James Repman, recently elected to a one-year term as Portland Cement Association's chairman of the board, received a BS in Business Management from Portland State University in 1973 and served for a time in the U.S. Air Force. His career in the construction material industry began in 1976, when he worked as executive vice president for the construction material division of Riedel International.

The division was purchased by Lone Star in 1987, and Repman continued as executive v.p. for Lone Star Northwest, Seattle, Wash. Lone Star Northwest was purchased by Onoda Cement Co. (now Taiheiyo Cement Co.) and the name was subsequently changed to Glacier Northwest. Repman was president of the company until 2002, when he began his current position as president and CEO of Glacier's sister company, California Portland Cement Co. (both are owned by Tokyo, Japan-based Taiheiyo Cement Corp.).

Cement Americas: How is business for California Portland right now. Are you where you thought you would be for 2004? How does 2005 look like it will go for the company?

James Repman: The year has actually been stronger than we had anticipated. It started at the end of 2003. We had a very mild winter, and construction activities were strong, continuing through the spring. We basically had no winter last year, and the growth of the markets was far greater than we'd anticipated. That left us scrambling to make ends meet with customer demands.

CA: I've heard that's been a problem for some people lately.

JR: It certainly has been. It's been less of a problem for the last couple of months, but through August probably at least into the early parts of September, we definitely struggled. In fact, we shut down one of our plants last week, right after the Thanksgiving holiday, to do some long-needed repairs.

CA: You finally got around to it.

JR: At some point, you have to do it. You can't keep delaying it forever.

CA: Which facility?

JR: Our Mojave plant, and it'll be down for about three weeks.

CA: Are there any particular types of construction projects that have been draining the cement supply?

JR: The single strongest segment of the market has been residential construction. And, that's not just in California, because we do business in California, southern Nevada, and Arizona. In all of those markets, clearly, residential construction — predominantly single-family residential — has been the strong mainstay.

CA: For all of the reasons I assume that [PCA Chief Economist] Ed Sullivan cited in his forecast, i.e., interest rates did not climb as expected …

JR: And, this is still a desirable place to live. There are still net inflows of people into all of these markets, and people have to have a place to live.

CA: The three states you mentioned have been, especially in the last 10 years, among the highest in growth rates.

JR: They clearly have been, and they continue to be. If you look at the near-term forecast, at least over the next 5 to 10 years, the expectation is that they will continue to be.

CA: Besides residential, were there any other areas where you saw substantial growth?

JR: I think residential has been the biggest single factor. Overall, the market has been good. If there's been a disappointing factor, it's been in the public sector. States, especially California, do not have a lot of money to spend, given the deficits. So, highway construction has been almost nil. Even in Arizona and Nevada, the public works markets have been somewhat slower than we would like to see. Overall, the commercial markets have been fairly good.

CA: What about next year?

JR: Next year, we think it will be similar to this year. We expect a little bit of an increase, although not as much of an up tick as we saw this year, but continued strength. I know that PCA is forecasting a little slowdown, maybe in residential. We're not quite as sure that will happen, because if you look at the inflows of people [in the three states California Portland does business], those people have to have some place to live. I think interest rates still are fairly good; homebuilders' profits seem to be good enough that there's been some discussion that they could potentially buy down interest rates, at least to prolong things a little bit. We think that that suggests some continued strength, at least for the next several months and a good bit of next year on the residential side.

CA: Has this incredible amount of business in any way altered or accelerated plans for your plants in terms of expansion?

JR: We have been trying to expand our plant in Rillito, Arizona, for some time. We had filed applications on a couple of previous occasions. We're actually in discussions now with both the Arizona Department of Environmental Quality and EPA on how to proceed to resolve the issues that they had. We keep hoping that that will be imminent. I think that very recent discussions indicate that we will soon be in a position at least to file the application by the early part of next year. We hope that will be expedited through their systems, so we could see ourselves potentially with a permit by the end of next year.

CA: Are the agencies you're applying to for permits aware of the overwhelming need for additional product?

JR: If they're not aware, it's not because we haven't been telling them!

CA: Will that have an impact on their speediness?

JR: I don't know. I think that they have their own processes, and whatever is or is not happening in the real world or in the marketplace is not their concern. Their concern is to make sure that the environmental aspects of it are done properly and that we're following the proper procedures in going through it, that the assumptions we're making in our modeling are all correct. They review all that to ensure it's a good project, not from an economic standpoint, but from an environmental one.

