Concrete forecast

By Angelle Bergeron

It looks like another summer of spot shortages and increased costs for ready-mix concrete in the south central region, but industry experts hesitate to predict when shortages will hit the market or the severity of the impact.

The greatest factor in rising concrete cost and decreased availability is growing worldwide demand for cement, said Ed Sullivan, chief economist with the Portland Cement Association of Skokie, Ill. Part of the problem from last year is that the worldwide economy was blindsided by growth in China and India.

"We used to describe the global economic players as Europe, the United States and Japan, but we're experiencing a new economic order," Sullivan said. "The huge magnitude of their populations can exert tremendous demand on overall world resources. Not just cement, steel and oil prices, but on everything."

The United States ranks third in worldwide cement production behind China and India, with 39 companies operating 118 cement plants in 38 states. Sullivan said that a healthy domestic construction industry over the past few years has increased U.S. dependence on cement imports.

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"In the last months of 2004, imports increased dramatically from about 23 million tons annually in 2003 to 32 million tons," he said. "We will bring in at least that level in 2005."

When domestic demands swelled in the past, the United States looked to the readily available supply of foreign cement as well as available ships to deliver that supply.

"Our strategy was based on two assumptions that broke down," Sullivan said.

In the latter part of 2003, U.S. demand for foreign cement swelled due to a strong economy and a construction boom, primarily residential, Sullivan said. The nation's increased dependence on imported cement coincided with China and India's demand.

Competition for resources was further compounded because the U.S. exports virtually nothing to India and China, so there was nothing to haul on the return trip after those countries shipped cement to the United States. Cement is a bulky, messy material to ship, typically not a desirable product to handle and it costs more in shipping than it is worth, Sullivan added.

"Although freight rates increased by 240 percent at about the same time the cement demand increased, it is my feeling that the problem was not cost but a tightness in ship availability," Sullivan said.

Meanwhile, cement producers in the United States who typically beef up their inventory in the winter were instead running full steam, depleting their supplies.

"Typically, producers carry about 19 days' supply, but in 2004 it was below seven," Sullivan said.

"That is the lowest level in the industry's history."

The United States felt this lack of inventory when imported concrete, more than 20 percent of the country's supply, was slow to be delivered. Many in the south central region said that obtaining cement imports in a timely fashion has been at the root of the sluggish delivery of product.

"Last summer, people got burned by committing to prices over a long period of time and I think there is a growing awareness that this is no longer the way to do business," said Alan Sparkman, executive director of Tennessee Concrete Association in Nashville. Dependence on foreign imports puts a new kind of pressure on contractors and will affect the way contractors and owners do business in the future, he said.

"Most ready-mix suppliers are not quoting projects long-term," he added. "If you want a quote on a project that starts in October, nobody will quote you a price in March. There are simply too many variables."

Most in the industry are advising contractors to take a practical approach, bidding and scheduling for concrete just like other products with a lengthier delivery turnaround.

"I've been around concrete for a long time and as an industry we are sometimes our own worst enemy," said Vance Pool, national resource director for the National Ready Mix Concrete Association in Silver Spring, Md. "Concrete is pretty much ordered the day before it is bought. As an industry, we service our customers on a just-in-time basis. The ready-mix industry has been doing that for so long that people call the same day for 10 loads, and we as an industry have been responsive to that."

Many in the industry agree that relying on last-minute concrete availability may be a thing of the past.

"The Asian economy, combined with robust construction in our own country, means demand is up," said Al Crawley, Jackson, Miss., consultant for the American Concrete and Pavement Association Southeast Chapter.

"So far, we haven't encountered anything where we couldn't get cement, but you just have to schedule your work better. Contractors have to work with suppliers in a little bit longer time frame to make sure they get what they need, particularly for large jobs."

During the steel shortage, it wasn't uncommon for contractors to order steel as much as eight weeks in advance, Pool said.

"If we ordered concrete eight weeks in advance, you'd never have a problem," he added.

Price and availability of cement are also regional, Sullivan said.

"In Florida, for example, 40 percent of the market is dependent upon imports," he said. The problem may be particularly magnified in those areas, but eventually everyone will feel the crunch," Sullivan added.

He said antitrust regulations do not allow him to provide a breakdown of import percentages by states.

However, he said that the industry is obligated to distribute certain amounts of cement in each region and move surplus to areas with greater demand. He added that dependence on foreign imports of cement is expected to increase 17 percent this year and another 7 percent in 2006.

"The domestic market as a whole can support growth by about 3.5 percent for 2005 and about 3 percent for 2006, so most of it is going to come from increased imports," Sullivan said.

