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Another Year Ends With No Highway Bill, While the Industry Continues to Weather the Ups and Downs of a Market in Limbo. Here is Where We Stand as 2012 Begins.

By Mark S. Kuhar and Josephine Smith

Well, 2011 certainly went out with a bang. No one really predicted that Martin Marietta Materials and Vulcan Materials would lock horns in a battle that kicked off with a Martin Marietta hostile takeover bid for the behemoth from Birmingham. Basically, the lead-up to that heavyweight title fight was anything but exciting.

Last year’s continuing story line was the battle to convince a stingy Congress that investing in infrastructure is a critical component of economic recovery. That battle resulted in little more than another temporary funding mechanism. Beyond that, each month brought us nothing but up and downs, with pockets of economic recovery and many markets stalled from a lack of construction activity.

Aggregates Production

Nowhere were the ups and downs of the industry better illustrated than in aggregates production. According to Jason Willett, USGS crushed stone commodity specialist, an estimated 619 million metric tons (Mt) of total aggregates was produced and shipped for consumption in the United States in the third quarter of 2011, a very slight increase compared with that of the same period of 2010. The estimated production for consumption in the first 9 months of 2011 was 1.48 billion metric tons (Gt), a slight decrease compared with that of the same period of 2010.

“Compared with the sales in the third quarter of 2010, sales of construction aggregates increased slightly in the third quarter of 2011, but decreased slightly comparing the first 9 months of 2011 to the same period of 2010,” Willet said. “Although this represents little change between 2010 and 2011, most people would agree that the small increases and decreases in sales in 2011 are better than the 20 percent decrease of every quarter in 2009 (versus 2008 levels).”

An estimated 348 Mt of crushed stone was produced and shipped for consumption in the United States in the third quarter of 2011, a slight decrease compared with that of the same period of 2010. The estimated production for consumption in the first 9 months of 2011 was 857 Mt, a decrease of 3 percent compared with the first 9 months of 2010.

The estimated U.S. output of construction sand and gravel produced and shipped for consumption in the third quarter of 2011 was 271 Mt, an increase of 3 percent compared with that of the same period of 2010. The estimated production for consumption in the first 9 months of 2011 was 621 Mt, a slight decrease compared with that of the same period of 2010.

The estimated production-for-consumption of aggregates in the third quarter of 2011 increased in five of the nine geographic divisions compared with that sold or used in the third quarter of 2010. The largest increases in percentages were recorded in the Pacific (6 percent) and the West North Central (6 percent) divisions. Production-for-consumption of aggregates increased in 23 of the 45 states that were estimated. The five leading states, in descending order of production-for-consumption, were Texas, California, Pennsylvania, Ohio, and Missouri. Their combined total production-for-consumption was 180 Mt and represented 29 percent of the U.S. total.

The estimated production-for-consumption of crushed stone in the third quarter of 2011 increased in four geographic divisions compared with that sold or used in the third quarter of 2010. The largest increases were recorded in the Mountain (6 percent), Pacific (3 percent), and the Middle Atlantic (3 percent) divisions. Production-for-consumption of crushed stone decreased in 25 of the 46 states that were estimated. The five leading states, in descending order of production-for-consumption, were Texas, Pennsylvania, Missouri, Illinois, and Ohio. Their combined total production-for-consumption was 118 Mt and represented 34 percent of the U.S. total.

The estimated production-for-consumption of construction sand and gravel in the third quarter of 2011 increased from the third quarter 2010 levels in seven of the nine geographic divisions. The largest increases in percentages were recorded in the East South Central (11 percent) and the Pacific (8 percent) divisions. Production-for-consumption of construction sand and gravel increased in 25 of the 47 states that were estimated. The five leading states, in descending order of production-for-consumption, were California, Texas, Michigan, Minnesota, and Utah. Their combined total production-for-consumption was 92 Mt and represented 34 percent of the U.S. total.

Housing Starts

Housing starts are always a good indicator of how construction – and aggregates production – look going forward. Single-family housing starts rose 3.9 percent to a seasonally adjusted annual rate of 430,000 units in October, according to the latest data from the U.S. Commerce Department. This improvement was somewhat masked by an 8.3 percent decline in multifamily starts that kept the combined number for nationwide housing production virtually flat at 628,000 units in October. Meanwhile, single-family permits also posted a measurable gain of 5.1 percent to 434,000 units in the latest report, which is their fastest pace since December 2010.

