PCA Spring Cement Outlook - Ed Sullivan, SVP & Chief Economist Board Week, April 2021
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PCA Spring Cement Outlook
Board Week, April 2021
Ed Sullivan, SVP & Chief EconomistPresentation Focus 1. Putting the Forecast Into Context: 2020 Performance 2. IHME Covid-19 Projections, Impacts & Risks 3. Evidence of a Strong Recovery…So Far 4. 2021-2023 Macroeconomic, Inflation & Interest Rate Scenario 5. Growth Composition In the Context of Rising Interest Rates 6. The Biden Agenda Face Value: Infrastructure “America’s Jobs Plan” 7. Political Considerations & Alternative Scenarios 8. The Weighted Average Baseline Outlook 9. Questions & Answers
Putting the Forecast Into Context
2020 Performance DataEconomic Performance
RGDP Growth Net Job Creation
%, Y-O-Y Thousand Jobs
Largest decline in GDP Growth
5% since 1946 when economy was 6,000
transitioning from a war time
4%
economy. 4,000
3%
The 2nd Quarter saw Real GDP 2,000
2% decline 31%.
0
1%
0% Since Q2, the economy has been -2,000
Nearly 9.5 million jobs lost. That
mired with state shutdowns,
-1% -4,000 equates to nearly 1.0 million
reopenings, and shutdowns.
more jobs lost during the great
Covid has retreated and
-2% -6,000 recession.
increased.
-3% More than 20.6 million jobs were
And…since Q3 economic growth -8,000
lost in one MONTH.
-4% has exceeded 5%
-10,000
Last three months average
-5% 2020 GDP Growth: -3.5
2010 2012 2014 2016 2018 2020
monthly job creation: 539K
-12,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Cement Consumption
Cement Consumption Cement Consumption
%, Y-O-Y Y-O-Y, %
5%
WA
West North Central 7.0%
MT ND VT
NH ME
4%
OR
MN West South Central -2.5%
ID NY MA
SD WI 4%
New England 3.4%
WY MI CT RI
IA PA
NE NJ
NV OH 3%
UT
CO
IL
IN
WV
DE
MD
East North Central 1.9%
CA KS VA
MO
NC
3% Middle Atlantic -2.9%
TN
AZ OK
NM AR
South Atlantic 0.9%
SC
GA
2%
AL
MS
LA
TX
2% East South Central 8.0%
FL
1% Pacific 0.1%
1% Mountain 11.4%
11% or 2% to +2% to - -2% to - 11% or
Greater 10% 2% 10% Greater
United States 2.0%
Growth 0%
Decline 2015 2016 2017 2018 2019 2020Off to a Bad Start
February 2021 year-to-date
West North Central -10.4%
West South Central -12.5%
WA
NH
-13.6%
ME
MT ND VT
New England
OR
MN
East North Central -27.7%
ID SD NY MA
WI
WY MI CT RI
IA
-21.7%
PA
NV
NE
IN
OH
NJ
Middle Atlantic
UT DE
IL
CO WV MD
CA KS
MO
K
VA
South Atlantic -2.0%
Y
NC
TN
AZ
NM
OK
AR SC
East South Central -1.7%
KY
GA
-10.2%
AL
LA
MS
Pacific
TX
FL Mountain -2.6%
United States -9.9%
11% or 2% to 11% or Despite PCA weather metric data to the
+2% to - -2% to -
Greater Greater
10% 2% 10% contrary, cross-checks suggest declines
Growth Decline are weather related - and not reflective of
a structural decline.
Source: USGS/PCACovid Data & IHME Projections
Confirmed & Projected COVID-19 Deaths
Risks
U.S. Coronavirus Deaths; 7-day moving average; IHME Projections • Some are reporting the potential
of a third bump in Covid due to
4000
the spread of Variants.
3500 • 3 Million Vaccinations Daily
• IHME Projections are Bi-Modal –
• 18.5% Fully Vaccinated
they do not project a third “bump”
3000 • 40% At Least One Dose
• 25% Refuse Vaccination
• 75% Herd Immunity Reached by
IHME Baseline
2500
July 6th (PCA) Forecast
2000
1500
1000
Projections July 1st
500 • April 6th: 818
• Base Case: 165
0 • Worst Case: 883
• Best Case: 78Vaccine Impact on the Economy
Once the Vaccine is Mass Distributed….and herd immunity levels reached…..
This is largely based on
It will:
consumers returning to
pre-Covid patterns.
