Growing job markets, consumer confidence and construction spending will contribute to higher cement consumption in the U.S. this year, rising an annual 8% to 93 million metric tons (MMT), according to the Portland Cement Association. Low oil prices will provide an added financial stimulus to consumers and contractors, but immediate cutbacks in the oil field are expected to offset any long-term gains in construction activity, PCA notes.
PCA expects housing starts to rise this year to 1.2 million units as 3 million new jobs are created, driving consumer spending and demand for residential construction, which is expected to account for nearly 60% of all cement consumption in the U.S. this year.
“There is broad based, and in some cases, unbridled optimism that has been absent for a decade,” said Ed Sullivan, the trade group’s chief economist on Feb. 3 as this year’s World of Concrete show was getting underway. “What we are seeing now is the healing of deep wounds.”
The Skokie, Ill.-based PCA forecasts cement use to grow another 7.9% in 2016 to 100 MMT. The two-year forecast comes on the heels of last year’s growth of 8.2% to 86 MMT, driven largely by nonresidential construction and public works, which combined accounted for 87% of U.S. cement consumption.
Visitors to the World of Concrete reflected optimism in PCA’s cement forecast. “Everything points to the market being good for awhile,” said Glen Teel, CEO of Baltimore-based Peri Formwork Systems Inc. Unlike prior shows, the company was exhibiting outside for the first time in a larger, 2,400-sq-ft booth Peri used to showcase new lines of form panels, slab systems and protective screens.
Low oil prices, if they continue, will help give “a little dose of extra” to consumers’ bank accounts, translating into increased construction spending, Sullivan noted. He cited data from the Energy Information Administration forecasting oil prices to average $55 per barrel this year and $71 next year.
“Without question, lower oil prices are good for the U.S. economy,” Sullivan said. However, he warned that the stronger economic growth will take a year or more to sink in and may have little effect on new construction starts.
“The timing for that to unfold is a long process,” Sullivan explained. “The positive impacts on construction activity occur next year, by and large, and they will be relatively small.”
In contrast, oil-producing states will be “harder hit” by the low oil prices, Sullivan said.
“When you have oil prices drop in half, you disrupt drilling activity immediately,” Sullivan said. “That will materialize in 2015. It’s a net minor negative, but keep in mind, not all regions will be impacted in the same way.”
State and local public works, benefitting from healthier tax receipts, is expected to contribute to some increasing cement use, accounting for 15% of consumption this year. If the federal government produces a long-term highway and transit bill, “that adds even more strength,” Sullivan said.
Low oil prices may not translate into low asphalt prices for paving roads, however. Crude oil this year is expected to cost 40% less on average than last year, but the cost of concrete pavements will remain competitive with asphalt, Sullivan predicted.
“What we are starting to see is a constraint in supply,” he said, because refineries are producing small amounts of asphalt overall from each barrel of oil.
“Asphalt prices aren’t going to fall very much,” Sullivan said.