Cement companies in the United States continue to report impressive financial performances. Record earnings and attractive returns have furnished the means and incentive for a series of positioning strategies. The objective is to further revenue enhancement. Included within this planning is a growing list of plant reinvestment programs, strengthened market presence, and acquisitions both within and outside core cement interests.

The key ingredient to the industry's success remains the control of, or at least the meaningful influence over, business variables. Concentration has provided structure for operating in a more rational manner. Capital expenditures are increasing productivity (and capacity levels) to meet growing demand. Imports are serving companies' supplemental needs, at least until adequate/expanded manufacturing capacity comes online.

Equally significant are promotional efforts directed toward ensuring that optimistic consumption expectations actually do take place. Meanwhile, allied product involvements are providing complementary material availabilities and additional producer profit centers.

New "greenfield" plants have not been part of the U.S. cement scene for more than a decade. While citing the industry's "resurgence in pricing, profits, and returns," a recent Merrill Lynch research report reached a conclusion that "the risk of building a greenfield plant far outweighs projected rewards, considering the cyclical nature of the business." Several producer statements concur with this view, pointing to the high cost and required lengthy permitting processes of new plants as barriers to such new domestic capacity additions.

Yet there are now three greenfield cement plants scheduled for the industry. Interestingly, these have been initiated by other than basic U.S. cement makers:

* Major concrete producer Florida Rock began construction of its new 750,000-tpy Newberry plant a year ago to be on-stream in 1999. The company states, "It really is a natural investment for us."

* Fully integrated/joint venture North Texas Cement's consideration is for a 1 million-tpy operation north of Dallas, in production by year-end 2000.

* Cementos Chihuahua's U.S. subsidiary Rio Grande Portland Cement announced its intent to build a 1 million-tpy facility near Pueblo, Colorado.

The major commitment to capacity expansion remains with the established cement producers at their existing plant location. Some 25 such projects are presently indicated, ranging from upgradings to added kilns, process conversion to substantial replacement.

This latter group includes three US$100 million-plus programs, principally to retire 1950's vintage manufacturing units at: Lafarge's Sugar Creek, Missouri plant (with 350,000-tpy capacity increase); Rinker's Miami wet process operation (with 360,000-tpy output gain); and Lehigh's Union Bridge, Maryland facility (resulting in 750,000 tpy being added).

The net contribution of all these industry reinvestments at current operations can be an additional 7 million tpy affixed to industry clinker capabilities.

The US$1 billion merger of Southdown and Medusa represents a consolidation of domestic interests and a better positioning to face the internationalization trend that now dominates U.S. cement manufacture. Termed "an excellent geographic fit," the combined companies will form the nation's second largest producer, ranked in terms of capacity just behind Holnam and in front of Lafarge. Viewed from the perspective of Lafarge's US$3 billion acquisition of Redland (resulting in the world's largest aggregates maker), the action marks only the latest of the global concentration moves presently under way within the building materials industry.

Acquisition to procure additional U.S. output has become a more difficult feat as fewer candidates remain to be obtained. Lone Star's five-plant, 3.2 million tpy of clinker capacity was approached by four major producers without result to date.

Last September, TXI reached an agreement to purchase Riverside Cement for US$120 million from the troubled Korean Ssangyong Group as part of a business plan to expand into the western United States. Lafarge is negotiating to buy Holnam's 420,000-tpy, wet-process Seattle cement plant to broaden its market coverage in the Pacific Northwest. Blue Circle's US$266 million acquisition of Canada's St. Marys Cement represents another dimension of the added output consideration. The two plants purchased by Blue Circle represent 2.2 million tpy of production with their excess capacity slated "to be sold in the United States."

Industry distribution competence is likewise being reinforced and expanded. Previous to its being acquired, Riverside Cement placed into operation a rail-served 200,000-tpy throughput terminal in Stockton, Calif. Southdown opened a 400,000-tpy throughput bulk terminal in Phoenix supplied from both its Victorville, California, and Lyons, Colorado, plants. Lafarge and Ciments Francais were involved in supporting terminal moves. The former's repositioning plan led to divestment of Cincinnati and Pittsburgh terminals while it consolidated facilities in Buffalo, N.Y., opened a new Milwaukee, Wisconsin, terminal, and bought 100% ownership of a Mississippi River barge fleet. Ciments Francais added flexibility to its system by purchasing the two Lafarge terminals, then building one in port of Cleveland. Lone Star constructed an Oklahoma City terminal to receive product from its Pryor cement plant.

