Ash Grove Cement Co. Chairman of the Board Charles (Charlie) Sunderland has been with the company since 1980. Prior to becoming chairman of the Overland Park, Kan.-based company, he served as Vice President of Administration, Vice President of Corporate Development, and Secretary & Risk Manager. Sunderland received his degree in Psychology from Trinity University in San Antonio, with a minor degree in Business. Sunderland also is currently on the boards of The Sunderland Foundation, The University of Kansas Hospital Authority, Trinity University, Western National Bank, and the Greater Kansas City Community Foundation Real Estate Charitable Trust. He was elected to a two-year term as Chairman of the Portland Cement Association in November 2006.

Cement Americas: According to [Portland Cement Association Chief Economist] Ed Sullivan's latest forecast, the cement supply crisis is effectively over. Is that your sense as well, as both PCA chair and in your leadership role with Ash Grove.

Charles Sunderland: So, I can decide which capacity to answer in, I guess, right? [laughs] Of course, you've got to look at the United States as a whole as a net import market. And, our sense is that imports will probably be down some in '07, and that will really balance the markets in the United States with domestic production and demand. So, yes, we clearly think there will be adequate supplies for the markets in '07.

CA: Other than the reduction or increase of imports to make up the balance of demand, what else did the industry do to counteract the supply crisis?

CS: In general, it still looks like a strong year for demand. But, there's more production coming on line. There have been large investments in production capacity in the U.S., which will continue to come on line for the next few years. Of course, those are long-term processes to get that production on line.

CA: I assume you're talking about both expansion of existing plants and greenfield projects. There is certainly a fair number of greenfields in the pipeline, trying to make it through the process and still struggling to a certain degree.

I know Ash Grove recently announced its Las Vegas area project. Can you expand on that a little bit? Is that on schedule? Are you having any difficulties in these early stages?

CS: Permitting a greenfield plant is an extremely complex process to work your way through. And then, it's a bit compounded for us because it sits on an Indian reservation, but we are working our way through the process with steady progress and are hopeful that we'll get in the ground about the middle of 2007 with some construction.

CA: Was 2009 the originally projected online date?

CS: Yeah, '09 was the original projection. I'm guessing it may be 2010 now.

CA: We're tracking a couple of these announced greenfield project, including Holcim's Ste. Genevieve plant. Where have you found the greatest obstacles? Other than the fact that it's on a reservation, are there any specific snags in terms of permitting or the design?

CS: In the air permitting process, the Environmental Protection Agency is always pushing for the newest technology, which is their proper role. I think a lot of it is an education process between the industry and the EPA and what can be done cost effectively, so there's been considerable dialogue along those lines.

CA: So, dialogue between Ash Grove and EPA?

CS: Well, EPA and a number of other permitting agencies.

CA: Local?

CS: Yes, there is just a whole range of permitting agencies that you deal with in terms of federal, the regional EPA, the Bureau of Land Management. Since we're actually sitting on an Indian reservation, the Bureau of Indian Affairs is the ultimate arbiter of this. They'll review leases and contracts we have with the tribe.

CA: We haven't done a chairman interview now for two years since we switched over to the new two-year terms. Industrywide, have there been any major adjustments to the strategic plan that was put together two years ago, with respect to environmental issues, for example, or fuel costs?

CS: No, I'd say we've done some fine-tuning. This past summer, there was a meeting to focus on the strategic plan, which has had some fine-tuning. And then, subsequent to that, each committee will look at its individual goals and requirements, particularly the energy and environment committee and the sustainability committees are very active in looking how we can help the industry lead with new concepts in those areas.

CA: Speaking of sustainable development, that's obviously one of the other areas where many plants have put a lot of capital into their operations in recent years. Since we last interviewed a PCA chairman, I think the association had just come up with the Sustainable Development Director position and named Dave Shepard. Can you give us an overview of that group's accomplishments in the last two years and its strategy for the future?

CS: Sure. You'd really have to focus initially on energy and environment. As you're probably aware, we have put together some continuous environmental improvement goals as an industry, so we continue to track our progress versus those goals. And, that will be critical to maintain our discipline as an industry as we work toward the goals that we've set.

Then, in other areas, there has been a lot of focus and movement in a number of air quality areas, including emission controls, particulate matter, nitrogen oxides, sulfur dioxides, dioxins — all those are areas where we continue to focus our industry on ways to improve our technologies.

CA: I know it's always a constant balancing act in terms emissions reduction versus cost efficiency. How is that battle going, and how is PCA addressing that directly?

