|Chief Economist Ed Sullivan in Las Vegas: “The fundamentals of our economy are sound.”|
At a World of Concrete 2016 briefing, Portland Cement Association Chief Economist Ed Sullivan offered critical energy and housing market footnotes to his latest U.S. cement consumption forecast. Released in November, it projects year-over-year gains of 5 percent, at best, in 2016, and 5.7 percent for 2017. At those levels, U.S. portland and masonry cement shipments will climb from 92 million metric tons (mt) in 2015 to 96.4 million mt and 102 million mt this year and next.
Two energy market variables will inform an updated forecast Sullivan is preparing for this month’s PCA Spring Congress in Chicago: U.S. Energy Information Administration-projected oil prices and lower oil well shipments attributable reduced rig census. When the EIA adjusted its 2015–2017 oil price projections from the $90-$100/barrel range (Fall 2014) to a $50-$65/barrel range (Fall 2015), Sullivan measured a 2.2 percent decline in 2015 cement shipment growth. Preliminary oil price figures, subject to EIA revisions in the near term, see a $38-$48/barrel range for 2016-2017—low enough to reduce this year’s cement shipment growth by .5 to 1 percent.
Oil well cement consumption is the second variable. Typically, every ton of decline in such material consumption triggers a 3-ton drop in portland cement demand, Sullivan observed, owing to building development and support services that accompany energy projects. Oil well cement figures, compiled from PCA member company reports and federal government sources, are forthcoming. In the interim, Sullivan cited in Las Vegas a representative barometer of oil well cement demand: A West Texas Intermediate crude index indicating the number of active oil rigs dropped from 2,000-plus in 2014 to under 1,000 last year.
He also reflected on another key 2015 cement demand variable: Restrained housing market growth attributable to worker shortages resulted in an estimated reduction of 75,000 to 125,000 single-family unit starts. The shortages owe to a drastic thinning of builders’ skilled-labor pool—2.9 million fewer workers or 30 percent of the total workforce—in the post-housing bubble years. At the lower single-family start levels, 2015 residential market cement deliveries were off 1.6 million to 2.6 million mt, clipping total shipment growth 1.8 to 3 points.
Construction market and cement consumption uncertainties tied to energy and home building labor variables are somewhat countered by the (Fixing America’s Surface Transportation) FAST Act. Sullivan sees FAST supporting project activity boosting annual cement consumption 370,000 to 1.4 million metric tons over the law’s five-year (FY2016–2020) horizon.