• Result in a dramatic surge in consumer confidence.
Given the severity and
• Encourage a return to many, but not all, Pre-Covid activities
duration of the
• Dining, movies, shopping, face-to-face interactions.
disruption…full restoration
of consumer patterns may
• Business will reopen, new businesses will emerge to fill voids created by the virus.
occur over several
• Perhaps encouraged by SBA support
quarters.
• Investment uncertainty will decline.
The process begins with
consumers sense of safety
• Economy will expand rapidly.
and the achievement of
herd immunity.
• Jobs growth will be strong.Evidence of a Strong
RecoveryConsumer Comfort •
•
Pace of Vaccinations Accelerates
Covid-19 Daily Death Rates Drop
Morning Consult, % All Adults
60
50
40
30
20
10
0
May July Sept November January March
Public Socializing Dining Out Shopping Travel Sport/Concert EventNote:
Consumer Sentiment
Vaccinations & Reductions in death rates
have recently resulted in the highest level of
optimism since the start of the pandemic.
Composite, University of Michigan With continued gains in vaccinations a
return to pre-Covid levels is expected during
Q2 2021.
120
100
80
60
Covid-19 Rises Vaccinations
Increase,
40
Deaths Decline
20
0Light Vehicle Sales
SAAR
20000
18000
16000
14000
12000
10000 Note:
With the return in consumer optimism, LV sales
8000 has returned/exceeded pre-Covid levels.
6000
This has been replicated across many sectors.
4000
2000
0Economic Performance
Net Monthly Job Gains Net Job Creation
Net Thousands Thousand Jobs
6,000
1,000 4,000
800 2,000
0
600
-2,000
400
Employment is 8.4 million jobs
-4,000 Net New Jobs:
lower than pre-Covid levels.
200
-6,000 2021: 4.5 million
Millions have left the 2022: 3.5 million
workforce.
0 This blurs the
unemployment rate. Without -8,000
Even with continued robust job
the reduction in workforce,
-200 creation, Pre-Covid employment
unemployment would be 9%. -10,000
levels not reached until 2023.
-400 -12,000
Oct Nov Dec Jan Feb Macrh 2019 2020 2021 2022 2023 2024 2025Back to Normal: July
Back to Normal Index With continued progress in
Moody’s-CNN Survey 100=March 1st 2020 vaccinations, re-openings,
growing consumer confidence,
and sustained strength in job
gains….return to pre-Covid
120 “normal” is expected early in Q3.
100 August 15th:
Real GDP
-21% Current
-8%
80 2021: 6.2%
2022: 4.5%
60 Unemployment Rate January
-18%
40 -40% 2021: 5.2%
2022: 4.8%
37 monthly Note:
& highUnemployment
frequency variables
rate included in the index from
20
home prices, rail traffic,
estimates business
include confidence, seated diners, etc.
a significant
expansion of the labor force –
0 muting the decline in
unemployment rates.2021-2023 Inflation & Interest Rates
Growing Inflation Concerns
2020 2021 2022-23
• Global Pandemic Unfolds • Global Increase Access to Vaccine • Much of Pandemic Has Passed.
• Oil Prices Drop Materializes in 2nd Half 2021. • Pent-Up Demand Is Released.
• Massive Unemployment • Consumer Demand Increase • Unemployment Declines Below 5%.
Materializes • Capacity Utilization Rises But Slack • Phase in of Minimum Wage Limits
• Consumer Demand Contracts Remains. Impact on Inflation.
• Capacity Utilization Eases • High Inventories, Increased Iran Supply, • Capacity Slack is Reduced.
• Inflationary Expectations are Potential OPEC Production Significantly • Inflationary Expectations Rise More
Reduced Neutralize Demand Pull on Oil Prices Aggressively.
• Federal Reserve • Unemployment Reduced to 6% by Year End • Federal Reserve Becomes Mildly
Accommodative. – Still High and Holds In-Check Wage Restrictive.
• US Covid-19 Vulnerability Increases • US Dollar Strengthens.
Prompts Weakening of Dollar • Minimum Wage Slowly Phased In.
• Inflationary Expectations Rise Modestly. • Inflation Increases an Estimated 50 to
• Inflation Declines an Estimated • Federal Reserve Remains Accommodative. 70 Basis Points
50 Basis Points • Reduced US Covid-19 Vulnerability Prompts
a modest Strengthening of Dollar. • Inflation Rate: Above Fed Target Rate
• Inflation Rate: 1.3%
• Inflation Increases an Estimated 80 to 90
Basis Points – From Low Level.