CS: Well, I think a lot of it is direct conversation with the EPA as to what technologies are out there and what looks to be cost effective. And, of course, each plant is different. So it's really difficult to talk about an industry in general at some point, because older plants can be retrofitted with certain technologies cost effectively, where others cannot. So, it's a matter of finding the appropriate technologies for each individual plant.

CA: Is PCA setting up opportunities for companies and individual plant management to meet with people. I know, for example, we have the IEEE meeting, where there are a 100-plus exhibiting companies. I've noticed a big shift over the last couple of years in that exhibition hall toward environmental companies coming to dominate the floor. Are there other opportunities for that kind of exposure to the latest technologies?

CS: Free enterprise is a powerful tool. Of course, these environmental companies that are vendors to our industry, knowing the increased focus that our industry is now placing on the technologies, have certainly taken advantage of that. And, our industry welcomes that, clearly.

CA: Is PCA setting up something separate from that, putting the two parties together?

CS: The PCA doesn't set up vendor structures as much as it helps to facilitate dialogue with the EPA through our Government Affairs group. And then, of course, each company in the industry has its own dialogue at some point with their regions or whatever would be specific for their interests as a company.

CA: A couple of years ago, the supplemental materials industry — like slag, fly ash — really started to come into its own as a business. Clearly now, it is an established, growing part of the industry with almost the major players being companies that also supply cement. Has PCA in any way changed its views on the materials or the industry itself?

CS: Those industries generally have their own promotion arms, so PCA has not gotten involved in the direct promotion of those industries. But, of course, as you mentioned, a number of the companies that are PCA members are also directly in those industries. I think our industry understands that we're selling cementitious materials now, and the slags and the fly ashes can be very beneficial in concrete mixes as well as lower the total CO2 output per ton of cement. So, as you say, they're very much an accepted part of the industry now, an important part of concrete mix designs out there, and will continue to be for the long term.

CA: This is the first time we've talked to a chairman since the situation regarding the reduction and ultimate elimination of the anti-dumping duties against Mexican cement has occurred. Has this event changed the landscape for the North American industry? If so, how?

CS: First of all, I'd want to preface my response by saying that the Southern Tier situation was not a PCA issue, so I really can't address it from that point of view. From a personal perspective, from an Ash Grove perspective, we're very glad to see that settlement occur. In terms of its impact on the national landscape, you really need to look at the overall import market in the United States. If you look back at the end of 2005, the real leader in U.S. imports has become China; and then, Canada second; and then, I think we see in the Far East, Thailand and then Greece. So, Mexico has not been one of the major importers into the United States.

Now, it could be logical over the years that Mexican imports will continue to grow. The key is going to be their transportation corridors into the U.S. But, I think you've got to just look at that in terms of the total context of the import picture nationally. Though in terms of real specific impact, I don't think we've yet seen a major impact as a result of the anti-dumping duties going away.

CA: We've talked a great deal in the past about where PCA plans on focusing its promotion efforts in a given year. Are there any particular markets right now that the association is looking to focus on in the coming years?

CS: Yeah, that's kind of interesting. One of the things that PCA and the industry has focused on is developing its regional promotion groups. And, I think, the feeling has been that these regional promotional groups spread geographically and have a much better sense of their own region and what are the best opportunities to promote there. So, I think you're going to see, as these RPGs develop their promotional plans over the years, that there are going to be some differences among those in the areas that they want to focus on. For example, if you look at things like the Southeast region where storm resistance is key, concrete homes still will continue to be a very high priority, whereas that might not be such a priority in other regions.

One of the areas that we still think is a good opportunity for us is in concrete paving and the relationship with the American Concrete Paving Association. PCA continues to give attention to looking for ways where we can improve that relationship and, ultimately, the effectiveness in promoting paving of streets, local roads, and highways. So, that will be important for us going forward.

CA: You mentioned storm protection. I certainly remember a couple of years ago, after Hurricane Andrew and pre-Katrina, that was certainly a big push toward the benefits of concrete homes in, say, Tornado Alley or even in Florida. Are you seeing that sort of push in the Gulf Coast region now as well?

CS: There's a lot of discussion now in terms of building codes. That's one of the areas that PCA and our industry are very focused on, helping restructure building codes with storm-resistant housing, and that usually tends to use more concrete — block or cast-in-place or concrete roof tiles, things like that.

CA: Is PCA involved in that, or are you just keeping an eye on the research at this point?

CS: Yes, a lot of it is the code development, and PCA does have a Codes and Standards committee that can be helpful to local authorities. If you look back at the Florida model, the way they restructured their building codes has been very beneficial for them going forward as the latest storms have come through. Our hope is that the Gulf Coast would follow that model.