Holnam had stated its intent to strengthen its Mississippi River distribution network. It bought Continental's Chicago terminal for US$8 million, just previous to the sale of Continental's Hannibal, Missouri cement plant to a private investor group for US$58 million. Holnam is presently constructing a large import-export terminal in Reserve, Louisiana.

Lehigh equipped its Cementon, N.Y., terminal with a pneumatic ship unloader system to supply its North East market with imported cement. Counterpart to North Texas Cement's greenfield plant near Dallas is a US$20 million, 70,000-ton-capacity domed storage import terminal in the Houston market.

U.S. cement plants operated at virtually full-out capacity in 1997 as demand reached another record high of more than 92 million mt. Meanwhile imports climbed to an all-time peak at almost 18 million tons. This purchased material now accounts for about one-fifth of total portland cement consumption. It was just such volume, sold at unrealistically low prices during the 1980s, that had taken that decade's profit prospects away from domestic companies.

The 1990s have seen changed times and condition. Antidumping orders and direct acquisitions have led to producers here dominating in the buying of this material. The objective has become to ensure that importation serves supplemental sourcing purposes in support of their realized selling price gains rather than disruptive to them.

Canada stands as the single largest source of some one-third of U.S. imports. As such, it is existing cross-border producer ownerships comprised of both plants and distribution systems that have contributed to maintaining sourcing stability. Given the prospect for a continuing imbalance between U.S. demand and local supply, even as cement-maker programs do yield expanded output, the control factor over the import variable plays a central role in furthering industry profitability.

Concern over fewer large cement suppliers, rising pricing, and product availability have led several concrete firms to evaluate their own involvements in material sourcing. Florida Rock is the most notable example via its building a greenfield cement plant as backward integration for meeting internal captive needs. CSR's sale of its sizable Midwest aggregates position can provide funding for their replacement of Rinker's Miami production facility.

Ready mix interests have looked at a small, privately owned cement operation near Las Vegas to possibly provide for their product requirement. A Georgia-based concrete organization opened its own coastal import terminal with industry indication that there are similar investigations under way.

The portland cement market projection continues to reflect the optimistic outlook for additional consumption records. This certainly has been reinforced by the Senate's recent approval of authorized higher funding levels for highway legislation. Heightened producer promotional activities also are aimed at bringing possible product demand into fact. Higher usage factors could lead to the industry breaking the 100 million-ton shipments mark early in the new century.

Connected potentials similarly have become the offering, as demonstrated by blended cements. St. Lawrence declares that "pozzolans have become a core business," fitting directly with its U.S. subsidiary's distribution and marketing system. Lafarge's unsuccessful attempt to acquire JTM Industries, the leading firm in coal-combustion byproducts, was to be a natural extension of the producer's existing business.

Last year, two cement makers entered the fly ash market: Phoenix Cement, through opening a beneficiation facility at a New Mexico power plant; and Carolinas Cement via creation of a new subsidiary, Pro-Ash, and a contract with a North Carolina power company. Lone Star completed a 150% expansion at its New Orleans slag cement operation raising its annual capacity to 600,000 tons. This program additionally encompassed the building of new slag cement terminals in Georgia and northern Florida. Holnam deferred the modernization of its South Carolina cement plant to instead expand grinding capabilities at two purchased businesses for the making of GranCem slag cement.

Available cash flows are being committed toward other investment options. Diversification has witnessed Lafarge and Centex purchasing gypsum wallboard entities in logical extension of corporate goals. Medusa acquired several aggregate firms as "strategic fit" with existing interests to make it "the premier supplier of limestone-related lawn and garden products in the eastern U.S." Giant describes the obtaining of Solite Corp., a lightweight aggregates/concrete block/resource recovery company, as "strategic fit" to its business purposes. Meanwhile, at least seven cement producers have launched stock repurchasing plans to put their profitability to work for them both presently and later on.

Company reporting and Wall Street analyses characterize the current U.S. cement condition as possessing "strong industry fundamentals." That certainly is the case in terms of product consumption, realistic pricing agenda, and rational investment choices. Revised structure and control are being reflected in record accomplishments. Imbalance still is the expectation, to be supportive of further earnings gain. Such a favorable scenario appears as presenting U.S. producers with the opportunities necessary for enhanced managed results in making cement as well as money.