National & Regional Construction & Cement Outlook Florida Independent Concrete and Associated...

69
National & Regional Construction & Cement Outlook Florida Independent Concrete and Associated Products Association January 30, 2007 David E. Czechowski - Manager, Sr. Economist Economic Research Portland Cement Association

Transcript of National & Regional Construction & Cement Outlook Florida Independent Concrete and Associated...

National & Regional Construction & Cement

Outlook

Florida Independent Concrete and Associated Products Association

January 30, 2007

David E. Czechowski - Manager, Sr. Economist

Economic Research

Portland Cement Association

Key Points of Analysis

The Economy

Construction Spending

Cement Outlook

Residential

Nonresidential

Public

Demand

&

Supply

Florida Overview

U.S. Economic Outlook

Key Near Term Issues

Oil PricesOil Prices

Is the recent rundown sustainable?Is the recent rundown sustainable?

International Demand/Disruptions/OPECInternational Demand/Disruptions/OPEC

Inflation Inflation

Will it subside enough to satisfy the Fed?Will it subside enough to satisfy the Fed?

Interest RatesInterest Rates

Resumption in increases? Resumption in increases?

Housing DeclineHousing DeclineHard or Soft landing?Hard or Soft landing?

Job CreationJob Creation

Federal Funds Rate

0.0

2.0

4.0

6.0Percent

03 04 05 06 07

Fed Gradualism

Restrictive

Accommodative

Overall Economy & Overall Economy & Job Growth SlowingJob Growth Slowing

Dilemma:Dilemma:Inflation or Growth?Inflation or Growth?

Don’t discount further Don’t discount further Fed TighteningFed Tightening

Risk of Over-reaction Risk of Over-reaction

(Change from prior month)

Nonfarm Employment

Job Growth

2005: +2.03 Million

2006: +1.91 Million

2007: +1.60 Million

-400

-200

0

200

400

600Thousands

00 01 02 03 04 05 06 07

Consumer Confidence

40

70

100

130

160

Index1985=100

00 01 02 03 04 05 06 07

Consumer Under Pressure

Pay Increase Averages 3.5%.Pay Increase Averages 3.5%. Health Insurance Premiums Rise 7%-11%.Health Insurance Premiums Rise 7%-11%. State and Local Property Taxes Rise.State and Local Property Taxes Rise.

Reassessments based on high home appreciationReassessments based on high home appreciation

Energy Prices Take a Large Bite.Energy Prices Take a Large Bite. Even in context of recent improvementEven in context of recent improvement

Interest Rates Rising in Context of Record Consumer DebtInterest Rates Rising in Context of Record Consumer Debt

Tapping Home Equity Bank Not as Viable As In the PastTapping Home Equity Bank Not as Viable As In the Past Slowdown in Job CreationSlowdown in Job Creation

Real InvestmentNonresidential Structures & Equipment

-20

-10

0

10

20

30

40

Qtr/Qtr% Change

90 92 94 96 98 00 02 04 06

Investment Spending

Higher Expected ROI

Pent Up Demand

Corporate Profits = Internal Funds

Low Interest Rates = External Funds

Unfavorable Factors Favorable Factors

Strong, But Slower Investment Spending Growth

Construction Costs

Energy Prices

Real GDP Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

----------2005---------- -------2006------- -------2007------

3.5%

Real GDP Annual Growth Rate

-------2008-------

3.1% 2.6% 2.4%

Risks On Downside

Economic Outlook: Summary

Economic Growth Will Be SustainedEconomic Growth Will Be Sustained

but Slowedbut Slowed

Consumers Maintain Spending at Slower PaceConsumers Maintain Spending at Slower Pace Investment Spending Slow and SteadyInvestment Spending Slow and Steady Labor Market growth SlowingLabor Market growth Slowing

RisksRisks

Exotic Mortgage Resets Retrenches ConsumersExotic Mortgage Resets Retrenches Consumers

U.S. Construction Markets

Changing Composition of Construction Spending

Growth Leader: ResidentialGrowth Leader: Residential Low Interest RatesLow Interest Rates

