Growing job markets, consumer confidence and construction spending will contribute to higher cement consumption in the US this year, rising an annual 8% to 93million tonnes, according to the Portland Cement Association.
Low oil prices will provide an added financial stimulus to consumers and contractors, but immediate cutbacks in the oil field are expected to offset any long-term gains in construction activity, the association says.
The asociation expects housing starts to rise this year to 1.2 million units as 3 million new jobs are created, driving consumer spending and demand for residential construction, which is expected to account for nearly 60% of all cement consumption in the US this year.
“There is broad based, and in some cases, unbridled optimism that has been absent for a decade,” said Ed Sullivan, the trade group’s chief economist Tuesday as the World of Concrete show was getting underway. “What we are seeing now is the healing of deep wounds.”
The Portland Cement Association forecasts cement use to grow another 7.9% in 2016 to 100million tonnes. The two-year forecast comes on the heels of last year’s growth of 8.2% to 86million tonnes, driven largely by nonresidential construction and public works, which combined accounted for 87% of US cement consumption.
Low oil prices, if they continue, will help give “a little dose of extra” to consumers’ bank accounts, translating into increased construction spending, Sullivan says. “Without question, lower oil prices are good for the U.S. economy,” However, he warned that the stronger economic growth will take a year or more to sink in and may have little effect on new construction starts.
“The timing for that to unfold is a long process,” Sullivan says. “The positive impacts on construction activity occur next year, by and large, and they will be relatively small.”
In contrast, oil-producing states will be “harder hit” by the low oil prices, he said.
“When you have oil prices drop in half, you disrupt drilling activity immediately,” Sullivan said. “That will materialize in 2015. It’s a net minor negative, but keep in mind, not all regions will be impacted in the same way.”
State and local public works, benefitting from healthier tax receipts, is expected to contribute to some increasing cement use, accounting for 15% of consumption this year. If the federal government produces a long-term highway and transit bill, “that adds even more strength,” he said.
Low oil prices may not translate into low asphalt prices for paving roads, however. Crude oil this year is expected to cost 40% less on average than last year, but the cost of concrete pavements will remain competitive with asphalt, Sullivan predicted.
“What we are starting to see is a constraint in supply,” he said, because refineries are producing small amounts of asphalt overall from each barrel of oil.
“Asphalt prices aren’t going to fall very much,” Sullivan said.