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Slower growth outlook depresses expected ROI and tempers recovery. High material costs ... Cement Outlook: 2007. World of Concrete. Las Vegas, Nevada. Edward J. ...
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Slide 1:Cement Outlook: 2007
World of Concrete Las Vegas, Nevada Edward J. Sullivan Staff Vice President and PCA Chief Economist For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve 11
Slide 2: Economic Comfort Index *
1996=100 Combines Real GDP Against the Levels Interest Rates, Inflation and Unemployment Most Favorable Economic Conditions Since the 1960’s
Slide 3:Economic Outlook
Slide 4:Snap Shot of Economic Activity
Consumption acts as the anchor for US economic activity. Any retrenchment in consumer spending will lead to slower economy-wide growth rates
Slide 5:Consumer Worksheet
Pay Increase Averages 3.5%. Health Insurance Premiums Rise 7%-11%. State and Local Property Taxes Rise. Reassessments based on high home appreciation Energy Prices Take a Large Bite. Even in context of recent improvement. Inflation Running near 3% Interest Rates Rising in Context of Record Consumer Debt Tapping Home Equity Not as Viable As In the Past Slowdown in Job Creation Consumer Growth Rate Under Pressure
Slide 6:Economic Outlook
No “Bleeding” from Housing
Slide 7:Housing Threat
Real threat to economic growth not the decline in housing….. But….. The way we financed the past boom… And… Its impact on consumer spending….. Potentially more profound in history
Slide 8:Growing Home Price & Income Gap
Annual Growth Rate Comparison Home Prices Household Income
Slide 9:Emergence of Exotic Mortgages
Interest Only Loan Share of Sub-Prime Market Share by Principle Balance: Solid Green Share by Loan Count: Striped Yellow Note: Sub-Prime accounts for 36% total mortgage market
Slide 10:Sub-Prime Mortgage Resets
Total Loans Scheduled for Reset Period of Emerging Trouble
Slide 11:Economic Outlook : Real GDP Growth
----------2005---------- -------2006------- -------2007------ 2005: 3.5% Real GDP Annual Growth Rate -------2008------- 2006: 3.1% 2007: 2.6% 2008: 2.4% Risks On Downside: 2008
Slide 12:Construction & Cement Outlook
Overview
Slide 13:Total Construction Billion 1996 $
2007: -1.8% decline projected …BUT.. based off record levels ==
Slide 14:Cement Intensities
Slide 15:Composition Of Cement Growth: Construction Activity Vs Cement Intensity Growth
Cement Intensity Growth Cement Intensity Growth Cement Intensity Growth Construction Activity Growth Construction Activity Growth Annual Percent Change, Real Put-In-Place Construction & Cement Intensity
Slide 16:Concrete: Run-up in Competing Material Prices
Annual Percent Change, PPI, Bureau of Labor Statistics Concrete Asphalt Steel
Slide 17:Concrete: Improving Competitive Position
Change Relative Price Vs Concrete Asphalt Steel Rapid Improvement in Concrete’s Relative Pricing Position
Slide 18:Residential Construction Single Family
Slide 19:Strength in Starts More Than Low Rates…
The Cyclical Upside: 2001 - 2005 Low mortgage rates key factor in single family starts over past few years. Emergence of exotic mortgages also a key factor…particularly in strong home appreciation environment. Easy credit conditions contributed to strong home-buying environment. Speculators add froth to market in light of strong appreciation rates. The Cyclical Downside: 2006 - 2009 Mortgage rates rising. Exotic mortgages losing favor. Defaults and delinquencies cause a deterioration in credit quality and a tightening of credit conditions Speculators reduced/disappear in lower appreciation rate environment
Affordability Index Most Affordable Pacific Mountain West North Central East North Central South Atlantic East South Central West South Central New England Middle Atlantic Affordability Ratio 2nd Tier 3rd Tier 4th Tier Least AffordableSlide 21:Profile: Single Family Buyer
2000 Estimated 2006 Coastal and Resort Areas: Double the National Average For Speculators Note: Speculators Are 1st to Leave the Market
Slide 22:Inventory Draw Required
Homes on Market/Monthly Selling Rate Ten Year Average Inventory Build Required Inventory Draw Required Highest Level Since 1997 10 Years of Inventory Build Conditions Disappear
Slide 23:Estimating the Size of Overhang and Speed of Burn Off
What is the desired level of inventory? Historical: 5 months….Overhang = 135K Past cyclical low: 3.5 months….Overhang = 283K PCA 4 months assumption…Overhang = 233K When is excess burned off? 5 months desired supply = February 2007 4 months desired supply = July 2007 (PCA) 3.5 months desired supply = November 2007 Slow gradual gains achieved after burn off.
