Cement Americas

NOV-DEC 2011

Cement Americas provides comprehensive coverage of the North and South American cement markets from raw material extraction to delivery and tranportation to end user.

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FEATURE FORECAST 2012 These conditions, and others, could result in significant first quarter weakness. Pressure could mount for addi- tional stimulus. PCA assumes the payroll tax holiday and extended unemployment benefit will remain in place through 2012 - providing consumers with some cushion to offset rising energy and food prices. PCA also assumes unemployment insurance will be ex- tended throughout 2012. Keep in mind, the current po- litical realities suggest significant opposition to fiscal spending actions. Tax cuts, however, are appealing to both political extremes. Taken together, PCA believes a synchronized recov- ery remains in place—reflecting the self-sustaining mo- mentum and the interplay of marginal increases in demand, prompting job gains, feeding consumer, busi- ness and bank optimism—leading to further marginal gains in demand. While job gains and the process of economic recovery are expected to continue, it may not continue at the same pace as previously expected. The pace at which this scenario unfolds has been scaled back and suggests more moderate economic growth rates for 2011-2012. This slower economic outlook implies a slower recov- ery in construction. Furthermore, there is a disconnect in timing between economic and construction recoveries explained by the existence of structural wounds gener- ated by the construction focused recession. Despite eco- nomic growth, for example, the residential sector will continue to be plagued by a large volume of foreclo- sures, tight lending standards and weak new home prices. Aside from difficult access to credit markets, po- tential investors in commercial buildings are likely to wait until occupancy and leasing rates improve and asset prices appreciate. Finally, the impact of the stimulus is winding down and state fiscal conditions remain weak. While the recovery process for the construction in- dustry is expected to be long, its beginning is tied to general economic growth and job creation. Job creation will reduce, and eventually eliminate, the adverse im- pacts of foreclosures, tight lending standards, com- mercial occupancy and leasing rates as well as the severity of state fiscal conditions. Because the imped- iments to a construction recovery are so large, even if an acceleration in economic growth and job creation materializes on a sustained basis, the benefits will not materialize quickly. The slower economic and job cre- ation outlook contained in the current forecast sug- gests a modest delay in the construction recovery. STAGE IS SET FOR RESIDENTIAL UPTURN PCA says the expected timing for a recovery in housing starts has been pushed back, since several processes must occur prior to a recovery in starts. In the context of slower job growth, the winding down of structural impediments for a housing recovery will take even more time. Keep in mind, much of the summer fore- casts' volume recovery that began in 2013 is attributed to a starts recovery that also was expected for the same year. By pushing back the housing starts recov- ery, much of the 2013 cement volume gains disappear. Homebuilders are unlikely to significantly acceler- ate construction activity until two critical conditions are met: 1) low levels in inventory of unsold new homes reflecting no higher than five months supply, and 2) stable or ris- ing home prices. Both conditions are likely to be required to insure an adequate ROI for homebuilders to spur an increase in building activity. Lacking either condition, a substan- tive recovery in home building will not materialize. A significant im- provement in residential construc- tion cannot begin until the foreclosure crisis is over. High level of foreclosure activity increases in- ventory levels and depresses home prices—adversely impacting home- builders expected ROI. Mortgage resets are expected The privately funded DePaul Theater School project is currently being erected in Chicago. Recovery in this nonresidential market is expected to be prolonged, with substantive gains materializing in 2013. 12 to decline dramatically after the first quarter 2012. Unfortunately, the process from reset to foreclosure and finally to bank possession is a long process and continues well CEMENT AMERICAS • November/December 2011 • www.cementamericas.com

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