Chinese cement production dwarfs that of other countries, including the U.S.
As we experience one of the concrete industry's roughest downturns in memory, we continue to brace ourselves for what the Portland Cement Association says will be a reduction in cement consumption from the 128-million-ton high in 2006 to the projected 96-million-ton low in 2009.
Cement consumption has a direct correlation to ready-mix concrete production, so our industry is understandably projecting similar contractions in concrete volumes.
We also hear how shaky the rest of the global economies are. This doesn't bode well for our own already fragile economy, as the silver lining on this current downturn is the weak dollar and the corresponding boost it has given to our own domestic manufacturing for export. This boost in exports remains the only positive news for our economy.
But if we look at economic growth in what Wall Street calls the “BRIC” countries (Brazil, Russia, India, and China), there is no sign of an economic slowdown if cement consumption is any indicator. In each of those fast-growing economies, 2007 cement consumption, a wide measure of construction activity globally, was up substantially over 2006, at double-digit rates in some cases.
Russia has grown its economy to the point where its domestic production of cement has reached about 2/3 of the U.S., and Brazil is approaching half. Both of these economies were basket cases just a few short years ago. And India has far surpassed our cement production, with an estimated 160 million tons in 2007, more than 60% greater than the U.S.China's 1.3 billion tons of cement
But the cement market in China is truly eye-popping. In 2007, China produced more than 10 times any of its peers, and total production in China is about equal to the rest of the world's cement production combined. And even more striking, China in 2007 exported only 33 million tons out of 1.3 billion tons produced.
Considering that 128 million tons of cement consumption drove the U.S. construction economy at its market peak in 2006, China stands in striking contrast at 1.3 billion tons. What this says about its overall economy, the influence on future cement markets, and ready- mixed concrete is considerable.
Yes, the 2008 Summer Olympics and the Three Gorges Dam project probably contributed to the recent double-digit growth. But there is no doubt this nation of more than 1 billion people will continue to consume vast amounts of raw materials, including cement. Despite the slowdown in the U.S. and Western Europe, both global cement production and clinker capacity were up in 2007 over 2006, and all indicators are that an increase will occur in 2008, driven by China's voracious appetite.
What does this mean for the U.S. ready-mixed market? Like oil, cement is a global commodity which can be transported long distances in a stable ocean freight rate environment. If the domestic construction economy recovers strongly in 2010 and 2011 as PCA predicts, and if China's economy continues to grow, it could bode for another round of cement shortages in five to seven years.
However, if the Chinese economic engine is slowed by high oil prices and their impact on global economies, coupled with a slower-than-expected recovery in the West, cement could be in abundant supply and could negatively affect pricing in the years ahead.
Pierre Villere is president and managing partner of Allen-Villere Partners. E-mail firstname.lastname@example.org or telephone 985-727-4310. Visit www.allenvillere.com.