CA: What is the plan for the Rillito plant in terms of expansion?

JR: Right now, we have three small kilns and one larger kiln. The total capacity of the plant is about 1.5 million tons per year. Our goal is to take the clinker capacity to just under 2.5 million tpy with a single kiln.

CA: Environmental issues, particularly in some of the areas where you do business, are high-profile community and government issues. What are some of the unique environmental issues that arise in places like California and Arizona?

JR: We face particularly unique issues at our Colton plant in the southern California basin. The plant was established in 1891. We have two long dry kilns operating. We are the only gray portland cement plant within what is called the Southern California Air Quality Management District. It is a nonattainment district that includes the L.A. basin. They're under mandates from the state and, ultimately, the feds as well to reduce emissions, i.e., particulates emissions. One that they're extremely focussed upon is NOx.

The cement process happens to be a high-NOx-producing operation. We believe that our plant at Colton is the lowest-producing NOx emissions plant of any long dry kilns in the world. They are substantially below any of our competitors outside the basin, but they still exceed what the district wants. In fact, the district is drafting proposals right now to try and reduce the overall NOx emissions in the basin by an additional 28%. Their initial plan was to do that through an across-the-board shave, requiring everyone to reduce by that amount.

Now, in the last 8 or 10 years, we have already, in coordination with them, modified our plant to the best available retrofit control technology (BARCT), and they will acknowledge we are at BARCT. In theory, there is nothing we can do to modify the plant to further reduce emissions. But, they're saying you've got to do it anyhow, or you have to buy credits, which can be an expensive process. We met with them about two weeks ago, in fact, and got into a discussion. We said, “What if we determined there was a new technology or some capital investment we could make that would allow us to dramatically reduce NOx well below the emission levels that you're targeting, even after the reduction? Could we have some assurance, then, that we could continue to operate?”

They said, basically no, that they're under a mandate to conduct a review every two or three years, and if new technology comes in, they would say, Okay, that is now your level, and if we have a further shave, you're going to take the shave just like everybody else. Our response was, “How can we justify capital expenditures of tens or hundreds of millions of dollars with no assurance that you're going to effectively allow us to stay in business.” And, there was no answer.

CA: Where does that leave you?

JR: We're in a quandary, but we're hoping that somewhere between politics and pragmatism, some semblence of reason could come into play. We had long discussions about that this morning, and we will continue over the next couple of weeks as we meet. The District left with no response to us, because they recognized that we are a significant employer, we're a significant player in this region.

The politicians in the area certainly don't want those jobs to be lost in their districts, because they are good, strong, family-wage jobs. Between us and subcontractors, we have the equivalent of about 160 full-time people at the facility. Those positions can't be replaced. Workers would have to have two or three jobs flipping burgers at McDonalds or as Wal-Mart greeters to replace that kind of income. Those jobs just are not available. So, if they want us to reduce, we will, if we can figure out a way to do that. At the moment, we've got engineering companies wanting to help us figure that out, because we are prepared potentially to make the investment. But, we've got to have assurance that we can stay in business. I think it's probably, at this point, as much political as it is anything else.

CA: California Portland is the parent company to Catalina Pacific Concrete, which recently lost a product-defect case involving concrete that was allegedly not sulfate resistant. What's your take on that case, in particular regarding the issue of sulfates in relation to product-defect litigation and warranties?

JR: As far as the case is concerned, it's over. We appealed to the California Supreme Court. The Supreme Court refused to hear the case, but they also refused to certify the decision for future precedent. I think that they are waiting for other cases to come up that are pending. I would assume that at some point they will take one on appeal. We would hope that some reasonableness would come into the marketplace, because I don't think this has anything to do with the repairs. It has to do with dollars and cents and opportunism, whether it's attorneys or whatever. There have been a number of cases, not just against us or against concrete. I was just talking to one of our people today where they're also going after a roofing tile manufacturer. And, there are others. To date, no repairs have been made on any of the projects.

CA: One of the lawyers I spoke with about Catalina said that not a single dime has been spent in any of these judgments toward an actual repair.