Permit issuance, an indicator of future building activity, rose 10.9 percent to a seasonally adjusted annual rate of 653,000 units in October on gains in both the single- and multifamily sides. Single-family housing permits rose 5.1 percent to 434,000 units – their highest level since December 2010 – while multifamily permits rose 24.4 percent to 219,000 units – their highest level since October 2008.

On a regional basis, combined permitting activity was down 1.6 percent in the Northeast and 3.7 percent in the Midwest, but up 21.5 percent in the South and 5.4 percent in the West.

“The government’s numbers for October housing production are very much in keeping with what home builders have been telling us in our recent surveys,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. While we still have a long way to go toward a recovery, some signs of hope are emerging in certain markets where economic and job growth is occurring and where foreclosures have not been an overwhelming obstacle.”

“The three-month moving averages for both housing production and permitting activity have been gradually rising since this spring, which is consistent with our forecast for slow improvement in market conditions through the end of this year and a positive sign that a more solid recovery will begin to take hold in 2012,” said NAHB Chief Economist David Crowe. “That said, the improvements we are seeing are still limited to scattered local markets where economies are improving, and obstacles such as tight credit conditions for builders and buyers, appraisal issues stemming from new homes being compared to distressed properties, and consumer concerns about job security are definitely slowing the progression of both a housing and economic recovery.”

While combined housing starts in October declined by a barely perceptible 0.3 percent to a rate of 628,000 units, the single-family sector posted a 3.9 percent gain to 430,000 units. Meanwhile, the more volatile multifamily sector posted an 8.3 percent decline to 198,000 units following an unsustainably large gain in the previous month.

Combined starts activity was up in three out of four regions in October. Gains of 17.2 percent, 9.7 percent and 1.6 percent were registered in the Northeast, Midwest and South, respectively, while the West posted a 16.5 percent decline.

Construction Spending

The U.S. Census Bureau of the Department of Commerce reported that construction spending during October 2011 was estimated at a seasonally adjusted annual rate of $798.5 billion, 0.8 percent (±1.6 percent) above the revised September estimate of $792.1 billion. The October figure is 0.4 percent (±1.9 percent) below the October 2010 estimate of $802.0 billion.

During the first 10 months of this year, construction spending amounted to $655.5 billion, 2.9 percent (±1.1 percent) below the $675.4 billion for the same period in 2010.

In October, the estimated seasonally adjusted annual rate of public construction spending was $279.9 billion, 1.8 percent (±2.4 percent) below the revised September estimate of $285.0 billion. Educational construction was at a seasonally adjusted annual rate of $72.2 billion, 1.8 percent (±4.3 percent) below the revised September estimate of $73.6 billion.

Highway construction was at a seasonally adjusted annual rate of $80.1 billion, 0.4 percent (±5.6 percent) below the revised September estimate of $80.5 billion.

  • Spending on private construction was at a seasonally adjusted annual rate of $518.6 billion, 2.3 percent (±1.1 percent) above the revised September estimate of $507.1 billion.
  • Residential construction was at a seasonally adjusted annual rate of $239.0 billion in October, 3.4 percent (±1.3 percent) above the revised September estimate of $231.2 billion.
  • Nonresidential construction was at a seasonally                adjusted annual rate of $279.6 billion in October, 1.3 percent (±1.1 percent) above the revised September estimate of $275.9 billion.

Construction Outlook

At a seasonally adjusted annual rate of $417.6 billion, new construction starts in November dropped 11 percent from October’s elevated pace, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building retreated after being boosted in October by the start of a massive manufacturing plant, and nonbuilding construction showed electric utilities pulling back from the brisk pace of recent months.

Meanwhile, residential building in November registered moderate growth, helped by further strengthening for multifamily housing. During the first 11 months of 2011, total construction on an unadjusted basis was reported at $390.5 billion, down 2 percent from the same period a year ago.

The November statistics lowered the Dodge Index to 88 (2000=100), compared to the reading of 99 for October. For the January-November period of 2011, the Dodge Index averaged 90, essentially the same as its full year average of 91 in 2010 and 90 in 2009.

