This week ICR looks at the regional briefings that the Portland Cement Association (PCA) has given for the economic and cement demand outlook in the USA, following COVID-19.
Western region
Brian Schmidt, PCA Regional Economist for the western USA, reported that both the Rocky Mountain (RM) and Pacific divisions have been hit hard by a fall in construction work. April cement consumption for Washington was down over 40 per cent, after Governor Jay Inslee announced in March that construction was not essential work and the state entered lockdown. Northern California also saw construction work fall by around 30 per cent in April.
Residential permits have declined in the western USA in the last few months. However, low interest rates have prevented a crisis. Under a W-shaped economic recovery, residential cement demand would continue to fall until the end of 2021. The RM states have higher residential cement consumption than the Pacific division.
Non-residential cement consumption is predicted to be down 3.5 per cent in the RM area in 2020, but up 4.2 per cent in the Pacific under the PCA's baseline scenario. A W-shaped recovery would see a 6.4 per cent decline in non-residential cement consumption for the RM and 3.5 per cent growth for the Pacific region in 2020.
Public cement consumption in western USA should see 0.6 per cent growth in the RM region in 2020 and 0.2 per cent growth in the Pacific division. Moving into 2021, a baseline scenario has the RM division recording a fall of 2.6 per cent in public cement consumption while the Pacific region would see 0.4 per cent growth. Montana is the only western state expected to see positive cement growth of 2-5 per cent through to 2021.
Northeastern region
Joe Chiappe, PCA Regional Economist for the Northeastern region, stated that the area consists of East North Central (ENC), Middle Atlantic (MA) and New England (NE) divisions.
Overall cement consumption lags behind the average US states, with MA and ENC the higher consuming divisions of the three. Demand declines across the board are expected for 2020 followed by gradual increases in cement consumption in 2021.
Residential housing permits fell heaviest in the MA, down almost 60 per cent YoY in April 2020, while the ENC and NE divisions had smaller declines of around 35 per cent. NE turned this around to a housing permit growth of over 10 per cent in May 2020, while ENC saw a decrease of around five per cent in May and the MA's housing permits were down by around 10 per cent YoY.
The PCA's residential cement consumption forecast sees a slight dip for the northeastern region in 2020 followed by slow and steady progress. An annual fall of seven per cent in residential cement consumption is forecast for the NE, a decline of 5.7 per cent is expected in MA and a drop of 3.7 per cent is predicted for ENC. Positive residential cement consumption should return in 2021.
Non-residential cement consumption was already falling in 2019. The MA and ENC are the main markets and are tightly correlated. Slight declines are expected in 2020 with a gradual rise thereafter. NE shows a similar pattern but is a much smaller market.
Public cement consumption will see declines, but the ENC is the strongest market in terms of volume followed by MA and NE. Positive growth is scheduled to return in 2021.
Southeast Central & South Atlantic
David Lan, PCA Senior Regional Economist for South East Central (SEC) and South Atlantic (SA), said if the baseline scenario recovery is achieved, cement consumption will rise quickly. Construction employment bounced back quicker in this region than elsewhere in the USA, but hospitality was badly hit by COVID-19.
The SA is likely to have a deeper decline than SEC for cement consumption in 2021, as it has higher exposure to housing, office and retail construction.
However, there is pent up demand for family homes. As such, Central Florida, Richmond Virginia and the Carolinas are all hot markets. Residential cement consumption will be down in 2020 but new growth will accelerate in 2021, if there is no second wave. Non-residential cement consumption growth in suburban retail and warehouse construction will not offset the fall in offices.
Public cement consumption will rise when people begin travelling again, but with a second wave of COVID-19 looming, demand will remain low with fewer projects being built.
Central US region
Dave Zwicke, Senior Director & Regional Economist for the Central US region, explained the region is divided into West South Central (WSC) and West North Central (WNC). Total cement consumption is above the US average in WSC and virtually on par with the US average in WNC. WSC consumed 21Mt in 2019 and WNC consumed 9Mt in 2019.
Housing permits have declined in both WNC and WSC. WNC saw three consecutive months of decline up to May 2020. The region does have favourable affordability for housing and job losses have not been as pronounced as on the west coast.
Residential cement consumption is expected to grow in WSC by 0.1 per cent and in WNC by 2.1 per cent in 2020. The WNC may slow to 0.8 per cent growth in 2021, while WSC may climb to 2.2 per cent growth next year on stronger demographics.
A 50 per cent decline in consumption of oil well cement in central US is predicted in 2020, which is about eight per cent of the cement consumption of the entire region. North Dakota will be most exposed from this decrease.
Non-residential cement consumption could see a 15 per cent fall in WSC in 2020 as a baseline scenario. WNC is predicted to post 4.2 per cent growth in the same period.
Public cement consumption is forecast to reach just over 11Mt in WSC in 2020, growing by 1.6 per cent. In WNC public cement consumption is predicted at just under 5Mt in 2020 at a growth rate of 4.2 per cent, before it falls by 1.3 per cent in 2021. South Dakota and Nebraska are expected to be the best cement consuming states through to 2021.