• Inflation Rate: 2.0%Inflation Rate Scenario, %
Stage I
Stage I • Covid supply disruptions, increased
8% demand create product specific shortages.
Stage II
6% Stage III • Transitory not Structural
Stage IV
4% Stage II
• Covid supply disruptions fade.
2% • Slackness that characterizes productive
side of economy slowly recedes.
0% • Inflation eases.
-2% Stage III
• Economy regains footing. Slackness
-4% disappears. Unemployment drifts below
5%.
-6% • Inflation increases beyond Fed target Rate.
-8% Stage IV
• Fed reacts. Timidly at first. Inflation
-10% continues. Fed reacts more decisively.
2020 2021 2022 2023 2024 2025 • Fed Target Rate achieved 2024 & beyond.Interest Rate Scenario, %
Stage I
• Covid supply disruptions, increased
300% demand create product specific shortages.
Stage I & II Stage III & IV
• Transitory not Structural
250%
Stage II
200% • Covid supply disruptions fade.
• Slackness that characterizes productive
side of economy slowly recedes.
150%
• Inflation eases.
100% Stage III
• Economy regains footing. Slackness
disappears. Unemployment drifts below
50% 5%.
• Inflation increases beyond Fed target Rate.
0%
Stage IV
• Fed reacts. Timidly at first. Inflation
-50% continues. Fed reacts more decisively.
2020 2021 2022 2023 2024 2025 • Fed Target Rate achieved 2024 & beyond.Growth Composition In the Context of Rising Interest Rates
Composition of Growth
Oil/Other
Public
Nonresidential
Residential
-6 -4 -2 0 2 4 6 8 10 12
2023-2024 2021-2022Residential Projection
Residential Cement Consumption
Monthly Payment Average Annual
Mortgage Interest Rates
Conventional, 30 Year, % AverageIncreases
SF Monthly
% Payment
2005-2019: 1.9%
7 2,000 2020-2022 Q2: 2.3%
1,800
2022 Q3-2024: 11.6%
6
1,600
5
1,400
1,200
4
1,000
3
800
2 600
400
1
200
0 0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023Housing Starts Outlook
SF Starts MF Starts
Thousands Thousands
SF Starts 450
2,000
Thousands
1,800 400
2020: 1,000
1,600 350
2021: 1,111
1,400
2022: 1,154
300
1,200
250
MF Starts
1,000 Thousands
200
800
150 2020: 395
600 2021: 370
100 2022: 379
400
50
200
Ending Foreclosure & Eviction
0 Moratoriums:
0 PCA’s analysis suggests due to tight housing supplies, little adverse
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
impact will be suffered by either single and multifamily construction.Nonresidential Projection
Nonresidential Recovery Process Nonresidential Construction
Real PIP, Y-O-Y Change
Working Capital Factor:
0%
Nonresidential is not
The longer below “normal”
economic conditions expected to contribute
Nonresidential
Construction
Scarring &
persist – the more to growth until 2023
Decline
Bankruptcies pressure occurs on -5%
working capital and ability
to stay open.
-10%
Banks Tighten
Lending
Vacancy Rates -15%
Increase
Standards
Bank Lending Total
-20%
Officer Survey: Structural Factors
Industrial
Contribute to Vacancy
More Banks Rates: Hotel
Tightening Lending
Standards Since -25% Office
Sq Feet Vented • Work-At-Home
2008 NOI Declines
onto Market • E-Retail
• Virtual Meeting
• E-Learning
• Urban Trend Slows -30%Public Projection
State Funding – FY2021
Percent Declines in General Fund Tax Revenues from Pre-COVID Levels
On a state weighted
WA
basis, 2021 general MT
ND VT
NH ME
States with high
fund revenues are
OR
MN
exposure to oil &
expected to decline
ID
SD
WI
NY MA
RI
tourism revenues are
12.3% as reported by
WY MI
CT
at most risk
IA
PA
state agencies NE NJ
NV OH
UT IN DE
IL
CO WV MD
CA VA
KS
MO KY
NC
TN
AZ OK
NM AR SC
AL GA
MS
LA
TX
FL
No Data 21% to 26% 16% to 20% 11% to 15% 6% to 10% 1% to 5%
28
Source: Center on Budget and Policy Priorities: Data compiled from various state agencies as of November 6, 2020State & Local Allocation Scheme
$Billions
Total State & Local Government Aid: $350
State Governments & DC: $195.3 Counties & Cities: $130.2 Territories & Tribes: $24.5
Counties: $65.1 Cities: $65.1
Divided equally: $25.5 Tribes: $20
Territories: $4.5
>50,000:
Divided $45.6
Divided based on states’ share of based on
total unemployed Americans: $169.8 populationThe legislation says the funds are to be distributed based on
each states’ share of total unemployed Americans. So I used
Estimated Aid Sent to States BLS unemployment numbers to figure out the share. Each
state and DC also starts out with $500 million.