CA: We touched before on how plants are putting a lot of capital investment in making their operations more sustainable. How would you say that effort is going? Is there a time line or a goal structure for that program?

CS: When you talk about capital investment, those are individual decisions by companies. And, of course, reinvesting the capital into individual plants is one of the best ways to improve their sustainability. Their ecological performance increases tremendously. They lower their ecological footprint. So, that reinvestment that you're seeing — and it's a large number, well into the billions, and I know Ed Sullivan has tracked that number. All that is going to help with the sustainability of the plants, and that also helps us meet our industry goals that we'd set in terms of greenhouse gas reduction.

CA: I know there was a time line for those goals. What's the next benchmark?

CS: We set that up back in 2002, as I recall, and I think we're going to try to get 10 percent below a 1990 carbon dioxide baseline by 2020. That's where we set that.

CA: That sounds right. So, there is just that one goal. There aren't intermittent steps?

CS: Whether we have some sub-steps in there, I don't know. I don't recall seeing any sub-steps, but it would be logical that we might have a mid-term report in 2010, or something like that.

CA: In addition to making the plants more sustainable, I see a real effort has been made to promote the environmental benefits of cement and concrete. Are there any new programs aimed at those ends?

CS: Yes, we've got the whole Green Building program now that the PCA has focused on, with the LEED [Leadership in Energy and Environmental Design] programs that the architectural community has focused on. PCA is supporting that with a lot of technical data. We've got a new magazine out, called Concrete Thinking, which focuses on a lot of the LEED issues that our industry can help with — things like design, thermal massing, all those things that are important in sustainability.

CA: One thing that Ed Sullivan and many other economists and forecasters have noted recently, especially in the second half of this year, is that new home starts are suffering. How does that change the way that promoters approach the residential market? Does that necessarily mean that concrete home starts are suffering?

CS: I don't know. That's a good question. Of course, going forward, we're watching inventories very closely for the markets we're in. There was a time when builders were so busy that they really didn't need to look for some new niches, or ways of differentiating themselves, or particularly look to take the time to learn new technologies. If things slow down for a bit, there could be opportunities for us to continue to promote concrete home technologies, maybe get their attention a little more, and develop more expertise in their area so they're more comfortable building in that new technology.

There's always a hurdle anytime you're introducing new concepts to any industry. They know what they've been doing, they know exact costs for it, things like that. I think there's opportunity to introduce some of these new concepts to them when they aren't quite so busy and maybe looking for some market niches to differentiate themselves to grow some market share.

CA: Any particular concepts that you can name?

CS: We've got a wide range of opportunities to use concrete — from concrete block to ICF [insulated concrete form] construction to concrete roof tiles. There are a number of architectural details now being made out of concrete. You've got the pavers that have become very popular residentially — a lot of great products there that we just need to continue to promote.

CA: With fuel costs still relatively high compared to, say, two years ago, how does research and alternate fuel initiatives respond to rising fuel costs? It seems that alternate fuel usage reached a peak and then maybe it dropped off a little, possibly because of community pressures more than a failing of the fuels per se. It seems like an ideal time to look into it again. How is that going?

CS: I guess you've got to look at it in the context of any major energy supplies that you're currently using. When it gets to a certain level of cost, then alternative energy supplies begin looking more attractive. What's transpired in our industry, of course, is that coal — a key fuel for us — continues to increase in cost. So, that makes alternative energy options look more attractive. You're going to continue to see our industry doing more research and putting more focus on alternative Btus that they can introduce into their kiln systems. That's going to be a wide range of fuels, from petcoke through waste fuels, all the way to burning tires — all of which can be excellent fuels when used properly with the right technology.

You mentioned communities. I think our industry has gotten much better at working with the communities that we do business in and helping to communicate the facts of what's happening in our plants. I think that is going to help us introduce some of these alternative fuels, which are really better for the environment in the long term.

CA: I'm one of the judges for PCA's Environment and Energy awards, so I definitely get an exposure to different plants' community outreach plans, and you can't help but be impressed by the efforts that some people are going to and the expense they're putting into it.

Noting that so many cement companies are also involved with concrete and, in some cases, aggregates, how does vertical integration affect PCA? Does it inspire closer working relationships between the cement, concrete, and aggregate associations?

CS: Yes, 70-some percent of the cement produced in the United States goes into the ready mix business. So clearly, we have a lot of common interest with the ready mix people — and are the ready mix people in a lot of cases.

