Concrete Market Forces at Work

Concrete Supply Improves, but Costs Continue Escalating

By Debra Wood

Ready-mix and concrete masonry unit purveyors in the Southeast expect they can produce adequate supplies of concrete to meet construction demands, but with rising material, transportation and labor costs, contractors and owners will likely face additional price increases.

"Availability is good now across the entire state of Florida," said Will Glusac, president of the Florida Materials Division of Rinker Materials in West Palm Beach. "Raw materials are not in tight supply."

He estimated that ready-mix concrete prices will increase about 3 percent to 8 percent this year. "All costs are going up, which is pushing prices along," Glusac added. "It doesn't appear to be near the rates of increase of a year ago."

Willy Izquierdo, business manager for Supermix in Miami, on the other hand, anticipates that prices will hold steady as demand stabilizes.

"The end consumer is the one who will dictate pricing," Izquierdo added. He said developers have begun holding back projects due to material cost increases, and jumps in interest rates also could hamper starts and slow demand for concrete products.

In Georgia, prices seem to be rising but concrete availability is better than it has been, especially for contractors able to plan ahead, said Gordon Kenna, executive director of the Georgia Concrete & Products Association in Tucker, Ga.

"There is some spot tightness in the market," Kenna said.

Skyrocketing fuel costs also are adding cost to shipping of raw materials such as cement and aggregates. Hardy Johnson, president of Titan America Florida Business of Deerfield Beach, said diesel fuel has tripled in price during the past five years, and coal, used to operate cement plants, has doubled during the last 18 months.

Insurance premiums and electricity have gone up significantly due to back-to-back destructive hurricane seasons. And with unemployment rates low, labor has become more expensive.

"All of these increasing costs have meant we've had to move the price of concrete," Johnson said.

Titan America subsidiary Tarmac America recently purchased three ready-mix producers on Florida's West Coast, and Johnson predicted that more consolidation will occur due to concerns about availability.

"Independents without sources of aggregate and cement are at a handicap in times of shortages," he added.

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Aggregates

More than half the aggregate used to produce concrete in Florida comes from the Miami area. The aggregate mining takes place near the Everglades and environmentalists have complained about the practice, which could threaten future production. Mining also occurs near Fort Myers and Brooksville.

Much of the limestone in the rest of the state is too soft to produce good cement. Some aggregate arrives from Mexico and the Bahamas.

Johnson said that state reserves are a diminishing resource, but they should last another 40 or 50 years.

John Milton, executive vice president, treasurer and chief financial officer for Florida Rock Industries of Jacksonville, was more cautious about aggregate supplies.

"The stone of Florida has been in short supply, and we expect it to remain a tight commodity," Milton said.

Izquierdo agreed, citing concerns about potential federal restrictions on dredging and mining in the quarries.

Ray Keck, specialty products marketing manager for Lafarge USEE-Concrete of Alpharetta, Ga., reported that aggregates were in good shape in Georgia, but the cement situation varies from week to week.

Cement

Georgia concrete firms use about 4.5 million tons of cement annually. About 1 million tons comes from the state's only cement plant, with the rest imported. LaFarge Georgia mixes in granulated slag and flyash. It also has shifted cement to different plants, rather than dedicating each plant to a single cement source to keep concrete moving.

"When the economy is strong, there's not a lot of cement around," Keck said.

Florida consumes more than 13 million short tons of cement annually, and companies import about half the cement used to produce concrete. Johnson called that problematic.

"If world demand goes up, cement originally scheduled to come to Florida may go to other parts of the world," he said.

For example, in 2004 global markets and shipping limitations resulted in domestic cement shortages because ships were diverted to China to haul other commodities. Freight rates increased 240 percent to $50 a ton, said Ed Sullivan, chief economist for the Portland Cement Association of Skokie, Ill. Prices now run about $30 per ton.

The United States and Mexico signed an agreement in 2005 to reduce tariffs from $26 per ton to $3 per ton on imports of Mexican cement and allow an additional 1 million tons to be imported. The tariff and restriction will be eliminated in 2009.

Neither Johnson nor Milton said the tariff change would have much affect on the Florida market. Titan America brings cement from Greece. Rinker has begun importing cement from China.

PCA predicts record-breaking U.S. cement consumption of more than 130 million metric tons in 2006, up 3.7 percent from 2005.

"As you work south and west, it's stronger activity," Sullivan said. "From Virginia to Florida, typically you're going to have stronger growth than the national average."

Expansions

Nationally and in the Southeast, companies are expanding cement plants to accommodate the growth.

Sullivan anticipates the industry will expand production by 20 percent by 2010, but depending on the region, that still will not be enough to eliminate imports. And market conditions will likely remain about the same until the new plants begin operations.

"There's some significant investment going on in Florida," Sullivan said. "That will reduce some dependence on imports, but it's subject, again, to global conditions."

Florida Rock Industries plans to double the size of its Newberry, Fla., cement plant, which produced 819,000 tons of cement last year. It has obtained a permit from the Florida Department of Environmental Protection and approvals from the city of Newberry.

In a quarterly filing to the Securities and Exchange Commission in May, the company stated it was accepting bids and would evaluate costs to determine the economic feasibility of proceeding with the expansion.

Rinker has begun preliminary work on a $220 million cement plant in Brooksville, Fla., scheduled to come online in 2008.

Titan America modernized and expanded capacity from 900,000 ton to 2.4 million tons at its Medley, Fla., cement plant two years ago. The company uses about half of its production internally and sells the rest to other ready-mix companies and producers of concrete block, precast products and roofing tile.

"That [plant] has helped the market in South Florida," Izquierdo said.

Concrete Block

Florida consumes about 600 million concrete masonry units annually, making it the highest user of blocks in the nation, Johnson said. Concrete block supply remains tight due to strengthened building codes for residential construction.

Titan America has three plants under construction, one near Fort Pierce and two in the Orlando metropolitan area. The new plants will add the capacity to produce 36 million units annually.

"I am bullish on Florida," Johnson added. "Construction drives everything we do in Florida."

Useful sources:

Portland Cement Association
http://www.cement.org