PublicPublic State Tax Revenues Hurt by State Tax Revenues Hurt by

Anemic Economic GrowthAnemic Economic Growth

Growth Laggard: NonresidentialGrowth Laggard: Nonresidential Weak EconomyWeak Economy

Growth Leader : NonresidentialGrowth Leader : Nonresidential Steady EconomySteady Economy

PublicPublic State Tax Revenues Recovery State Tax Revenues Recovery

Due to Economic GrowthDue to Economic Growth

Growth Laggard : ResidentialGrowth Laggard : Residential Rising Interest RatesRising Interest Rates

2001-2005 2006-2010Low Interest Rates

Weak Economy

Rising Interest Rates

Steady Economy

Starts Activity More Than Low Rates…

The Cyclical Upside: 2001 - 2005The Cyclical Upside: 2001 - 2005

Low mortgage rates Low mortgage rates Emergence of exotic mortgagesEmergence of exotic mortgages

Easy credit conditionsEasy credit conditions Speculators add froth to the marketSpeculators add froth to the market

The Cyclical Downside: 2006 - 2009The Cyclical Downside: 2006 - 2009 Mortgage rates risingMortgage rates rising

Inventory DrawInventory Draw Exotic mortgages losing favorExotic mortgages losing favor

Defaults/delinquencies deteriorate credit quality and tighten credit conditionsDefaults/delinquencies deteriorate credit quality and tighten credit conditions

Speculators reduced/disappear in lower appreciation rate environmentSpeculators reduced/disappear in lower appreciation rate environment

Mortgage Rate

4

5

6

7

8

9Percent

00 01 02 03 04 05 06 07

Peak to Peak to Trough Trough

294 Basis 294 Basis Point Point

DeclineDecline

Tripping Rate = 6.5%

Last 12 Last 12 Months Months

Reflect a Reflect a 100 Basis 100 Basis

Point Point IncreaseIncrease

Year

2006 6.41%

2007 6.90%

2008 6.92%

2009 6.88%

Sub-Prime Mortgage Resets

Total Loans Scheduled for Reset

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Period of Emerging Period of Emerging TroubleTrouble

Inventory Draw Required

Homes on Market/Monthly Selling Rate

Ten Year Average

Inventory Build

Required

Inventory Draw

Required

Highest Level Highest Level Since 1997Since 1997

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2001 2002 2003 2004 2005 2006

Affordability Squeeze

Annual Growth

Home Prices

Household Income

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1990 1992 1994 1996 1998 2000 2002 2004 2005

Affordability Index

Most Affordable

Pacific

MountainWest North Central East North

Central

SouthAtlantic

East South

Central

West South Central

NewEngland

Middle Atlantic

Affordability Ratio

2nd Tier 3rd Tier 4th Tier Least Affordable

0.5

1.0

1.5

2.0

MillionUnits

98 99 00 01 02 03 04 05 06 07 08 09

Single Family StartsYear

2005 1.72

2006 1.49

2007 1.29

2008 1.30

Nonresidential Construction

Underlying nonresidential Underlying nonresidential drivers improving drivers improving

Despite large percentage Despite large percentage gains for 2006, most gains for 2006, most markets weak from markets weak from historical perspectivehistorical perspective

Slower growth outlook Slower growth outlook depresses expected ROI depresses expected ROI and tempers recoveryand tempers recovery

High material costs reduce High material costs reduce

growth growth 100

130

160

190

220

Billions1996$

95 97 99 01 03 05 06 07 08 09

Year

2005 3%

2006 12%

2007 8%

2008 4%

2009 5%

Nonresidential Construction

20042004 20052005 20062006 2007 2008 2007 2008

LodgingLodging 9%9% 4% 4% 38%38% 11%11% 5%5%Health CareHealth Care -5%-5% 2%2% 23% 23% 5%5% 1%1%ReligiousReligious -12%-12% -10%-10% 1%1% 4%4% 6%6%EducationalEducational -12%-12% -6%-6% 1%1% 2%2% 4%4%

Public Construction

93% of public 93% of public construction performed construction performed at state/local levelat state/local level

State/Local fiscal State/Local fiscal

problems fadingproblems fading

Revenue growth Revenue growth improves with economy improves with economy and job growthand job growth

Surpluses will re-emerge.Surpluses will re-emerge.

