THE CEMENT INDUSTRY: PERSPECTIVE

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Value of Industry Shipments

(Billions of Dollars)

Cement, as a component of concrete, is used in all types of construction, including residential, industrial, and public works. The value of industry shipments in 1994 was $4.8 billion, or 0.1 percent of the all-manufacturing total of $3.34 trillion. This substantial increase over the 1991 total of $3.7 billion is partially a result of dumping investigations which produced findings against Mexico and Japan in 1990 and 1991, and suspension agreements with Venezuela to be reviewed quarterly. From 1992 to 1995, this industry, which constitutes a little less than 1 percent of durable consumption, Source: Bureau of the Census experienced an average annual growth rate of

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1969

1990

1991

1992

3.2 percent, compared to the all-industry average of 4.2 percent. The industry is fairly concentrated; the eight largest companies account for about 52 percent of the value of shipments.

The cement industry is the most energy-intensive of any major industry, using 169.3 thousand British thermal units (BTU) per dollar of output. This level of energy intensity is more than 14 times the manufacturing average of 12 thousand BTU per dollar of output. For the Stone, Clay, and Glass group as a whole, there was significant movement from natural gas to coal from the mid-1970s to the early 1980s. While coal and petroleum coke are still the predominant fuels for the cement industry, the utilization of waste as fuel is increasing.

International Trade

The cement industry is a large net importer. In 1995, imports of cement were $541 million (or 0.06 percent of the total U. S. imports of $749.4 billion), while exports were $53 million (or 0.007 percent of the total U.S. exports of $575.9 billion). In 1989, imports were $492 million, while exports were $25.4 million. Imports to the U.S. now come primarily from Canada, Spain, Venezuela, and Greece. and exports generally go to Canada. It is estimated that approximately two-thirds of the cement firms

in the U.S. are foreign-owned,

a dramatic change from the

estimate of about 5 percent in the late 1970s.

Investment and Employment

New capital expenditures for cement production were $279.6 million in 1994, or 0.3 percent of all new capital investment for the manufacturing sectors. Of this total, $244.6 million was spent on machinery and equipment and $35 million on buildings and structures. About $28.2 million was spent on used capital, all but $2 million of which was spent on machinery and equipment.

Of the approximately 123 million civilians employed in the U.S. in 1994, 18.3 million were employed in manufacturing sectors. About 16,700 were cement workers, and 12,400 of those were production workers. With productivity increases, employment in the cement industry has been declining as production has remained relatively stable. Both the total number of employees and the number of production workers decreased by almost half from 1967 to 1991, from 32,600 to 16,400 total employees and from 26,200 to 12,200 production workers. On the production side, 70 million short tons of cement were shipped in 1967, and 78 million were shipped in 1991. While the total number of companies grew, the number of establishments with 20 or more employees decreased from 180 in 1967 to 138 in 1991.

THE CEMENT INDUSTRY

1. SUMMARY OF MICHAEL NISBET'S PAPER

Overview

Michael Nisbet stated the following conclusions about the effects of the assumed fuel price adders on the domestic cement industry:

The initial impact of higher energy prices would be to increase cement industry energy costs by as much as 150% by 2010 in scenario 1 and by 100% in scenario 2. The price of domestic cement would increase by 20.3% in scenario I and by 13.5% in scenario 2. This price increase would create a large gap between the price of U.S. produced cement and cement produced by non-OECD countries whose energy prices are assumed to remain at baseline (no mitigation) levels.

Cement imports would displace domestic production. Imports were estimated to increase from the 1994 level of 13.1 percent to capture 45.9% percent of the market in the year 2010 in one scenario case, compared to 19.8% in the base case.

The result of lost market share would be the closure of domestic cement plans and foregone capital investments that would have been made to take advantage of growing demand.

Approximately 26 million metric tons of clinker capacity would be shut down by 2010 in scenario 1 and 17 million metric tons in scenario 2. The plant closures would cause job losses: 5,800 and 3,700 in scenario 1 and 2 respectively by 2010. These losses are significant because cement plants are often located in small communities where the plant is one of the major employers.

The most likely outcome of the assumed energy price increases in OECD countries would be the development of new cement production capacity in countries not subject to the price increases. The purpose of these plants would be to supply the U.S. market. These plants would use the same technology and emit the same amount of carbon dioxide as new capacity installed in the U.S.

Industry Features

The demand for cement depends on the growth of construction, which is related to GNP. Over the last two decades, cement demand has grown less rapidly than GNP because construction growth has not kept pace with GNP growth and cement has grown at a slightly slower rate than overall construction. Since 1975, 54 plants have been shut down and the industry has lost about half of its labor force. The number of cement kilns has similarly decreased by 50 percent. The industry

has, however, experienced more of a restructuring rather than a net decline. Labor productivity has increased substantially and domestic shipments and consumption have remained at about the same level for the last two decades.

In 1994, there were 118 plants in the U.S. that shipped 74 million metric tonnes. Imports that year were 11.3 million tonnes and exports were 0.5 million tonnes. The U.S. is a net importer of cement and is expected to remain a net importer even in the absence of new environmental policies.

Cement plants are typically located within a few miles of the raw materials (such as limestone) and within 150 miles of the end-use. When either a plant or a market has access to a deep water port, location is not as important because cement can be transported by ship or barge over great distances at low cost. In 1994, more than one-half of cement imports to the U.S. arrived from Canada and from Spain.

The manufacturing process of cement is standardized world wide in terms of both process and use of raw materials. The raw materials are burned inside a cement kiln at a temperature of around 2700°F to produce a hard granular intermediate product termed "clinker". This product is then finely ground into cement. The extremely high burning temperatures permit the use of waste fuels such as sludge, old tires, and even some hazardous wastes. As noted by Nisbet, the burning conditions inside a cement kiln have been shown to result in 99.9999% destruction of organic materials, which means that all waste is effectively destroyed. For instance, the ash content of fuels, which is a potential waste, is captured in the clinker.

Nisbet calculated the effects on U.S. employment and output using an elasticity of import substitution. This elasticity is the ratio of the percent change in import share per one percent change in the ratio of domestic and import prices. This elasticity was estimated by the International Trade Commission (ITC) and was used in a case against Mexico concerning the dumping of cement into the U.S. market. In general, it is used to estimate the increase in imports as foreign suppliers underprice domestic suppliers. The ITC estimated an elasticity of substitution for cement to be in the range of 5 to 10, and Nisbet assumed a mid-point of this range at 7.5. Nisbet used the assumed fuel price adders to estimate the domestic price increase. On the basis of the increased domestic costs, constant costs in non-participating countries and the above elasticity, Nisbet estimated the change in imports that could result from the fuel price adders.

The cement industry is energy intensive, with energy costs being about 30 percent to 40 percent of total manufacturing costs. Energy intensity has been reduced in this industry and there are opportunities for continued improvement in the efficiency of energy use. The opportunity comes from replacing old kilns with new ones as the need arises. Investment costs are high and such investments could be encouraged by a growth in demand but not by an increase in fuel costs. According to Nisbet, there are no visible new cement manufacturing technologies which could increase energy efficiency in this industry. The assumed fuel price adders would directly result in an increase in costs of production, with little opportunity to offset these price increases with decreased energy use.