In addition to an already healthy commercial construction market, the Gulf Coast is seeing an unprecedented amount of reconstruction after this year's hurricane season.

"We had three major hurricanes hit this past season, so we have a lot of construction activity in relation to rebuilding," said Barbara Estes, president of the Mid-Gulf Chapter of Associated Builders and Contractors in Mobile, Ala. The organization includes Alabama, Florida and Mississippi, but Alabama and Florida received the brunt of the damage.

"The Gulf Coast will probably be rebuilt within a year," Estes said. "Gulf Shores has rebuilt about 60 percent this year, so I would say that in another year things should level off within the Gulf Coast."

Last year, Tennessee didn't experience the same crisis as Florida, but areas with limited transportation resources had more difficulty getting materials, TCA's Sparkman said.

"Memphis has freight up and down the Mississippi but in east Tennessee there were some delays," he said. The decrease in domestic cement suppliers means ready mix producers don't have as many options as they used to, Sparkman added.

"In the past 20 years, we've had a lot of consolidation in the industry," he said. "Where in the past we had maybe eight or 10 suppliers marketing or selling cement in Tennessee, now we have maybe four or five."

Although the Portland Cement Association asserts that automated production and larger kilns amount to the same production levels as 20 years ago, ready mix producers simply don't have alternatives when one doesn't have the product, Sparkman said.

Arkansas, on the other hand, is strategically located in close proximity to several domestic cement production sources, said Keith Wetsell, general manager of Razorback Concrete Co. of West Memphis, Ark., one of the largest ready mix producers in the Arkansas Ready Mix Concrete Association.

"We've been fortunate in that we are close to our sources in Missouri, Texas and southern Oklahoma, as well as some in Arkansas," Wetsell added. "Not a great deal of what we've used is imported, so we haven't been as dramatically impacted by the loss of that imported cement that is going to China and other third-world countries."

However, Wetsell said he expects to "feel some of the shortage issues later in the year, particularly if construction activity is strong. If there are shortages in the Southeast and Southwest, they tend to have a ripple effect in our market."

Likewise, the big economic picture affects cost throughout the market. Even areas with ready access have experienced increased prices.

"This total global demand for cement and the scarcity of product in some markets has brought about an upward trend in prices, which is simple supply and demand," Wetsell said. "Even though there are some new production facilities on line in the next two years, until they come on line we will probably see higher prices and some limited supplies."

Transportation affects cost even more for ready-mix producers in some regions.

"If you go to the gas station and fill up your car, you are paying more for gas than a few months back," said Robert Varner, executive director of Mississippi Concrete Industries Association. "Fuel prices have just skyrocketed. Add to that the price of insurance and health insurance to keep our employees. All of that affects the price of concrete."

Still, the unit price is favorable for concrete pavement across the Southeast and in construction, Crawley said.

"In Mississippi, unit prices of concrete have been about $29.79 per sq. yd., and we're looking at the low $30s in the rest of the southeast region," he added.

NRMCA's Pool agreed, saying that compared to asphalt, wood and steel, concrete prices have remained stable.

"In inflation-adjusted dollars, concrete is what it's been 20 or 30 years ago," he added. "The price of wood, by comparison, has gone up 100 percent since the 80s with the first spotted owl incident, and steel has gone up significantly. I believe we are still the best value in building materials by far."

New products such as pervious concrete continue to keep concrete in high demand. Porous, rice-cake-like pervious concrete is listed as an EPA best management practice and any ready-mix producer can make it, Varner said.

"Really you are taking limestone or gravel and gluing that together with cement paste," Varner said of pervious concrete, which the association has promoted for the past two years. The mixture's void spaces allow rainwater to run through, filtering contaminants in the process, he said.

"The strength is not as strong as regular concrete, so the applications are light traffic areas like parking lots, walking trails or bike trails," Varner added. "But it has really caught the attention of designers."

Apple Construction Co. of Gulfport, Miss., recently completed the Mississippi Regional Housing Authority No. VIII office building in Moss Point using pervious concrete and the material is currently being used on a school administrative building in Gulfport. There has been so much interest in the product throughout Mississippi that the MS CIA recently presented a seminar on its applications in Tupelo.

In the meantime, ready-mix producers and contractors can look forward to increased prices later this year and more cement shortages, Sullivan predicted.

"My guess is that when we look forward to 2005, there will be some (additional) prices to pay like for shutdowns," he said. "It's a guess, but a lot of these (domestic) plants are old and have been stretched to capacity. You almost hope everything works perfectly."

Prices will continue to vary by region.

"Interest rates will rise, taking some of the edge off the housing market," Sullivan added. "Consequently, a lot of those regions that have been robust in terms of cement demands, will cool off some."