Pent-up demand releasedPent-up demand released Highway Bill adds Highway Bill adds

strengthstrength -80

-40

0

40

80

$Billion

89 91 93 95 97 99 01 03 05 07

State & Local Government Surplus

MARI

NH

State Deficit Estimates FY 2005

0-9% 20-29% 30-39%

Pacific

MountainWest North Central

East North Central

SouthAtlantic

East South

Central

District of Columbia

West South Central

NewEngland

Middle Atlantic

10-19%

Deficit as percentage of budget

$0

$0

$0

$0

$.3

$1.1

$.17

$15

$0

$2

$.5

$.34

$.71

$.19

$.0

$.6

$.62

$.17

$.9

$0

$5.1

$5

$.14

$0$1.5$.19

$.74

NJ$.2CT

MD$.93

$.8

Secondary Source: National Association of Budget Officers

Dollar figures, in billions, indicate amount states had to save to balance 2005 budget.

KEY

No availabledata

DE $0

$0

$.9

$0

$.6$.2

$.9

$0

$.21

$0

$0

$0

$.3

$0

$.5

$0

$0

VT $0

$.12

$0

Primary Source: Center on Budget Policy and Priorities Feb / 04

Public Construction

120

140

160

180

200

220

Billions1996$

93 95 97 99 01 03 05 07 09

Year

2005 0.7%

2006 4.7%

2007 3.7%

2008 3.9%

2009 3.6%

Improving State Fiscal Improving State Fiscal PicturePicture

Release of Pent-Up, Release of Pent-Up, Postponed ProjectsPostponed Projects

Infusion of SAFETEA Infusion of SAFETEA ($286Billion)($286Billion)

Public Construction

20042004 20052005 20062006 2007 2008 2007 2008

BuildingsBuildings -6%-6% 1% 1% 2%2% 3%3% 4%4%HighwayHighway -6%-6% 3%3% 10% 10% 6%6% 5%5%SewerSewer -4%-4% 2%2% 11%11% 4%4% 5%5%WaterWater -8%-8% -2%-2% 8%8% 4%4% 4%4%

U.S. Construction Outlook

500

600

700

800

900

Billions1996$

93 95 97 99 01 03 05 06 07 08 09

Year

2005 3.7%

2006 1.1%

2007 -1.8%

2008 1.2%

2009 2.9%YTD 1.0%

Construction: Conclusions

Residential Easement ModestResidential Easement Modest Mortgage Rate Increases SubduedMortgage Rate Increases Subdued Cement Intensity GainsCement Intensity Gains

Nonresidential RecoveryNonresidential Recovery Turning Points Already AchievedTurning Points Already Achieved Still Weak from a Historical PerspectiveStill Weak from a Historical Perspective Recovery within Sectors Differ Recovery within Sectors Differ

Retail/Hotel/Industrial LeadRetail/Hotel/Industrial Lead Institutional/Office LagInstitutional/Office Lag

Public Waiting In WingsPublic Waiting In Wings State Fiscal RecoveryState Fiscal Recovery Pent-up DemandPent-up Demand SAFETEASAFETEA

Portland Cement Consumption

60

70

80

90

100

110

120

130

140

MillionMetric Tons

89 91 93 95 97 99 01 03 05 07 09

Year

2004 6.8%

2005 5.6%

2006 0.6%

2007 0.3%

2008 2.9%

2009 3.6%

Cement Supply Update

No Shortage Tight Supplies

Cement Supply Survey Summer 2005

Spot Tight Supplies

No Shortage Tight Supplies

Cement Supply Survey Summer 2006

Spot Tight Supplies

Ratio of Cement Consumption to Construction

120

130

140

150

160

170

180

Thousand Tonsper $Billion

93 95 97 99 01 03 05 07 09

Demand Pressures

Cement Intensity

Favorable Relative Price ConditionsFavorable Relative Price Conditions Concrete prices relative to steel/asphalt Concrete prices relative to steel/asphalt Material substitution in designMaterial substitution in design