Slide 24: SF Inventory Adjustment Outlook
(000) Units Note: 70K Overhang burned off since mid-2006
Slide 25:Nonresidential Construction Overview
Slide 26:Nonresidential Outlook
Billion Dollars, Real 1996 $ Projected Underlying nonresidential drivers improving. Despite large percentage gains for 2006, most markets weak from historical perspective. Past cyclical peak not realized. Slower growth outlook depresses expected ROI and tempers recovery. High material costs reduce growth. Increasing cement intensities reinforce construction activity gains. Institutional nonresidential gaining momentum; less sensitive to slower growth environment
Slide 27:Public Construction
Slide 28:Public Construction Outlook
93% of public construction performed at state/local level. State/Local fiscal problems fading. Revenue growth improves with economy and job growth. Surpluses will re-emerge. Pent-up demand released. Highway Bill adds strength. 2006: +4.8% 2007: +5.5% Note: 2005: +1.9% Billion $ State Surplus/Deficit, NIPA
MA RI NH 0-9% 20-29% 30-39% Pacific Mountain West North Central East North Central South Atlantic East South Central District of Columbia West South Central New England Middle Atlantic 10-19% Deficit as percentage of budget $.85 $.11 $1.0 $.16 $0 $.36 $.4 $.98 $0 $1.5 $.05 $.38 $.3 $.12 $38 $3.7 $3.6 $.6 $.22 $.41 $1.0 $.09 $2.4 $0 $2.0 $.75 $.5 $.49 $1.3 $1.7 $.2 $.2 $2.4 $9.3 $2.0 $.74 $4.6 $.14 $.4 $.15 $3.0 $.17 $.85 $.2 NJ $1.9 CT MD DE VT $.25 $1.1 $2.0 $.03 $.08 Primary Source: Newsweek July 28, 2003 Secondary Sources: Nat’l Conf. of State Leg., Center on Budget and Policy Priorities, Nat’l Assn. of State Budget Officers, Calif. Budget Project Dollar figures, in billions, indicate amount states had to save to balance 2004 budget. KEY Public Construction Outlook: State Deficit Estimates Fiscal Year 2004 MA RI NH Public Construction Outlook: State Deficit Estimates Fiscal Year 2005 0-9% 20-29% 30-39% Pacific Mountain West North Central East North Central South Atlantic East South Central District of Columbia West South Central New England Middle Atlantic 10-19% Deficit as percentage of budget $0 $0 $0 $0 $.3 $1.1 $.17 $15 $0 $2 $.5 $.34 $.71 $.19 $.0 $.6 $.62 $.17 $.9 $0 $5.1 $5 $.14 $0 $1.5 $.19 $.74 NJ $.2 CT MD $.93 $.8 Secondary Source: National Association of Budget Officers Dollar figures, in billions, indicate amount states had to save to balance 2005 budget. KEY No available data DE $0 $0 $.9 $0 $.6 $.2 $.9 $0 $.21 $0 $0 $0 $.3 $0 $.5 $0 $0 VT $0 $.12 $0 Primary Source: Center on Budget Policy and Priorities Feb / 04Slide 31:Market Conditions
No Shortage Tight Supplies Cement Supply Survey Summer 2006 Spot Tight Supplies Import Volume & Freight Rates Import Volume, Million Metric Tons Freight $ Per Ton, Handymax, Asia-Gulf Imports 1st Half 2007: 42 MMT Rate Imports 2006: 33.6 MMT Net Increase (SAAR): 8.4 MMT Consumption Growth Rate: 1 MMT 7 MMT (SAAR) Overhang Import Volume & Freight Rates Import Volume, Million Metric Tons Freight $ Per Ton, Handymax, Asia-Gulf 2nd Half 2006: Import Rate Contracts Some Re-Tightening of MarketSlide 35:Conclusions
Slide 36:Cement Outlook: 2007
World of Concrete Las Vegas, Nevada Edward J. Sullivan Staff Vice President and PCA Chief Economist For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve 11