JR: The Catalina case involved a multi-family area. What happens when people are effectively selling their condominiums? What kinds of declarations or disclosures are they making? I don't know the answer to that, but one would assume that if I were a buyer I'd say, “Time out, you got some portion of an award. I ought to get that because I'm going to have to make repairs, because you didn't.” But, you can bet that's not happening. The fix is ultimately going to have to be legislative. The legislature is going to have to realize that this has gone overboard; this is not what it was supposed to be. But, the law has to be changed, not just the interpretation of it.

CA: What is California Portland doing specifically to address the recruiting and retention of employees? Does the company have any programs in place to hold on to good people or attract new blood?

JR: We're not the size of many of the other major international players, and we have very little turnover. We've been very fortunate with that, certainly at our cement plants. Retirements aside, we have not had an issue with retention. We have not so far really had a problem in finding new workers to take the place of the retirees and the few people who have left.

Where we have had a challege is on our ready mix side in finding drivers. It's not just us. It seems to be everyone in southern California and in the Southwest. That was one of the issues that a lot of the ready mix companies had this year — not necessarily the tightness of cement, but the cement bulk carriers could not find the drivers to get the cement, even when it was available.

CA: What are you doing to solve that?

JR: Within our union capabilities, we are trying to distribute drivers among several facilities. We're in a seniority situation. The drivers at the bottom take a while to get up to the point where they're getting enough hours to feed their families. So, we're talking to the unions about allowing us to take those people and maybe work them at different plants. They may be starting at different locations, but they're working more days per week, so that we can retain them for longer periods of time.

CA: Is this strategy working, or is it too soon to tell?

JR: It's really too soon to tell. We've just actually started that in the last few weeks.

CA: What is the dynamic of Japanese ownership? Do the company's owners take a hand in the day-to-day business, or do they have a hands-off approach?

JR: I personally have a great relationship with our owners. They certainly understand the business. They are long-term perspective oriented. They do have ideas on how to run cement plants and build them, but that is not forced on us. It's a partnership. They really expect us to run the business. While there are owner representatives in the U.S., they are liaisons to help us interface with our parent, answer questions, and be able to disseminate information in both directions as opposed to telling us the whys and wherefores. They expect us to determine the policies, implement them, and operate the company.

CA: How long has that been in effect now?

JR: I came from Glacier Northwest, a sister company, so I've actually worked for Taiheiyo for almost 17 years now. And, for the most part, the modus operandi has been the same since day one. It's been a great relationship.

CA: Relative to anti-dumping duties, is California Portland a member of the Southern Tier Cement Committee?

JR: Yes, we are. We were not part of the initial group, but we have participated.

CA: So, is now a time to look for, if not a complete elimination of duties, a compromise scenario, e.g., quotas, etc.? Is now the time for an adjustment to the approach of anti-dumping duties?

JR: I think that anytime the parties can figure out a way to resolve the issues is a good time to do that. One of the obstacles that stands in the way is our anti-trust laws. Whether it's the Southern Tier group, or members of the Southern Tier, and Cemex plus the other Mexican cement companies, the parties are not allowed to sit down and try to negotiate terms by which that can happen. There have to be government-to-government discussions. Therein lies one of the challenges to getting the issue resolved. I'm not sure that the imports are available.

CA: Is that true, even from South America?

JR: The only countries subjected to duties at the moment that I know of are Mexico and Japan. And, I guess we'd be more than happy to talk with the Japanese! That has not been the focus of the discussion, but I think if it's good for the goose, it's good for the gander. But, it is my understanding that the Cemex facilities, at least near the border where supply might be brought in from, are operating at capacity and are sold out. A good bit of that is already coming into the United States.

CA: Right, and the places that don't have duties, like Southeast Asia, don't have the excess product either to ship, at least for a price that people are willing to pay, given the shipping costs.

JR: Freight costs in the last year have changed things dramatically.

CA: As PCA chairman, how do you see PCA responding in terms of relief. Where is the association placing its emphasis?

JR: The dumping duties and the Southern Tier are not a PCA issue.

CA: In view of PCA's neutrality in that regard, where does the association turn for relief in the situation?

JR: I think that's up to the individual members to resolve. We would hope that the current tightness of supply and the economic forecast that Ed Sullivan has put out would encourage producers to invest in our industry in the United States, because that's the surest long-term way to ensure an adequate supply, i.e., providing opportunities for sufficient returns on capital, justifying investments, and encouraging people to make the investments.