Cyclical RecoveryCyclical Recovery Larger, more cement intensive projects Larger, more cement intensive projects

typically associated with economic recoverytypically associated with economic recovery

Construction MixConstruction Mix Outlook favors nonresidential and public Outlook favors nonresidential and public

construction with typically higher cement construction with typically higher cement intensityintensity

Code Changes/Green BuildingCode Changes/Green Building Fiscal HealingFiscal Healing

Competitive MaterialsProducer Price Indexes

Residential Exposure

Residential Cement Consumption as % of Total State Cement Consumption

1 DELAWARE 68.0%

2 MAINE 67.7%

3 FLORIDA 64.0%

4 NEW HAMPSHIRE 63.3%

5 IDAHO 46.6%

6 NORTH CAROLINA 46.0%

7 VERMONT 45.9%

8 NEW JERSEY 45.8%

9 N. CALIFORNIA 45.3%

10 HAWAII 44.7%

NATIONAL 37.8%

Portland Cement Consumption

-20

-10

0

10

20

30

Year-Year

% Change

02 03 04 05 06 07

Harsh Winter

Mild Winter

Mild Winter

YTD 0.9%

15

25

35

45

$/TonAsia-Gulf

10

20

30

40

50

60

01 02 03 04 05 06

Imports

Freight Rates

Metric TonsSAAR

Imports Flowed Despite Constraints

Import Mix Shift

5.3%Mexico

20.9%Latin America

19.7%Europe

21.1%Canada

29.5%Asia

2004

3.6%Other

6.5%

17.4%

18.5%

16.0%

36.0%

2005

5.5%

6.3%

11.1%

13.0%

13.1%

55.3%

2006YTD

1.2%

U.S. Cement & Clinker Imports(Percent Change)

October 2006 YTD

Great Lakes

SouthAtlantic

District of Columbia

NewEngland

Middle Atlantic

-21%

12%

3%20%

20%

18%

- 13%

- 38%

Florida

California

NorthwestCanadian Border

Gulf Coast

Mexican Border

6%

U.S. + 9.6%

10%

Cement and Clinker Imports

0

10

20

30

40

50

MillionMetric Tons

89 91 93 95 97 99 01 03 05 07 09

Year

2004 27.3

2005 33.6

2006 35.4

2007 34.7

2008 32.1

2009 32.1

Blended Cement Consumption

1.0

1.5

2.0

2.5

3.0

3.5

MillionMetric Tons

98 99 00 01 02 03 04 05 06

Mexican Support

2005 2006 2007 2008

Portland Cement Consumption 120,693 125,138 128,512 131,709

Market Growth ----- 3.7% 2.7% 2.5%

Total Mexican Imports ----- 3,200 3,310 3,394

Hurricane Relief ----- 200 200 200

Total Mexican Quota 3,000 3,110 3,194

California ----- 150 156 160

Arizona ----- 1,250 1,296 1,331

New Mexico/El Paso ----- 725 752 772

Rest of Texas ----- 215 223 229

Louisiana ----- 280 290 298

Mississippi/Alabama ----- 55 57 59

Florida ----- 200 207 213

Rest of United States ----- 125 130 133

Announced Capacity Increases(Million Metric Tons)

-1

0

1

2

3

4

5

6

7

8

96 98 00 02 04 05 06 07 08 09 10

Net Expansion 2006-2010

22.5 MMT

$5.0 Billion

Looking Forward

Tight market conditions dramatically reducedTight market conditions dramatically reduced

Characterized by high operating ratesCharacterized by high operating rates

Inventories lean and well managedInventories lean and well managed

Major expansion does not materialize until 2008.Major expansion does not materialize until 2008.