$Billions
Alaska $ 0.89 Kentucky $ 2.26 New York $ 14.02
Alabama $ 2.12 Louisiana $ 3.12 Ohio $ 5.58
Arkansas $ 1.55 Massachusetts $ 5.38 Oklahoma $ 1.84
Arizona $ 4.46 Maryland $ 3.77 Oregon $ 2.69
California $ 28.31 Maine $ 1.08 Pennsylvania $ 8.08
Colorado $ 3.99 Michigan $ 4.98 Rhode Island $ 1.15
Connecticut $ 2.97 Minnesota $ 2.76 South Carolina $ 2.58
District Of Columbia $ 1.07 Missouri $ 2.67 South Dakota $ 0.74
Delaware $ 0.99 Mississippi $ 1.86 Tennessee $ 3.32
Florida $ 8.47 Montana $ 0.85 Texas $ 16.37
Georgia $ 4.78 North Carolina $ 5.43 Utah $ 1.33
Hawaii $ 1.61 North Dakota $ 0.80 Virginia $ 4.26
Iowa $ 1.45 Nebraska $ 1.04 Vermont $ 0.67
Idaho $ 1.01 New Hampshire $ 0.95 Washington $ 4.28
Illinois $ 8.33 New Jersey $ 6.25 Wisconsin $ 2.44
Indiana $ 2.84 New Mexico $ 1.88 West Virginia $ 1.35
Kansas $ 1.36 Nevada $ 2.56 Wyoming $ 0.75
Source: BLS, PCACement Consumption Outlook
No InfrastructureCement Consumption Outlook: No Added Infrastructure
Y-O-Y %
Cement Consumption
Late Years of Horizon
Growth
Annual, %
4.0%
• Covid-19 accelerates structural
2020: 2.0% trends that were in-place.
3.5%
2021: 2.2%
2022: 1.9% • Fossil fuel prices remain
3.0%
2023: 1.8%
constrained.
2024: 0.9%
2.5%
2025: 0.6%
• Interest rates increase.
2.0% •
• Private sector slows.
1.5%
• Public sector growth largely a
1.0%
state phenomenon and
supported by moderately growing
0.5%
economic conditions.
0.0%
2017 2018 2019 2020 2021 2022 2023 2024 2025 Growth slows to 1% or LessBiden’s American Jobs Plan
Face Valuea
After Congressional Passage: There
Will Be a Wait for Pouring to Begin
Six One Eighteen
April Months Year Months
House & Senate Passage 4-9 Months
Federal & State Paperwork 4-12 Months
Bid Letting & Review 6-15 Months
Contract Award to Construction 6-21 Months
Average Construction Start: Early 2023
34Non-Traditional Infrastructure Investments a
Spending Segmented by Cement Intensities
Low Cement Intensities
Biden
“Face Value”
High Cement $669.0
Intensities $894.0 Infrastructure
Scenario: $
$2.2 Trillion
$610.0
28% of spending has no
impact on cement
consumption.
Zero or Undetermined Cement 59% of spending has little or
no impact on cement
consumption.Cement Consumption Estimates a
Roads & Bridges, 25.0
Biden
“Face Value”
Miscellaneous, 29.0 Infrastructure
Scenario:
Cement
Rail, 2.0 Consumption
Airports, 6.0 Programs Totaling
Other Traditional Infrastructure, 82 MMT
8.6
Buildings, 11.8
36Infrastructure Timing Distribution
Highway & Bridges
Process repeated across all
14 construction segments that
are impacted by the
Infrastructure ProgramS&L Sterilization TEA/SAFETY-LU:
ARRA:
31%
81%
Percentage Foregone
0% 10% 15% 20% 33%
VA Buildings Education Conservation Highway Shovel Ready
Manufacturing Residential Public Bridges
Utilities Renovations Buildings Water
Public Misc.Biden Housing Initiative
Biden’s Housing Impact
Over Full Horizon
5,960,00
Total $213 Billion 500,000 Units
Metric Tons
New SF $7 Billion 30,000 Units 810,000
Metric Tons
New MF $55 Billion 470,000 Units 4,000,000
Metric Tons
Rehabilitations $106 Billion 1,150,000
Metric Tons
Clean Energy & Insulation $45 Billion ---Tax Impact
GDP Impacts Reflect Consensus of:
Biden Tax Impacts Tax Foundation, American Enterprise
Institute, WhartonBiden Face Value Impact
SummaryCement Consumption Outlook: Infrastructure Face Value
Y-O-Y %
Late Years of Horizon
4.5%
• Private sector growth decays in
4.0% the context of rising interest rates
3.5% • Public sector supports stronger
Cement Consumption growth rates during back end of
3.0%
Growth the forecast.