“The strong volume in October, with total construction starts climbing 12 percent, was not likely to be sustained given the fact that much of the lift came from the start of several unusually large projects,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “In November, activity returned close to its average pace so far in 2011, which is essentially the same as what was being reported during the previous two years. The picture for construction starts in a broad sense continues to be stability at a low level, with renewed expansion not yet taking hold. By individual project types, however, there has been a varied pattern during 2011. Year-to-date gains have been reported for multifamily housing, manufacturing plants, electric power plants, and even some commercial building types, but this has been offset by further weakening for single family housing, institutional building, and public works.”

Nonresidential building in November fell 20 percent to $142.4 billion (annual rate), following its 36 percent surge in the previous month. The largest decline was reported for the manufacturing plant category, which plunged 72 percent from October that included $3.0 billion for work on the Adam’s Fork coal-to-gasoline facility in West Virginia. If the Adam’s Fork project is excluded from the October statistics, then the manufacturing plant category in November would be up 140 percent, nonresidential building would be steady, and total construction would be down a more moderate 4 percent. The manufacturing plant category in November did feature several large projects, such as a $500 million pipe manufacturing plant in Texas, although not to the same extent as what took place in October.

For commercial building, office construction in November retreated 26 percent from October, which had been supported by the start of a $285 million office building in New York, N.Y. At the same time, the office category in November did include the start of such projects as a $150 million renovation of a corporate headquarters in Plainsboro, N.J., and a $79 million FBI office building in San Diego. Stores and warehouses weakened in November, with respective declines of 9 percent and 16 percent, while hotel construction was flat.

The institutional categories showed mixed behavior in November. Healthcare facilities jumped 41 percent, aided by the November start of a $613 million replacement hospital for the Veterans Administration in Aurora, Colo., and a $200 million hospital addition in Fullerton, Calif. The educational building category, down just 1 percent, was essentially steady in November, and was helped by the start of two university-related science buildings – a $254 million facility in Washington, D.C., and a $185 million facility in Portland, Ore. The smaller institutional categories in November reported decreased activity, with churches, down 27 percent; transportation terminals, down 31 percent; recreation-related projects, down 33 percent; and public buildings, down 38 percent.

For the first 11 months of 2011, nonresidential building came in 4 percent below a year ago. The institutional sector fell 12 percent, with weaker activity for educational buildings, down 12 percent; churches, down 15 percent; recreation-related projects, down 20 percent; public buildings, down 21 percent; and transportation terminals, down 26 percent. Healthcare facilities during the first 11 months of 2011 rose 4 percent, running counter to the downward trend for the other institutional project types. Commercial building during the first eleven months of 2011 increased 6 percent, helped by gains for hotels, up 43 percent; and warehouses, up 10 percent; while only slight declines were reported for stores, down 1 percent; and offices, down 2 percent. The manufacturing plant category in the first eleven months of 2011 jumped 51 percent, helped by the start of several very large projects over the course of the year.

Nonbuilding construction, at $137.0 billion (annual rate) in November, dropped 14 percent from the previous month. The electric utility category retreated 34 percent from its exceptional October amount, although the pace in November was still quite high by recent standards – 34 percent above the average monthly rate during 2010. The noteworthy electric utility projects in November were $1.0 billion for work on a nuclear facility in South Carolina, $1.0 billion for a solar farm in California, and $300 million for a wind farm in Iowa.

For the public works categories, steep declines in November were reported for water supply systems, down 25 percent; and sewers, down 43 percent, while river/harbor development managed to rise 24 percent from a lackluster October.

Highway construction in November slipped 4 percent, although bridge construction climbed 29 percent, reflecting the start of a $587 million bridge project in the state of Washington. The “miscellaneous” public works category, which includes such diverse project types as site work, mass transit, pipelines and outdoor sports stadiums, grew 11 percent in November with the help of a $250 million upgrade to a football stadium in the state of Washington.

During the January-November period of 2011, nonbuilding construction was down 2 percent from the same period a year ago. For transportation-related public works, highways slipped 3 percent year-to-date while bridge construction fell 15 percent. For the environmental public works categories, declines were reported for river/harbor development, down 2 percent; sewer construction, down 7 percent; and water supply construction, down 17 percent. The “miscellaneous” public works category plunged 47 percent year-to-date, due to a sharply reduced amount of new pipeline starts. On the plus side, electric utility construction has soared during 2011, climbing 72 percent year-to-date, and has already achieved a new annual high in current dollar terms.