Regional Perspective

Real GSP - Florida

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Annual % Change

U.S.

(Change from prior month)Nonfarm Employment

Job Growth - Florida

-40

-20

0

20

40

60

80Thousands

00 01 02 03 04 05 06 07

Net Migration - Florida

(000) Persons

0

50

100

150

200

250

300

350

400

1991 1993 1995 1997 1999 2001 2003 2005

Population Growth - Florida

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1994 1996 1998 2000 2002 2004 2006 2008

Growth Rate

U.S.

Key Markets Exposure - Florida

Cement Consumption as % of Total State Cement Consumption

Residential - 64% Residential - 64% National - 30%National - 30%

Nonresidential - 10% Nonresidential - 10% National - 16%National - 16% Commercial – 3% Commercial – 3% National - 13%National - 13% Industrial – 1% Industrial – 1% National - National -

1%1% Office – 5% Office – 5% National - 2%National - 2%

Public – 23% Public – 23% National - 46%National - 46% Highway – 16% Highway – 16% National - 32%National - 32%

Cement per Capita U.S. - .409

Cement per Capita Florida - .632

Construction Permits - Florida

0

5,000

10,000

15,000

20,000

25,000

Units (NSA)

00 01 02 03 04 05 06 07

Single Family

Multifamily

3 Month Moving Average

Single Family Permits - Florida

0

50,000

100,000

150,000

200,000

250,000

2002 2003 2004 2005 2006 2007 2008 2009

Units

Multi-Family Permits - Florida

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2002 2003 2004 2005 2006 2007 2008 2009

Units

Contract Awards - Florida

20032003 20042004 20052005 2006 2006

BuildingsBuildings 17%17% 23%23% 21%21% -15%-15%PublicPublic 3% 3% -3%-3% 3% 3% 30% 30%CommercialCommercial -1%-1% 20%20% 4% 4% -2%-2%

Public WorksPublic Works 13%13% -10%-10% 13%13% 10%10%HighwayHighway 9% 9% 8% 8% 9% 9% 4% 4%Water/WasteWater/Waste -22%-22% 3% 3% 16%16% 35%35%UtilitiesUtilities 336%336% -78%-78% 140%140% -50%-50%OtherOther -6%-6% 9% 9% -8%-8% 26% 26%

TotalTotal 17%17% 18%18% 20%20% -12%-12%

20032003 20042004 20052005 2006Ytd 2006Ytd

FloridaFlorida 8.598.59 9.709.70 11.2311.23 %Change%Change 9.7%9.7% 12.9%12.9% 15.8%15.8% 3.8%3.8%

GeorgiaGeorgia 3.453.45 4.114.11 4.394.39% Change% Change 11.6%11.6% 19.2%19.2% 7.0%7.0% 3.9%3.9%

AlabamaAlabama 1.601.60 1.641.64 1.741.74 %Change%Change 8.1%8.1% 2.8%2.8% 5.7%5.7% 3.9%3.9%

South CarolinaSouth Carolina 1.501.50 1.741.74 1.781.78 %Change%Change 9.6%9.6% 16.2% 16.2% 2.1%2.1% 6.0%6.0%

U.S.U.S.%Change%Change 3.63.6%% 6.86.8%% 5.65.6%% 0.90.9%%

Regional Portland Cement Consumption(Million Metric Tons)

20032003 20042004 20052005 2006Ytd 2006Ytd

FloridaFlorida .766.766 .879.879 1.0521.052 %Change%Change 12.512.5%% 14.6%14.6% 19.7%19.7% 2.0%2.0%

GeorgiaGeorgia .321.321 .354.354 .357.357% Change% Change 9.8%9.8% 10.3%10.3% 0.8%0.8% 13.0%13.0%

AlabamaAlabama .162.162 .172.172 .183.183 %Change%Change 11.6%11.6% 6.1%6.1% 6.4%6.4% 8.7%8.7%

