Cement consumption in the United States continues to show the strong industry fundamentals identified by company management and brokerage firms as positive for investment purposes. New all-time highs in portland cement shipments and supplemental importing reflect seven consecutive years of growth in cement demand. Balance sheets depict record revenues, with returns climbing to quite respectable double-digit levels. Producer confidence is underscored by the projection of rising cement requirement into the 21st century, without an apparent downside. Accordingly, an expanding list may be noted of major spending commitments for plant modernization and industry capacity expansion.

Last year's domestic portland cement consumption figure almost reached the 100 million-ton mark, significantly above the previous decade's record demand of 80 million. Included in the current figure is a reported 1.2 million tons of blended cement. A 24 million-ton imported cement/clinker volume far surpassed the all-time high of 16 million tons recorded a dozen years ago.

Interestingly, the indication is that not all present purchases may be accounted for within this figure. Nearly one-fourth of U.S. cement supply potentially originates from sources other than domestic manufacture. However, the vast majority of this tonnage remains under the control of local cement producers. Support is thus maintained for the industry's climb in pricing and profit margins under way since 1993.

Assuredly, the engine of favorable product demand-and its attendant potential rewards-has been driving the several positioning strategies taking place within today's cement industry, especially with respect to capacity gains. Passage of the massive $217 billion federal transportation legislation (TEA-21) significantly raised producer expectations for future record cement consumption. This "mother of all transportation bills," calling for infrastructure rebuilding with cement-friendly projects, may generate product shipments nearing 105 million tons three years hence. Five years into the new century may see consumption reaching 110 million, some 10% more than existing levels.

That optimistic outlook has inspired several cement industry acquisitions to take advantage of the projected positive trend. In order to "open the nation's largest cement market to the company," Texas Industries bought Riverside Cement from a troubled Korean owner. Lafarge purchased Holnam's Seattle cement plant to "strengthen company market share in the Pacific Northwest." Southdown's billion-dollar merger with Medusa, establishing the industry's second-largest producer, was undertaken to "further capitalize on the expected growth in cement demand." Meanwhile, Heidelberger reportedly entered into a mutual agreement involving Dyckerhoff's Glens Falls operation. Similarly, Essroc reopened the Nazareth cement plant it had previously obtained from Lone Star "in order to meet demand."

The key strategy of U.S. cement companies continues to be expansion of production capacity by various means ranging from kiln addition for incremental tonnage gain to total facility replacement and, most recently, greenfield plant construction. The industry is undertaking an appreciable rebuilding of its production base, which can constitute the largest capacity expansion ever accomplished. Development is predominant in certain geographic "hot markets," namely Florida, Texas, and come-back California.

Florida has become the hyperactive state where growth in capacity appears to be bursting at the seams. Portland cement shipments have returned to and surpassed the peak levels of the late 1980s. With that, all four existing Florida cement plants have reported increases in production capacity. At CSR Rinker's Miami plant, a $100 million total replacement of the wet process facility nears completion yielding a projected output gain of over 450,000 tons. The increased product is slated for internal use within the Rinker network. Tarmac Pennsuco also plans to convert from wet to dry production with substantial tonnage increase. At reportedly attractive capital cost, Southdown's Brooksville operation will receive incremental capacity gain. Florida Crushed Stone's addition of a second kiln at its Brooksville plant had been placed on hold," but more recent reports indicate a revived plan calling for a $75 million investment to double production to 1.2 million tons.

Three new greenfield cement plants are in store for North Florida, all virtually identical in size and investment. Florida Rock's $100 million Newberry project is expected to place an additional capacity of 750,000 tons on-stream this year, the bulk of which will be dedicated to in-house requirements. Several months ago, Florida Rock further announced intent to build another same-size "greenfield" plant at Brooksville. The envisioned time frame is about 18 months for obtaining permits, followed by a two-year construction period. Negotiations are presently under way with CSR Rinker to jointly operate the unit. A new venture, Suwannee American Cement, reported that it plans to build a $100 million, 750,000-ton "greenfield" facility at Branford, west of Gainesville. Fall 2001 is the anticipated start-up date. Florida's foreign cement imports are viewed by the company as providing "competitive opportunity."

Florida's two Customs Districts recorded importation of over 3.5 million tons during 1998 (up from under 1 million tons six years before). The largest portion of this movement is tied directly to state cement operators. Given such import volumes, the sizeable capacity increase taking place, and several fully integrated market positions involved, a challenging battle may be shaping up on the Florida cement and concrete scene in the years immediately ahead.

