for about 30% of national cement sales.

Let’s consider the behavior of the Big 3 compared to the nation during the recent cyclical peak and trough. March 2006 was the record peak for U.S. portland cement consumption with a 12-month moving total (12MMT) of 138.8 million short tons (Mst). The U.S. Geological Survey is the source of the monthly cement data that is the basis of this analysis. In those 12 months, cement demand increased 8.1% or 10.45 Mst. During this period Big 3 cement consumption totaled 46.5 Mst for a 33.5% market share. There was a 12.2% gain over the year ago 12MMT amounting to 5.1 Mst, which meant that the Big 3 were responsible for 48.5% of the national increase.

The cyclical trough came in March 2010 with a national 12MMT of 73.6 Mst, 47% below the 2006 cyclical peak. At the bottom the 12MMT for the Big 3 equaled 21.2 Mst of portland cement consumed and a 28.8% market share. From the 2006 peak Big 3 cement demand was down 54.3%. Total portland cement consumption declined 24.3% or 23.7 Mst in the 12 months ending March 2010. The Big 3 dropped 29.1% or 8.7 Mst in this period, accounting for 36.8% of the loss. Thus leading up to both the peak and the trough, the Big 3 accounted for a larger portion of the change in the 12-month period than their absolute market shares.

Looking at Texas, California, and Florida individually we see that Texas has significantly outperformed the other two. Its market share has grown steadily since 1990 and currently is at a record 16.6%. California’s share of total portland cement consumption peaked at a higher level in the late 1980s than in 2006, and has barely recovered. Florida’s share peaked in 2006, crashed, and has only recently started to recuperate. Its current share is comparable to the mid-1970s.

Texas significantly outperformed California and Florida in the Great Recession. Indeed, the Lone Star State has markedly gained share on the other two since 1990.

Texas significantly outperformed California and Florida in the Great Recession. Indeed, the Lone Star State has markedly gained share on the other two since 1990.

Recovery from the Great Recession has finally arrived for U.S. portland cement. In the 12 months ended January 2013, national cement consumption totaled 84.9 Mst, up 7.9% or 6.3 Mst from the year ago level. The Big 3 continued to lead the way with a 15.0% increase to 26.6 Mst. Their market share was 31.4%, and they accounted for 55.6% of the 12-month gain. Texas was the big winner. Lone Star State portland cement demand climbed 20.1% to 14.1 Mst, accounting for 37.7% of the national increase and two-thirds of the Big 3 gain.

Cement Demand Diffusion Index Shows Breadth of Recovery

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I like to look at the diffusion index of monthly state portland cement consumption. Each month the diffusion index is the count of the number of states that experienced an increase in portland cement shipments from the same month a year ago. It shows the geographic breadth of cement demand growth without regard to the size of the state markets. The accompanying chart shows six-month moving averages (6mma) of year-over-year monthly percent changes. Averaging helps smooth out the volatility of monthly cement shipments, to give a clearer picture of cyclical trends.

In November 2008, two months after the collapse of Lehmann Bros. and the near collapse of the world financial system, not one state had an increase in portland cement consumption from November 2007. Zip, zero, nada. That had never happened before. The low point for the 6mma came in August 2009 at 6.2%. The diffusion index peaked in July 2004 at 75.2% for the 6mma. In the two prior years, the index for individual months was over 90% twice. The November 2010 portland cement diffusion index, the latest month available from the U.S. Geological Survey (USGS), hit 49.0%, following a 2010 high point in April of 70.6%, just before the government mortgage subsidy program ended. Looking at the 6mma, the 2010 peak was in August at 49.0% with a slow decline to 46.1% in November.

Mirroring what occurred in U.S. homebuilding, cement demand had a spurt of activity early in the year but then slightly tapered off with the end of the government stimulus. Of course, 46.1% is a hell of a lot better than 6.2%, seven times better to be exact. The diffusion index shows that the economic recovery has clearly taken hold in the U.S. cement industry, but it is still a long way away from former good times.

Who am I and what are my goals?

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Who I am

I have been a professional economist for 37 years, and for all but five I have specialized in the North American cement, concrete, and stone industries. In 1979 I became the chief economist for the Portland Cement Association, the trade group for the American and Canadian cement industries. In 1986 I formed by own company, R.O.I. Economic Consulting, so that I could better serve building materials companies and people interested in them. The PCA was a great place to work as an economist, but there were restrictions on what I could discuss. For example, I was not allowed to talk about cement prices because of U.S. antitrust laws. Having my own independent firm freed me from these constraints and allowed me to expand my expertise to other building materials, including concrete, aggregates, gypsum, slag, and lime.

In the past 25 years, I have done research for virtually all the major cement companies operating in the United States and Canada, including the largest international companies: Holcim, Lafarge, Cemex, Heidelberg, etc. I have been the North American correspondent for the International Cement Review since 1990. Numerous banks, hedge funds, brokerage firms, and government agencies have also requested by services.

My goals for concrete-economics.com

I want to expand my audience and the topics on which I write. Rather than preparing only comprehensive, lengthy reports, this site gives me an outlet for shorter pieces on whatever subjects motivate me to research and write. It also welcomes feedback from readers, so that I get their thoughts and opinions. My emphasis will be on the North American cement, concrete and stone industries, the construction markets they supply, real estate markets, and the overall economy.

While affected by national and international influences, construction and building materials are fundamentally local businesses. As they say about real estate, the three most important factors are location, location, location. Geography is a key to understanding these industries. My postings will stress regional, state, county and city markets.

What have I been doing for a living the past 32 years?  I tell cement, concrete and aggregate companies about the outside world and how it affects them. I also tell the outside world about how these industries operate and how they impact the rest of the economy. With the postings on concrete-economics.com, I will provide timely content that hopefully will enlighten and inform all interested parties.