Residential building in November advanced 4 percent to $138.2 billion (annual rate). Like recent months, multifamily housing provided the upward momentum, rising 25 percent. Large multifamily projects that reached groundbreaking in November included a $173 million apartment building in San Francisco and a $150 million apartment building in New York, as the push continues to come from apartment projects (as opposed to condominiums).

Single-family housing in November retreated 1 percent, settling back after the modest improvement of the previous month, as this category continues to struggle to achieve any upward traction.

During the first 11 months of 2011, residential building was reported to be steady with its dollar amount for the same period a year ago. Multifamily housing was up 17 percent, as the result of this year-to-date performance by geography – the West, up 33 percent; the South Atlantic, up 27 percent; the Northeast, up 19 percent; the South Central, up 10 percent; and the Midwest, down 1 percent.

The top five metropolitan areas in terms of the dollar amount of multifamily starts were – New York, up 26 percent; Washington, D.C., up 56 percent; Boston, up 35 percent; Dallas-Ft. Worth, up140 percent; and Chicago, up 20 percent. The large percentage increase for multifamily housing in the West was helped by gains in such metropolitan areas as Seattle, up 139 percent; Los Angeles, up 61 percent; and San Francisco, up 41 percent.

Single family housing in the January-November period of 2011 was down 3 percent, as the result of this performance by geography – the South Atlantic, up 1 percent; the South Central, down 2 percent; the West, down 3 percent; the Midwest, down 6 percent; and the Northeast, down 12 percent. The 2 percent decline for total construction starts at the national level during the first eleven months of 2011 was reflected in a mixed performance at the five-region level. Year-to-date declines for total construction were shown by three regions – the South Central, down 4 percent; the Northeast, down 11 percent; and the Midwest, down 12 percent. Year-to-date gains were shown by two regions – the South Atlantic, up 5 percent; and the West, up 10 percent, with particularly large increases for new electric utility starts helping the total construction amount for each region.

Construction Forecast

No matter how you slice it, the outlook for the 2012 transportation construction market is mixed, the American Road & Transportation Builders Association’s (ARTBA) senior economist said. “There is good news and bad news for 2012 depending on the mode of transportation,” said Alison Premo Black.

First the bad news: the highway and bridge construction market is expected to contract 6 percent, to $72.6 billion from an estimated $77 billion in 2011. The subway and light rail markets will be down even more.

“The main factors driving the decline in highway and bridge construction are not surprising: the winding down of infrastructure investment under the American Recovery & Reinvestment Act (ARRA), continued weak growth in the U.S. economy, persistent state and local budget challenges, and a static federal-aid highway program,” Black said.

Black cautions the long-delayed highway/transit reauthorization bill remains a “wild card.” If Congress in early 2012 passes a multi-year bill, that at minimum, maintains current investment levels, it could help interject greater certainty in the market. Both the Senate and House proposals also contain language to expand the Transportation Infrastructure Finance and Innovation Act (TIFIA), which if leveraged quickly, could offer another market boost, she said.

The good news in the ARTBA forecast: the railroad market, driven largely by private sector investment, is expected to increase by nearly 4 percent; and the value of construction for ports and waterways is expected to grow by 6 percent, driven by work on both coasts in preparation for the 2014 expansion of the Panama Canal.

Also good news, the transportation construction market sector will remain the most stable industry sector as it has been for the past five years. Between 2007 and 2011, the real value of highway and bridge construction, adjusted with the ARTBA Price Index for material prices, wages and inflation, fell only 10 percent. Over the same period, the real value of total construction work in the U.S. fell by one-third from $1.1 trillion to an estimated $769 billion. And the real value of residential construction tanked more than 50 percent from $500.5 billion in 2007 to $236.5 billion in 2011.

The historical stability of the transportation market is in large part due to the role of public sector financing, ARTBA said.

Despite the national downturn in market activity, some states are poised for growth, Black notes. There are 18 states where the value of state and local government highway and bridge contract awards for fiscal year 2011 is higher compared to fiscal year 2010. This is an indicator that the value of work in those states will likely increase in the coming year as those projects are underway. The value of contract awards is down in 19 states and Washington, D.C. Contract awards in the remaining eight states were relatively stable, either up or down within five percent.