Texas' recovery and record portland cement shipment figures contributed to situations of short supply. Accordingly, interest in cement capacity expansion has been rejuvenated, particularly for Midlothian facilities. Two companies have expansion projects in the works for plants there. Texas Industries' construction of a new kiln system is to increase production by 1.5 million tpy, more than doubling existing capacity. Holnam's decision to build a second kiln line of 1.2 million tpy would likewise more than double output of its facility by early 2000. Meanwhile, Capitol Cement's San Antonio operation has been upgraded, adding 150,000 tons to its annual capacity. Texas may also have its own "greenfield" plant project: North Texas Cement's building of a 1 million-ton unit on the north side of Dallas.

California's condition of depressed cement demand and slow five-year recovery has finally seen cement shipments again topping 10 million tons during 1998. This revival may be sparking the industry's interest in reinvestment. Modernization at National Cement's Lebec plant is expected to increase output by 350,000 tpy. Southdown continues its capital spending schedule at Victorville, with a second-phase expansion to add 1 million tpy-for a total of 3.1 million tpy-making it the largest plant in the United States The most recently reported state program involves Texas Industries' total replacement project at its newly acquired Oro Grande facility, increasing capacity by 1 million tpy to a total of 2.2 million tpy.

Across the country, additional projects are likewise under way to improve cement facilities and, especially, to expand their production capacity. The current atmosphere of active development reflects a basic change in the nature of industry investment: a shift from modest expenditures for short-term payback to major, long-range funding required for kiln addition and new plant construction.

Notable among these are Lafarge's $135 million replacement of the old Kansas City operation, resulting in a 530,000-tpy production increase; Lehigh's $180 million replacement of its older Maryland plant, with a 750,000-ton annual output gain; Blue Circle's intended $130 million replacement of its Alabama plant to obtain a 1 million-tpy increase; and Kosmos Cement's $93 million plan for Louisville featuring a new preheater tower with precalciner technology, yielding 78% capacity expansion. Additionally, Holnam is launching a substantial capital investment program involving construction of a 2 million-tpy plant on the Hudson River, a 3 million-tpy Missouri operation on the Mississippi River (making it the largest single-line facility in the United States), and renovation to double the capacity of a Colorado unit. Ash Grove's decision was to place a 1.5 million-tpy kiln at the site of its existing 500,000-tpy wet-process Chanute plant, the latter then to be decommissioned upon introduction of the dry-process plant. Chihuahua Cement's Rio Grande subsidiary plans to construct a 1 million-tpy greenfield facility near Boulder, Colo.

A tabulation of all such industry projects indicates that impressive capacity expansion may soon be on the books for U.S. cement. Over the three-year period through 2000, the potential gain is 10 million tons. Thereafter, anticipated further development could provide more than 15 million tons additional capacity for domestic cement production.

To this growing production capacity must be included consideration of blended cements, sold not as a commodity but as value-added cementitious materials. Fly ash and slag have both demonstrated amplified activity within recent years, given the initiative of various industry producers. Carolinas Cement and Phoenix Cement have both entered the fly ash market. Three years ago, Holnam bought two slag businesses in West Virginia and Illinois from Koch Industries. To expand grinding at these facilities, modernization of a South Carolina cement plant was deferred. The group is now building two more slag operations near Birmingham, Ala., and Philadelphia. A couple of years ago, Lafarge was unsuccessful in its attempt to buy JTM Industries, a major fly ash organization. Subsequently in 1998, two other suppliers of fly ash were acquired enabling the consolidation of all its U.S. operations into a new company, Minerals Solutions Inc. Meanwhile, Lafarge's slag interests were extended through importation into Tampa. Lone Star's 150% expansion of its New Orleans slag facility will increase product distribution through new terminals in Atlanta and North Florida. Blue Circle is reportedly interested in marketing slag at its acquired St. Marys' Detroit facility.

A demand-over-supply imbalance has created this decade's opportunity for U.S. cement producers to prosper. A considerable force behind rejuvenated revenues and returns, justifying substantial renewed reinvestment, has been the domestic handling of imports. The disastrous 1980s witnessed profit expectations undermined by dumped imports leading to depressed domestic price levels and underutilized plants. The 1990s have seen antidumping legislation, and especially direct control, to ensure that record-breaking purchased tonnage remains supplemental to domestic production.

