Wednesday, July 14, 2004

Concrete shortage begins to harden


China's growth squeezes cement providers

By Anna Guido
Enquirer contributor

[photo]
Ray Clark leaves his office to inspect the plant at Franklin-based Moraine Materials.
Enquirer photo by MEGGAN BOOKER
Cement prices are on the rise, forced up by a booming economy in China and preparations there for the 2008 Olympics that are, in turn, diverting imports that used to go to America.

The U.S. demand, in fact, is so strong that concrete makers are reporting shortages in 23 states - but not in Ohio, Kentucky or Indiana.

Cement, a mixture of burned lime and clay, is blended with sand, gravel, water and chemicals to make the concrete used for the foundations of homes and in countless other ways for commercial buildings, bridges and highways.

So far, the supply squeeze has added $700 this year to the cost of the concrete needed to build a typical house with a basement, said George Kling, president of Franklin-based Moraine Materials, which has plants in Ohio and Kentucky.

The shortage is "a very hot topic in our industry," said Dan Ernst, vice president of sales for Dayton-based Ernst Concrete, with plants in Ohio, Kentucky, Indiana and Georgia.

The United States has long relied on imports of cement to supplement domestic production capacity.

In 2003, imports accounted for about 20 percent of U.S. cement use, according to the National Association of Home Builders.

But the ability to import cement depends on the availability of ships to carry it from Greece, Venezuela and other producing countries in Europe, Central America and Asia.

China's economic growth has increased the demand on international markets for steel scrap, basic metals, wheat, cotton and a host of other dry bulk products. The country's demand for these raw materials has resulted in a shortage of ships - called dry bulk carriers - that are needed to transport cement to the United States.

"China figures in because of its economic growth and the 2008 Olympics," said Ed Sullivan, chief economist with the Portland Cement Association in Skokie, Ill. "They're building up cities and this is leading to tremendous new demands on world commodities and global transportation services."

More than 40 percent of all cement now is being used in China.

Prices increase

Strong U.S. residential construction activity also is a factor in the shortages, which are most pronounced in the Southeast, Southwest and New England. Those areas rely on imports for 30 to 40 percent of their cement supply. Other areas, such as the Great Lakes, import only about 16 percent of their cement total and are less likely to experience shortages.

Ernst said he learned from domestic and foreign suppliers in April and May that cement shortages and resulting price increases were forthcoming.

To compensate for the first increase in April, his company raised its concrete prices and plans to raise them again in August when cement costs rise again.

"Not in this area in recent memory have we had to deal with a cement shortage or two price increases in one year," Ernst said. "This is pinching our bottom line."

Ernst said the company's size and number of suppliers should stave off significant concrete shortfalls to customers.

"If there's cement in the market, we think we have an edge," he said. "If one supplier runs out, we have four or five others that we can lean on."

Moraine Materials took the same approach.

"We went to a couple of new suppliers that we traditionally had given just a thimbleful of work to - that was our strategy," Kling said. "So far, it's OK. But keep in mind that it's just July."

The increase in cement costs also forced Moraine to raise prices.

"Our April increase was about 5 percent and we just announced another 2.5 percent increase effective in August," Kling said.

The average home with a basement - about 2,500 square feet - uses about 100 cubic yards of concrete, he said

Spreading shortage?

"The cement shortages currently remain a regional problem, not a national phenomenon," Sullivan said.

"But a shortage in one region will tend to draw supplies from another state, leading to the potential for the cement shortage to spread."

Meanwhile, the Chinese government is trying to curb growth to avoid an overheated economy.

"Maybe there's some hope down the road that the ship availability is going to ease a little, offering the opportunity to bring in more cement to the U.S.," Sullivan said.

Rising interest rates in the United States also are expected to help ease demand.

The National Association of Home Builders, meanwhile, is asking the U.S. Commerce Department to rescind - at least temporarily - tariffs on Mexican cement to help alleviate shortages.

"Mexico is the most logical source for additional imports," association economist Michael Carliner said. "However, anti-dumping duties of $57 per ton from that country makes this option economically infeasible."

A cement shipment from Asia takes an average of 44 days to get to a U.S. port.

In contrast, a shipment from Mexico takes four days.

In most instances, tariffs are intended to make imported goods more expensive and thus less competitive with domestic products.

E-mail annag376@aol.com




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