CA: Ed Sullivan's report suggests that this could continue to have an impact on the construction outlook into next year.

JR: I think that could easily happen in spot areas.

CA: What will PCA's Tom Gibson [the newly appointed senior vice president, government affairs] in the D.C. office be addressing?

JR: His focus is to ensure that the cement industry is treated fairly by the agencies and otherwise, so that we can continue to operate on a fair playing field and that we can survive, that if there are reductions mandated in emissions, we are not treated worse than the power companies or the refineries or others that produce the same kinds of things. His focus has nothing to do with the resolution of anti-dumping, because it's not a PCA issue.

One of the other focuses will be the reauthorization of the TEA-21 legislation, which has been dragging on all of this year. We had hoped all year to have a bill by now. We would hope that that would be one of the first things to be addressed, and obviously, that's one of Tom's highest priorities — honing in on that and carrying the banner on behalf of our industry and trying to get that reauthorization finalized.

CA: Do the shortages conflict theoretically with PCA's marketing efforts? How do you promote greater usage when there's less cement?

JR: I'd make one clarification: there is not a reduction of cement, i.e., there may not have been sufficient supply of cement throughout the year to meet demand, but there was more cement available this year than there was last year and the year before. But, the demand was even greater than the availability. So, the industry has been doing things, either by increasing the production out of their facilities, trying to stretch a little bit longer between outages, trying to push the plants maybe just a little bit harder where that can be done.

One of the other things that has helped through the last part of spring into the summer and fall, depending on how people have been able to take advantage, is the new ASTM C150 specification that allows the intergrinding of limestone into cement. That effectively increased the ability of the industry to supply cement where companies were able to take advantage of that. And, I do think that everybody, even the importers, were taken by surprise. Nobody expected the demand to be what it is. People have tried to do a better job this coming year of forecasting, or scrambling to try and line up potential imports where it might be viable to meet more of that demand.

CA: How much importing does California Portland do right now?

JR: Freight prices are high, but the import volumes are also significantly high. We do a fair amount of importing. We have import terminals in both northern and southern California, and then our sister company has three import terminals in the Northwest.

CA: So, the importing that you're doing is growing?

JR: We just opened our northern California import terminal in April of this year. So, we began importing into there in late April, early May. For us, it has definitely increased. One item also contributing to some of the shortage issues that we have in supplying our customers is problems we're having with the railroads.

CA: Is it Union Pacific that you're referring to?

JR: Yes, in fact, someone said they saw a locomotive painted in the yellow and black colors parked on a siding here in California about a month and a half ago that had the UP logo, but it said “Utterly Pathetic” Railroad, or I've heard others that said “Unlimited Parking.”

CA: They have cut back substantially the access to the rails that they provide cement companies, correct?

JR: Yes, we have a rail terminal in Las Vegas, and we have had major challenges this past year supplying that, because of their ability to move the cars. We also tried to move some cement from our plant in Arizona, before Arizona had shortages, into California to help alleviate some of the pressure here, and they shipped the cars to Texas instead. It took them 31½2 or 4 weeks to deliver the cement. It has been extremely undependable. In order for us to supply Nevada, we would end up having to truck a substantial amount. That's much more costly, besides you just can't move the volumes with trucks that you can by rail. The trucks just are not available.

CA: Is there anything you can do about that, or are you at their mercy?

JR: We really are at their mercy. We've screamed and shouted. I've got a lot of home telephone numbers now, but I don't know that it does a lot of good. All we can hope is that they look at what they're doing and make investments. But, I think that we as an industry get saddled with some of the problems that are beyond our control. That certainly is one of them.

CA: What rationale do they give you for cutting back?

JR: I have not heard a rationale. It's just, “We don't have enough people, we don't have enough equipment, and we don't know when it's going to get better.”

CA: What are some of the other direction changes that PCA is planning for the coming years?

JR: One of the issues, which you have discussed in previous interviews [with PCA chairmen], is sustainability, trying to educate the construction community — the engineers and architects especially, but also the specifiers and owners — that cement and concrete really are green products. The woods, the asphalts, the steels, and other materials that we're competing with may get more hype, and people look at the power supply required to produce cement, but if you look at the total and its long-term life, concrete is an extremely viable building material for environmentally sensitive construction. We need to get that message out on the sustainability side. I think that's definitely one of the things that we're working harder to get across.