2.5% Annual, %
• More than $860 billon in the
2020: 2.0%
2.0% Biden Infrastructure plan
2021: 2.2%
1.5% 2022: 1.9%
contributes little or nothing to
2023: 2.8% cement consumption.
1.0% 2024: 3.8%
2025: 2.5% • Adds 7 MMT to consumption by
0.5%
end of forecast horizon.
0.0%
2017 2018 2019 2020 2021 2022 2023 2024 2025 Growth increases to 3% annually.The Political Assumptions
Covid-19 Relief Spending & Debt
It took from George Washington to Ronald
Covid Relief Reagan – more than 200 years – to
6000 Spending amass $1 Trillion in Debt.
$5.2 Trillion
During 2020-2021 – two years - the US
5000 will amass $7.2 Trillion in Debt.
$1.9 Trillion
ANY Infrastructure
4000 proposal must pay for Note: Passed through
itself. On-Going Federal reconciliation with no
Government Republican support;
3000 $900 Billion That means taxes. Deficits signed into law on March
$2.0 Trillion 11
Some in Congress have
$483 Billion
2000 concern about the deficit
& rigid stands against 2021
new taxes. $1.0 Trillion
$1.7 Trillion
Cares
1000
This forms the basis of 2020
1st & 2nd Relief Bills opposition to the Biden $1 Trillion
($200 Billion) proposal.
0Compromise Scenario
Cement Consumption
• Ditch the contentious Biden tax increases. Growth
Annual, %
• Scrap the expanded definition of “Infrastructure”.
2020: 2.0%
•
2021: 2.2%
• Focus on expanding commitment to traditional infrastructure programs already 2022:
in-place.
1.9%
2023: 2.1%
• Fast Act 2024: 2.7%
• WRDA 2025: 1.3%
• Army Corps Projects
• FAA Reauthorization
• Assume a 25% expansion in each program.
• Net Impact: + 4.6 MMT annually, 4.1 MMT after sterilization assessments.Adjusting for Political Risks
NOTE:
Potential Outcomes Regardless of which political outcome
Considered materializes, it will not have any
substantive impact on cement
consumption until 2023.
That implies that this source of risk to the
Biden Face Value 60% forecast is not present during 2021-2022
time period.
Base Case =
Compromise 5% Weighted Average of
the Three Scenarios
Note: The $1.9 Trillion “America Rescue
No Plan is Passed
35% Plan passed through reconciliation with no
Republican support; signed into law.
Reconciliation will be in force for the
Infrastructure bill.Summary
The Political Scenarios: Summary
Total Cement Consumption Cement Consumption Growth
Metric Tons Y-O-Y % Change
120,000 4.50%
4.00%
115,000
3.50%
110,000 3.00%
2.50%
105,000
2.00%
100,000 1.50%
1.00%
95,000
0.50%
90,000
0.00%
2018 2019 2020 2021 2022 2023 2024 2025
2018 2019 2020 2021 2022 2023 2024 2025
Biden Face Value Compromise No InfrastructureWeighted Average Baseline: Summary
Total Cement Consumption Cement Consumption Growth
Metric Tons Y-O-Y % Change
120000 4.00%
3.50%
115000
3.00%
110000
2.50%
105000 Cement Consumption
2.00%
Growth
Annual, %
1.50%
100000
2020: 2.0%
1.00%
95000
2021: 2.2%
2022:0.50%1.9%
2023: 2.4%
90000 2024:0.00%2.8%
2018 2019 2020 2021 2022 2023 2024 2025
2025: 1.8% 2018 2019 2020 2021 2022 2023 2024 2025PCA Spring Cement Outlook
Board Week, April 2021
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