CA: That's what I'm speaking to. Now it's even beyond that: a lot of times, people are supplying to divisions of their own company.

CS: I've never seen any formal numbers on the amount of the ready mix industry in the United States that is currently integrated, but I would think it would be well less than 50 percent. So, the ready mix industry is still a very separate industry with a very different set of dynamics than the cement industry. But, what the PCA and the National Ready Mixed Concrete Association are looking at doing is increasing efficiencies of both organizations by sharing resources wherever possible. And, through dialogue and discussion when we have common goals and objectives and focuses on advocacy or environmental issues, we will utilize the resources efficiently of both organizations to move forward on those topics.

CA: Is Ash Grove looking to go in the direction of vertical integration?

CS: Well, again, vertical integration is something you have to look at in an historical context. And, over the years in the United States, vertical integration has gone through cycles. Some companies have gotten into it and gotten out of it. For a cement company to consider vertical integration to be the panacea of maintaining cement market share is not always an accurate assumption, because essentially, if you're buying ready mix to maintain market share for cement, you then need to go into the ready mix business and maintain that market share.

Now, ready mix is a very competitive market in the United States. There are minimal barriers of entry, and pretty much anybody can get into it and destroy a market. So, it's a very difficult place to compete, and I think what we've seen over the years of cycles is that certain companies have decided to vertically integrate and then see the difficulty in competing in concrete.

There are a number of decisions that you have to make when you compete all the way down to the concrete level as a cement company that aren't always beneficial for both industries. So, I think you're going to continue to see it cycle. And, we at Ash Grove have taken the perspective that we like competing in the cement industry and have generally not gotten in the business to compete with our customers in ready mix.

CA: I guess the obvious inspiration for that question is that if Cemex is now technically the world's biggest ready mix producer, what's the impact on their cement business? I was curious if that was something PCA had taken a look at and observed that, in certain circumstances, membership is more closely tied to the ready mix side.

CS: PCA just looks in terms of how to most effectively promote cement, and the National Ready Mixed Concrete Association is looking at promoting ready mixed concrete. So, we have had dialogue between the two organizations: how best to do that, where we should jointly focus our efforts. That discussion will always continue, because we're so closely aligned. What happens with individual companies and their strategies doesn't necessarily drive that dialogue.

CA: How does business look in 2007 for Ash Grove at this point?

CS: For us, generally, it looks like another strong year. We're pretty well located in the western half of the United States, and those markets have remained fairly strong. The Pacific Northwest looks very strong for next year; Midwest, not quite as strong. But, overall, we see volumes that we ship in '07 will be fairly close to the volumes we shipped in '06.

CA: So, you're thinking much along the lines of what Ed Sullivan said about business staying even with '06, or maybe a little better?

CS: Yeah, about even with '06. As we see declines in some of the residential markets, clearly there's some commercial strengthening, so it kind of offsets.

CA: How much highway work does Ash Grove get these days?

CS: We do some direct work, and particularly in the Midwest, we do the most direct work. That's kind of on a state-by-state basis. Some states have the funding to continue strong programs; some are struggling at this point.

CA: I know when the new highway bill was passed, a lot of people were expecting that to have a huge impact, and clearly, it will have an impact, but maybe not as much to offset the residential downturn as they once thought.

CS: Exactly. The states that have put in place long-term funding programs for their highway construction have weathered this pretty well. The states that tend to live year to year out of general funds for constructing highways have suffered, because they just haven't had enough funding to really keep their construction programs or renovations programs to the level that they would have liked.

CA: [PCA President] Jay Gleason recently announced he was retiring at the middle of next year. How goes the early stages of the search to find his successor?

CS: Jay has successfully led the organization for a number of years, so, while we're sorry to see Jay go and wish him well in retirement — and a lower handicap when he gets on the golf course — we're in the process of finding some new leadership. And, that can always be an opportunity to change some of the perspectives on the organization.

CA: I know a headhunting firm had been enlisted to begin the search. But, is that a decision that ultimately falls to the board?

CS: Yes, that's right. We've got a task force structured right now to find a new replacement, which ultimately will be approved by the executive committee and the board of PCA.

CA: I realize it's still early in the process, and Jay isn't retiring until next year, but what is the association looking for in terms of a leadership role?

CS: Clearly, we're looking for an aggressive person that has some strong promotional experience, understands advocacy, will work closely with our Government Affairs group, and may have some background in association management — they may not. The new person may come out of industrial or other manufacturing experience. But clearly, somebody who can come in and help us implement the strategic plan, maybe help as we go through any modifications with the strategic plan. So, we see it as a great opportunity.