CA: Any other areas?

JR: Getting back to the promotion issue, I recognize the shortage situation we just discussed, but promotion is a long-term deal. It's not just tomorrow's sale. To lay the groundwork, to educate people for next year and the next five years, or whatever it is that they may need to build a street, highway, bridge, building, or roller compacted concrete (RCC) — the five target market areas that we've got — to ensure that we can maintain a strength in those areas is key. If you look back, in the 1950s and early 60s when the interstate highway development was going on, concrete cement had a very high percentage of that market. Then, we got into some lean times, and PCA did away with its field engineers. That was really part of the core promoting to the DOTs of various states. As that diminished, it didn't just drop off over night; but, over a number of 10 or 15 or 20 years, that market share declined by more than half.

The goal has been to push that back up to levels that were seen earlier in the development of the highway system, especially in being able to take advantage of the increased spending from TEA-21 and hopefully its reauthorization, or even ISTEA before that, as we've seen more money pumped into the highways. It's possible to increase volumes, and maybe even market share, but still allow your competitor to increase their volumes at the same time, because the whole pie is getting bigger.

CA: On a national level, are there any areas of the country that PCA is seeing as an emerging market that warrants a special focus?

JR: We have been strongly encouraging the development of the regional promotion groups. It's maybe the step between the old PCA field engineers and having everything done centrally. It's where each of the regions, whether it be a state or a multi-state area, has developed RPGs, and they are more in tune with what's happening within their individual markets, whether it's residential construction, parking lots, streets and local roads, or airports, whatever the focus.

We as the national association are trying to ensure that we've got the tools and the backing and can put the groups in touch with either another group that's had successful programs, or give them the tools needed, so that they're not trying to reinvent the wheel. We can take what works in one area and duplicate it or replicate it in another as efficiently and effectively as possible. There's not a one size fits all approach to marketing. But, let's use the tried-and-true methods in more than just one area.

CA: In view of Cemex buying the RMC Group, a prime example of vertical integration, do see you see this as a trend? Do you anticipate more cement companies also handling ready mix operations?

JR: I think it goes in cycles. If you go back 20 or 30 years, there was quite a bit of it. Kaiser Cement is not someone we see anymore, but Kaiser was vertically integrated back in the 1940s and then got away from it. Ideal Cement at one point was vertically integrated and then got out of ready mix. Lone Star was much more vertically integrated at one point in time. I think each individual company goes through their maneuvers, and they find out what works. Either it does or it doesn't for them and their particular market areas. We are vertically integrated [at California Portland], not to a great degree, but in southern California; we're not in Nevada or Arizona. Our sister company is heavily vertically integrated in the northwest. We're not a manufacturer up there, we're an importer, but very large in both aggregates and ready mix concrete.

I think we will continue to see growth by some of the companies like the Lafarges and maybe even Cemex, where that has been part of their mainstay strategy. As for other companies, we have not given up. We've taken a look at increasing some of our vertical integration, but I wouldn't say that it's a major focus on our part. If the right opportunities come and the niches fall into place, it's something we have an interest in. I think it's just something that each company will look at individually. But, I think it's here to stay. You'll see probably more consolidation on the aggregate side, potentially, than you will the ready mix side.

There's still more interest among some of the major players to become more vertically integrated in that regard, whether they be companies already in the asphalt business that might also [venture into raw materials] — like Lafarge, for instance, or Oldcastle, or Rinker that are in ready mix and also aggregates — as well as some of the cement companies. I assume that aggregates is one of the reasons that Cemex is looking at RMC, not that they have huge amounts, but I think that that is one of their strengths throughout the world.

CA: If vertical integration goes in cycles, now would be one of the higher points?

JR: I think now is one of the higher points. That's correct. I think it's still more cyclical than trending.

CA: Cementitious materials like slag seem to be booming as well. PCA is re-examining its position?

JR: PCA is taking a look at that. It's on the radar screen, where a couple of years ago it wasn't. That's because many of the members are looking at that and saying, We're not just cement companies, we're cementitious material companies. I know here in the west, while it's not big, Cal Portland and a number of other companies have at least looked at or are looking at it. The decision has not been made. The question is still out there, but the answer has not come in as to what's appropriate.