PCA Chief Economist: U.S. Cement Consumption to Slow in Near-Term

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Researched by Industrial Info Resources (Sugar Land, Texas)--Don't expect U.S. cement consumption to maintain its strong growth moving into next year. That was the takeaway from Ed Sullivan, chief economist for the Portland Cement Association (Skokie, Illinois), in a recent virtual conference organized by Global Cement Magazine. Sullivan looked at differing factors, such as inflation, the Ukraine invasion and COVID-19 and how these are expected to affect U.S. cement consumption in the coming years.

"You can't do a forecast without talking about COVID," said Sullivan. "It has an impact not only on the demand side, but also supply-chain issues that give rise to inflation." However, as COVID-19 death rates decline, mask mandates are lifted and the world adjusts to its "new normal" phase, labor rates are increasing and some pent-up cement demand is expected to be unleashed in the second half of this year.

However, this effect is expected to be somewhat mitigated by rising inflation. The U.S. inflation rate is the highest in decades, prompting the U.S. Federal Reserve to increase interest rates. This will affect cement consumption, which grew 4.1% in 2021, primarily driven by residential construction. Higher interest rates are expected to slow the growth in the residential sector, prompting a corresponding slowdown in cement demand growth. Inflationary pressures are being exacerbated by the conflict in Ukraine, as Russia and Ukraine are key global producers of several important commodities, including oil, natural gas and wheat. The conflict is taking these goods off the market, helping lift prices.

Sullivan said high inflation and oil prices are expected to continue this year, mitigating the positive effects seen on cement demand from the easing of COVID-related problems. Sullivan forecasted this will slow cement consumption growth from 4.1% in 2021 to about 1.2% this year.

As prices remain high, inflation remains strong and interest rates go up, U.S. residential construction is expected to slow, correspondingly slowing cement demand. Next year is expected to bring the first decline in U.S. cement consumption in several years. In 2023, demand is expected to fall 0.8%.

Click on the image at right to see the PCA's forecast for U.S. cement consumption for 2021-26.

However, after 2023, demand should pick up again, thanks in large part to the Infrastructure Investment and Jobs Act, which was signed into law in November last year. The PCA estimates the act will drive 46 million metric tons of U.S. cement consumption over the next five years. Sullivan noted that much of the funding provided by the bill is awarded by a competitive selection process, delaying immediate funding. More infrastructure projects are expected to be awarded funding in 2023-24, weighting growth in cement demand toward the end of the five-year period.

While the growth in U.S. infrastructure construction will help mitigate the slowdown expected to occur in the U.S. residential construction sector, there is expected to be some lag time. As higher interest rates and inflation slow residential construction, the PCA said a slowdown in U.S. cement consumption can be expected toward the end of this year and into 2023. However, new infrastructure projects are expected to ease these effects, but not have a big effect until 2024.

Joe Govreau, Industrial Info's vice president of research for the Metals & Minerals Industry, said, "The PCA and Sullivan make some very valid points. Higher interest rates will almost certainly slow residential construction, which has been the chief driver of U.S. cement demand in recent years. While the infrastructure bill provides some hope for increased construction activity, we're not seeing a lot of this yet, and it's not expected to have full effect for some time to come."

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