South CarolinaSouth Carolina .138.138 .147.147 .166.166 %Change%Change 2.02.0%% 6.6% 6.6% 12.9%12.9% 11.5%11.5%

U.S.U.S.%Change%Change 7.07.0%% 9.09.0%% 6.16.1%% 1.61.6%%

Regional Masonry Cement Consumption(Million Metric Tons)

Region accountsfor 32%of U.S.

masonry consumption

Residential Cement ConsumptionFlorida

MMT

0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Nonresidential Cement ConsumptionFlorida

MMT

0

.2

.4

.6

.8

1.0

1.2

1.4

1.6

1.8

2.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Public Cement Consumption Florida

MMT

0

.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cement Outlook - Florida

0

5

10

15

MillionMetric Tons

90 92 94 96 98 00 02 04 06 08 10

Year

2004 12.9%

2005 15.8%

2006 2.0%

2007 -0.9%

2008 1.2%

2009 2.5%

YTD 3.8%

Downside RiskFor 2007

Blended Cement Consumption Florida

NebraskaFlorida

0

300

600

900

1200

ThousandMetric Tons

98 99 00 01 02 03 04 05 06

693 (Est.)

Florida Cement & Clinker Imports

0.0

0.7

1.4

2.1

2.8

3.5

MillionMetric Tons

89 91 93 95 97 99 01 03 05 07 09

Tampa

SourcesChina/ThailandBrazil/Columbia

Miami

SourcesChina/SwedenGreece/Mexico

Regional Cement & Clinker Imports

0.00

0.20

0.40

0.60

0.80

1.00

MillionMetric Tons

89 91 93 95 97 99 01 03 05 07 09

MobileSources

Greece /China/Thailand

SavannahSources

Columbia

Florida Cement & Clinker Imports

0

100

200

300

400

ThousandMetric Tons

01 03 05 07

Tampa

Miami

3 Month Moving Average

06

Miami YTD0.3%

Tampa YTD4.6%

Clinker Capacity – Southeast Region (000 Metric Tons)

20002000 20042004 FloridaFlorida 4,653 4,653 5,489 5,489GeorgiaGeorgia 1,316 1,316 1,020 1,020AlabamaAlabama 4,366 4,366 5,375 5,375South CarolinaSouth Carolina 2,732 2,732 3,480 3,480RegionRegion 13,06713,067 15,36415,364 + 18%+ 18%

Regional Expansions

Suwannee – Branford, FL .675 ’03Giant – Harleysville, SC .113 ’04Holcim – Holly Hill, SC .765 ’04Titan – Medley, FL .675 ’04

American – Sumterville, FL .990 ‘08Florida Rock – Newberry, FL .675 ‘08Rinker – Brooksville, FL .900 ’08

Lafarge – Harleysville, SC .972 ’09National – Ragland, AL 1.17 ’09Sumter – Center Hill, FL 1.35 ’09

MMT Year

Outlook Summary

Slowing Economic GrowthSlowing Economic Growth Rising Inflation, Interest Rates, Energy Prices, Slower Job CreationRising Inflation, Interest Rates, Energy Prices, Slower Job Creation

Construction Market Flattening Construction Market Flattening Residential Weak Residential Weak Slower Nonresidential & Public RecoveriesSlower Nonresidential & Public Recoveries Higher Material CostsHigher Material Costs Potential for Market Contraction in 2007Potential for Market Contraction in 2007

Cement Supply Cement Supply

Tight Market Conditions Dramatically ReducedTight Market Conditions Dramatically Reduced

Add Extra Dose of Conservatism to Forward PlansAdd Extra Dose of Conservatism to Forward Plans Florida’s sensitivity to the Housing cycleFlorida’s sensitivity to the Housing cycle Prepare Contingency Plans Incorporating Downside Risks.Prepare Contingency Plans Incorporating Downside Risks.

National & Regional Construction & Cement

Outlook

Florida Independent Concrete and Associated Products Association

January 30, 2007

David E. Czechowski - Manager, Sr. Economist

Economic Research

Portland Cement Association

Go BearsGo Bears