Cement was selling for $111 a ton (US average) in 2016. Cement prices are expected to stabilize around $110 per ton as imports increase to absorb additional consumption. US cement manufacturing costs are increasing in the wake of the new environmental regulations. Cement companies usually operate with a gross margin in the 25% range when capacity is fully utilized.
Summary and Conclusions
The US cement consumption is climbing out of the worst recession in over 50 years. Cement consumption is expected to continue to grow year over year and possibly by double digits in future years. The delayed comeback has increased pent-up demand and should create an under supply situation in the coming years. Many older, less efficient cement plants have been closed during the recession, the majority of which are not expected to restart again. Some plants that have continued to operate through the recession may not be able to meet the new, much tighter environmental limits the last of which will come into effect in February 2018, possibly causing additional plant closures.
The US EPA has imposed much stricter environmental regulations on the US cement industry. In addition, CO2 has now been classified as a pollutant in the US. Although the EPA has not taken action to date to control or reduce CO2 emissions, the ground work has been laid to do so. California has implemented a cap and trade system for CO2 management and reduction that could still be adapted by other states. It will be very costly to construct new cement plants in the US with these new regulations in place. For these reasons, the PCA is predicting a cap on domestic production of cement of between 100 and 110 million tons per year and a growing need for imports.
The New England market is particularly attractive due to its high population density close to navigable water and the lack of existing cement production facilities. Including New York state and New Jersey, the combined population of over 40 million is greater than all of Canada with a total cement capacity of only around 3.5 million tons today. The northeastern US has been a major importer of cement in the past and appears to be positioned as such in the future as well.
Canada has a favorable position in regards to US imports due to the country’s close trade ties, proximity, stable government, and ability to supply a consistently sourced, quality product. The Glencoe project is favorably positioned as the closest plant to the New England market with deep water access. The business model appears to be validated by the McInnis project. The Glencoe project will, however, be closer to market. Both of these projects will incorporate complete new Greenfield projects with all state of the art equipment and the best environmental performance. Many of the existing US cement plants are of older design with less efficient operation and larger carbon footprints.
Undoubtedly there will be a need for vast quantities of imported cement in the US market. This need will become very clear in the years to come. The lead time required to build a cement plant requires early action to be taken to seize the market. The time to build the Glencoe plant is now.