Posted on August 19, 2021
During the pandemic, overcapacity made the cement industry vulnerable to a sudden drop in demand. Covid's impact on the industry is the subject of an International Finance Corporation (IFC) report. Some regions proved more resilient than others.
In many ways, the cement industry is a bellwether for the global economy. Concrete's diverse supply chain affects many aspects of the economy. The IFC estimates say the industry generates 5.4 percent of global GDP. It also accounts for 7.7 percent of employment worldwide.
Cement Production Data
There are two relevant questions at this juncture. First, what impact has the pandemic had on global concrete production? Second, what will the post-Covid recovery look like? Field Investment Research compared cement production in 2019 and 2020. It estimated production would shrink three percent. Excluding China, the firm projected a 6.4 percent reduction.
A report published in early 2021 projects a rebounding global concrete products market as the effects of the pandemic ease. It projects a year-over-year increase of 9.7 percent from 2020 to 2021. Authors of the report project total revenue rising to $485 billion by 2025. This represents a compound annual growth rate (CAGR) of seven percent.
U.S. Cement Production
Total 2020 cement shipments were static at 103 million tons. These shipments were valued at $12.7 billion. Clinker volumes remained level at 79 million tons. The USGS reported 2020 Portland cement production was 87 million tons, slightly higher than the year before.
Before the pandemic, the top seven cement-producing states accounted for almost 60 percent of U.S. production. They are Texas, California, Missouri, Florida, Alabama, Michigan, and Pennsylvania. However, PCA’s regional analysis shows U.S. cement production was “wildly uneven” in 2020. For example, it was down 3.9 percent in the Middle Atlantic but up 10.2 percent in the Mountain states. Pennsylvania experienced a single-digit decline.
PCA’s annual forecast predicts modest growth in cement production in 2021 and 2022. This follows two-percent growth in the pandemic year of 2020. This growth was impressive given that real GDP declined more than at any time since 1946.
Factors Influencing Production Levels
Record low mortgage interest rates continue to drive residential construction. According to the USGS, U.S. construction grew by four percent for the first nine months of 2020 compared to the same period in 2019. In 2021, the overall demand for U.S. homes continues to outstrip supply.
The proposed American Jobs Plan includes roughly $950 billion for traditional infrastructure. As proposed, the legislation would update 20,000 miles of highways, roads and urban thoroughfares. It also seeks to repair 10,000 bridges with the greatest needs. Historically, such projects have had bi-partisan appeal. PCA estimates that the plan, as proposed, would increase cement demand by seven million metric tons per year.
Challenges
The USGS says, “Overall, the U.S. cement industry’s growth continued to be constrained by closed or idle plants, underutilized capacity at others, production disruptions from plant upgrades, and relatively inexpensive imports.”
The same challenges confront the global concrete industry as well.
Plant Utilization
More than 1,000 cement producers operate more than 2,300 integrated cement plants. They also run more than 600 grinding stations. The top ten players account for approximately 45 percent of capacity. Before the pandemic, plant utilization stood at about 70 percent. It shrank to about 60 percent in 2020.
Plant utilization has been low in the United States for some time. In 2015, one analyst projected U.S. cement production capacity would level off. Utilization would remain around 82 percent through 2019. That prediction proved optimistic. According to CW Research, North American capacity stood at 144 million metric tons in 2019. Production was 101 million metric tons. This meant the plant utilization rate was 70 percent, much like the global rate.
Impact of Imports
To a degree, U.S. producers are adversely affected by foreign imports. The United States is the largest cement importer in the world. In 2020, imports exceeded 17 million metric tons. As cement importers, China, Netherlands and Uzbekistan were a distant 2nd, 3rd and 4th, respectively. China’s cement imports stood at about one-fourth of U.S. levels.
U.S. cement imports totaled 15.0 million tons, up from 14.7 million tons the year before. Clinker imports increased about 15 percent, from 1.2 to 1.4 million tons. Canada accounted for about one-third of the cement and clinker imports. Turkey followed at 16 percent, with Greece at 15 percent. Finally, China accounted for 12 percent of the exports to the U.S.
A graph of clinker imports from 2007 to 2020 shows a dramatic upturn. The 1.4 million metric tons imported in 2020 was surpassed in only one of those years - 2016. The value of 2020 U.S. imports totaled $1.43 billion.
The Future Challenge: Rising Concrete Demand vs. Low-Carbon Initiatives
Concrete demand and carbon emissions are on a collision course. Concrete remains the foremost building material in the world. It will remain so for the foreseeable future. Governments increasingly enact policies designed to deliver carbon neutrality within decades.
Taxation is one way governments force the issue. At $126 per ton, Sweden has the highest carbon taxes in the world. In 2019, 3,500 economists signed on to a joint statement declaring carbon taxation as the most effective way to achieve reduced emissions. Higher carbon taxes are controversial. However, they do help drive carbon capture, utilization and storage (CCUS) innovation.
About PACA
The Pennsylvania Aggregates and Concrete Association (PACA) reports concrete news via SpecifyConcrete.org. Should you have any questions, please contact us.