Synthetic Gypsum Increases Market Share as the Gypsum Wallboard Industry Fights Market Downturn

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The following is an advisory by Industrialinfo.com (Industrial Information Resources, Inc., Houston, Texas). Between May of 1999 and April of 2001, wallboard manufacturers spent $545 million to construct six new synthetic gypsum wallboard mills representing 3.4 billion square feet of annual wallboard capacity. Synthetic gypsum became economically viable to replace naturally mined gypsum as a result of flue gas desulfurization technology developed as part of the Clean Coal Technology initiatives.

Since the mid 90's, natural gypsum has been losing market share to synthetic gypsum in wallboard production. According to the latest USGS figures, synthetic gypsum production is up 9-10% compared to last year and has accounted for about 17.6% of the gypsum wallboard produced so far this year. Some forecasts see synthetic gypsum production increasing to 30% by 2005.

Three major natural gypsum wallboard expansions representing $295 million were also recently completed including USG Corporation's Rainier Gypsum Wallboard Plant, which became operational on October 1, 2001. The $120 million plant will produce approximately 700 million square feet of gypsum wallboard annually. Privately held BE&K Engineering Corporation (Birmingham, Al.) provided engineering expertise and Blaine Construction (Knoxville, Tn.) performed building construction.

The rise of synthetic gypsum production coincided with a wallboard production boom. During the mid to late 90's new home construction was up, which led to nationwide shortages of building materials and caused companies to increase capacity. Starting in early 2000, the market peaked and then construction dropped causing wallboard manufacturers to cutback production as low wallboard prices and oversupply became commonplace. It is estimated that U.S. gypsum wallboard plants are currently running at about 80% capacity utilization. GP Gypsum announced a 45% cutback in production midyear. USG Corporation (Chicago, Il.) (NYSE:USG) recently announced that third quarter earnings fell 58%, blaming gypsum wallboard over capacity as the culprit. Several plants in the planning stages have been put on hold due to poor market conditions, including a planned Midwest plant for National Gypsum.