ARTBA’s 2012 forecast for other transportation modes:

The value of bridge work is expected to drop by 10 percent from $26.3 billion to $23.6 billion, primarily because nearly all the projects that include ARRA investments are finished or underway and state/local DOTs are pulling back on new projects. This is likely due to a combination of the delayed federal reauthorization bill, and continued state and local budget challenges.

The value of work done on airport runways is expected to fall 4 percent from $4.9 billion in 2011 to $4.7 billion, primarily because of flat funding for the Airport Improvement Program and continued failure by Congress to pass a new aviation bill.

Subway and Light Rail
After a decade of growth, the real value of subway and light rail construction is expected to drop nearly 16 percent from $5.4 billion in 2011 to $4.6 billion. Contract awards for subway and light rail are down sharply in 2011, indicating transit agencies are pulling back on projects.

Another Construction Forecast
FMI, one of the largest providers of management consulting and investment banking to the engineering and construction industry, released its 2012 U.S. Markets Construction Overview, offering insight into some of the engineering and construction industry’s most complex business challenges.

This publication focuses primarily on the U.S. domestic construction market, which is also a lagging reflection of the country’s economic health. The broad picture is not dramatically different from last year, according to the report.

“We remain in difficult times,” said Hank M. Harris Jr., president and chief executive officer, in the report’s introduction. “Notwithstanding, FMI’s core purpose as an organization is to have a positive impact on the construction industry and its leading organizations. We can only accomplish that through collaboration with the many leading thinkers and successful organizations that populate the built environment. Our goal is that this publication provides a basis for further collaboration, investigation and planning by and with the industry’s best and brightest executives.”

Highlights of the report include:

  • The move to a greater use of public-private partnerships (P3) project funding will be slow, but will begin to gain traction in the United States.
  • Demographics continue to drive demand for healthcare, education and improving infrastructure.
  • Spending for government construction is expected to decline as budget battles continue to rage in Washington and spill over to every state in the nation.
  • Sustainable or green construction will drive demand for LEED-certified buildings.
  • Innovation is driving efficiencies in multi-trade prefabrication and modularization construction.
  • As the baby boomers age out of the work force, many firms will face succession and transition challenges.

Construction Equipment Report
There is good news on the construction-equipment-sales front. Construction equipment manufacturers anticipate overall business to close out 2011 with double-digit increases over last year in the U.S., Canada and worldwide. Growth is expected to continue but at a slower pace for 2012 through 2014, according to the annual business “outlook” survey of the Association of Equipment Manufacturers (AEM).

Respondents were asked to rank several factors affecting future business. The state of the general economy, including consumer confidence and credit availability, plus steel prices and the protracted slump in single-family housing starts, are significant negative factors influencing future sales, according to AEM “outlook” survey respondents. A key positive factor cited was the continued strength in export demand. The lack of substantial action on highway funding was cited as a negative factor, with respondents more hopeful for positive results in 2012.

In the just-released summary of the AEM construction equipment outlook survey:

  • For 2011, overall business in the U.S. is expected to grow 18.6 percent compared to last year; Canadian business is forecast to increase 14.7 percent; and industry business to the rest of the world is anticipated to gain 14.7 percent.
  • U.S. construction machinery business is then predicted to grow 10.8 percent in 2012, 9.9 percent in 2013, and 8.1 percent in 2014.
  • Canadian business overall is expected to be 9.0 percent higher in 2012, then increase 9.8 percent in 2013 and 7.3 percent in 2014.
  • Industry business to the rest of the world is anticipated to gain 10.5 percent in 2012, 9.5 percent in 2013, and 8.2 percent in 2014.

“In 2011, construction equipment manufacturing kept improving from the depths of the recession as the economy stabilized. Earlier this year it looked like the economy was truly turning around, but we still have some uncertainty, in both U.S. and international markets, and this is hampering stronger, more sustainable growth,” said AEM President Dennis Slater. “2012 is an election year, which does not bode well for meaningful action in Washington; both sides are already in full ‘campaign mode,’ it seems, and this presents a real danger of a stalling economy.”

“Congress needs to focus on manufacturing policies that create and maintain jobs, not unnecessary and excessive regulatory and tax policy burdens. That is why we are continuing and expanding our ‘I Make America’ grassroots effort; it promotes a better understanding and appreciation of the vital role of manufacturing to a thriving American economy – providing good jobs, tax revenues and investment in local communities, for example,” Slater stated.

“Action on federal highway funding will bring some stability to an important industry segment,” Slater said. “A well-maintained and adequate transportation system is critical not just for our sector but for business and our nation overall; it is essential for the safe and efficient movement of people and goods and to keep the U.S. competitive in the global marketplace.”

Slater added, “Export sales have been crucial to help many manufacturers get through the recession, and they still contribute greatly to a positive balance sheets for many companies. That’s why export-friendly policies such as free trade agreements are important to keep American companies in business.”

The Big Two
While Vulcan Materials and Martin Marietta find themselves pitted against each other in a very public takeover battle and dueling court cases as well, each company’s third-quarter report includes some interesting details.

Vulcan Materials reports:

  • The average unit sales price increased in most product lines.
  • Freight-adjusted aggregates prices increased 1 percent.
  • Asphalt mix prices increased 10 percent.
  • Ready-mixed concrete prices increased 6 percent.
  • Aggregates shipments declined 2 percent.
  • Unit costs for diesel fuel and liquid asphalt increased 40 percent and 20 percent, respectively, reducing pretax earnings by $21 million.
  • Selling, administrative and general (SAG) expenses were $10 million lower than the prior year.
  • Earnings from continuing operations were $22 million, or $0.17 per diluted share, compared to $11 million, or $0.08 per diluted share, in the prior year.
  • EBITDA was $194 million versus $150 million in the prior year.

Commenting on the company's outlook, Vulcan's Chairman and CEO Don James stated, "In the current economic environment, we expect future demand for our products to be supported by contract awards for public spending on highway projects, specifically road-related construction, and a modest improvement in private nonresidential building construction. For the 12-month period ending Sept. 30, 2011, contract awards for highways, which include federal, state and local road and bridge projects, were down 3 percent in Vulcan-served states. However, contract awards for the more aggregates-intensive road-related projects were up 6 percent versus the prior year while bridges were down 19 percent. We believe this sharp contrast between road and bridge contract award activity is due in part to the types of projects funded with stimulus dollars as well as the increase in spending from regular funding programs by departments of transportation, which in the absence of a new multi-year federal highway bill, are currently more focused on maintaining existing capacity.”

Martin Marietta Materials Inc. reported:

  • Earnings per diluted share of $1.07 and adjusted EPS of $1.11 (that excluded a $0.04 per diluted share to reflect a non-recurring early retirement benefit)compared with $1.13.
  • Consolidated net sales of $464.0 million, up 4.6 percent.
  • Heritage aggregates product line pricing up 2.8 percent.
  • Heritage aggregates product line volume down 2.2 percent.
  • Heritage aggregates product line direct production costs down slightly, despite a 16 percent increase in energy costs.
  • Specialty Products net sales of $50.4 million and earnings from operations of $15.6 million, resulting in a 240-basis-point improvement in operating margin (excluding freight and delivery revenues).
  • Consolidated selling, general and administrative expenses up $2.3 million, resulting from a $2.8 million nonrecurring early retirement benefit.
  • Consolidated earnings from operations of $79.0 million compared with $83.9 million.

“We are pleased to report pricing growth in each of our aggregates segments,” said President and CEO Ward Nye. “Last year, we predicted aggregates-product-line pricing recovery once a certain degree of volume stability was achieved. Driven by growth in aggregates shipments in 2010, our 2.8 percent increase in heritage aggregates product line average selling price represents our third consecutive quarter of pricing improvement. Further, pricing momentum has been achieved despite a modest decline in our heritage aggregates product line shipments. Even more compelling, most geographic markets with declines in quarterly shipments still reported an increase in average selling price, demonstrating the continued pricing power of the aggregates business.

Cement Forecast

Job creation is key to improving many economic indicators, and its reduction translates into a longer wait for the construction and cement recovery. Even with an economic recovery, construction levels will remain at new floor levels and lead to relatively flat cement consumption until 2014, according to the most recent economic forecast from the Portland Cement Association (PCA).

PCA revised its cement consumption forecast to increases of 1.1 percent in 2011, 0.5 percent in 2012 and 7.4 percent in 2013 – roughly half of the previous forecast. According to the report, large structural issues exist in each construction sector that will slow recovery.

“The Great Recession was construction focused. Residential, nonresidential and state discretionary construction levels collapsed,” Edward Sullivan, PCA chief economist said. “Despite economic growth, the residential sector, for example, will continue to be plagued by a large volume of foreclosures, tight lending standards and weak new home prices. I don’t see a rebound in most of that market until 2014.”

Recovery for the construction industry is tied to general economic growth and job creation. Job creation will reduce, and eventually eliminate, the adverse impacts of foreclosures, tight lending standards, commercial occupancy and leasing rates as well as the severity of state fiscal conditions. However, because the impediments to a construction recovery are so large, even if acceleration in economic growth and job creation occurs on a sustained basis, the benefits will not materialize quickly.

According to Sullivan, nonresidential construction will also remain low until 2013, and lack of assured federal funding will drag down the public sector until 2014.

Global demand for hydraulic cement is forecast to rise 5.3 percent per year to 4.3 billion metric tons in 2015, valued at $335 billion, according to the Freedonia Group, a Cleveland-based industry research firm. Gains will be fueled by rising investments in infrastructure in the developing countries of the world, driven by economic growth and increasing per capita income levels.

Additionally, a rebound in cement demand in industrialized markets such as the U.S. and Western Europe will further spur cement sales. However, gains in demand through 2015 will lag the robust advances seen from 2005 to 2010, due in large part to a deceleration in China’s cement consumption.

China accounted for 56 percent of world cement demand in 2010. The nation’s demand for cement is forecast to climb 4.9 percent per year through 2015 to 2.35 billion metric tons, in line with the regional average. The maturing of the Chinese cement market, combined with a slowdown in the pace of construction spending in the country, will serve to moderate the double-digit yearly demand growth exhibited from 2000 to 2010.

The U.S. will post the strongest demand gains – 9.4 percent annually through 2015 – of any major cement market. Increases will be stimulated by a robust recovery in residential construction spending, which will post growth of more than 13 percent annually through 2015. Nonresidential building construction activity in the U.S. will also rise after a period of decline, and nonbuilding construction growth will accelerate, further bolstering overall cement sales.

Improving Markets

The number of improving housing markets continued to expand for a third consecutive month in November, rising from 23 to 30 on the latest National Association of Home Builders/First American Improving Markets Index (IMI). The list dropped two metropolitan areas and added nine new ones.

The index identifies metropolitan areas that have shown improvement for at least six months in housing permits, employment and housing prices. The following were listed in November:

Alexandria, La.

Amarillo, Texas

Anchorage, Alaska

Bismarck, N.D.

Casper, Wyo.

Cheyenne, Wyo.

Corpus Christi, Texas

Davenport, Iowa

Fairbanks, Alaska

Fayetteville, N.C.

Fort Collins, Colo.

Hinesville, Ga.

Houma, La.

Jonesboro, Ariz.

Kankakee, Ill.

Lima, Ohio

McAllen, Texas

Midland, Texas

Monroe, La.

New Orleans, La.

Odessa, Texas

Pine Bluff, Ariz.

Pittsburgh, Pa.

Sherman, Texas

Sumter, S.C.

Tyler, Texas

Waco, Texas

Waterloo, Iowa

Williamsport, Pa.

Winston-Salem, N.C.

“Texas continues to dominate the list of improving housing markets in November, increasing its net number of entries to eight and continuing a trend in which energy-producing metros seem to be doing better than the average,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “Meanwhile, the geographic diversity of metros also continued to expand this month, with the states of Colorado, Georgia and Ohio all represented for the first time. This is further evidence that all housing markets are uniquely dependent upon local conditions, and some are leading the way toward an eventual, broader recovery.”

“The November IMI remains heavily weighted by smaller cities, with Pittsburgh and New Orleans as the only major metros represented,” said NAHB Chief Economist David Crowe. “This is indicative of the tough conditions that continue to prevail across much of the country, particularly in larger markets that have been hit hardest by job losses and foreclosures during the recession and that will take more time to heal. However, momentum is building in pockets of the country where energy and agriculture are the dominant industries and where consistent, measurable improvements in economic conditions are now becoming apparent.”

The two metropolitan areas that dropped off of the improving markets list in November were Iowa City, Iowa, and Wichita Falls, Kan. These areas experienced declines in their employment and permit data, respectively.