With plants operating at full-out capacity, cement companies have played dominant roles in providing importation to meet demand. Some firms view this as a temporary expedient until their expanded facilities come on-stream. Others reveal tie-in sourcing of significant and lasting proportion. Recent activity of cement producers illustrates both of these approaches: CBR's reopening of its Los Angeles import terminal to meet market demand; Holnam's commissioning of its Globalplex import/export facility in Louisiana with well over 1 million-tpy throughput capacity; North Texas Cement's $20 million investment in a 70,000-tpy Houston import operation; Titan Cement's meeting the growing requirements of its Carolinas Cement with the help of Greek exports through the Norfolk terminal; Blue Circle's sale in the U.S. of "excess capacity" from St. Marys-Canada as the Group's Northfleet, U.K., plant resumed exportation to this country; and Heidelberger/Lehigh's report of a major share of its imported cement arriving from their Canakkale, Turkey plant. Also of interest in this regard is Heidelberger's announcement that calcium aluminate production at its Buffington plant in Indiana will be phased out and replaced by product from a Pula, Croatia operation.

Medusa claims that increased domestic ownership of import facilities has contributed to a "more orderly flow of imports into the U.S." Lone Star's observation is that growing import levels "have not had a serious detrimental effect on domestic producers." The marketplace is seeing, however, the involvement of other interests in "niche" import ventures. Likewise, growing volumes of exported Asian tonnage are reshaping the international cement trade, with potential for a greater presence in this country. China, for example, has already become the second largest source of imported cement in the United States. Cement from Thailand is reportedly entering Texas, Alabama, and several additional domestic market areas.

One may speculate that the scenario ahead for U.S. cement will feature the availability and widespread use of legislated highway funding. These expenditures in conjunction with the industry's own broadened promotional efforts can propel cement consumption to record-setting highs. Thus, the "umbrella" of demand projected for the 21st century may offer respite for producers enabling them to savor enhanced financial rewards.

Sizeable expansion of domestic production capacity generating a significant increase in output can function to displace current high levels of supplemental importation. Cement-producer control over imports serves to implement systematic, phased replacement. The bottom line for a healthy domestic industry is ultimately a rational and positive pricing policy. Meanwhile, one may anticipate that broadened company participation in allied product lines and further vertical integration will continue as the big become bigger in the building materials market place.

Yet, a reality check discloses a concern or two with regard to such optimistic expectations or hopes. Can a case of fatal attraction exist, in terms of too-rapid capacity expansion, reluctant departure of imports, or some combination of both?

An Engineering News Record article of last summer focused on the condition of the cement industry in view of sold-out facilities, allocations and shortages. The rather simplistic conclusion presented therein suggested that the industry's "long-term solution is increased capacity." Indeed, in the past, over-building of plants by cement producers has led to their worst excesses, with resultant unrealistic pricing and depressed returns. More than once, being carried away by over-enthusiastic projection of shipments has brought industry ruination. No one would deny that technological modernization for incremental expansion is a viable reinvestment option. Prudent capacity expansion, however, as a strategic choice affords the rational and competitive component for continued U.S. cement industry growth.

A tripling of imported volume in six years time is indicative not only of demand but also rising market prices. Opportunity to service demand and make money from doing so is the basis of any business endeavor. Undoing established supply tie-ins, or persuading others not to participate, can be a difficult-if not impossible-task. Some producer positions are predicated upon such involvements. A number of cement customers have entered into their own sourcing arrangements. Last year witnessed floating silo vessels becoming a further part of U.S. marketing schemes. Imports in large measure have again become a distinct part of product availability; how they are handled may well determine their propensity to disrupt.

Often overlooked is the fact that cyclical decline is a distinct possibility in this historically cyclical industry. Believing it to be recession-proof reveals a precarious assumption inviting disaster. Clearly, the producer's best interest lies in making sure that projected shipment levels do come into being. Making the good last longer, restricting any downswing to a brief episode, surely is a logical and meaningful agenda.

U.S. cement has come a long way since being described as a "commodity trap" during the early 1990s. Subsequently, producers were able to exert control over several principal variables to create a climate in the industry conducive to renewed earnings. Essential to this turnaround was the realistic pricing of its product yielding revitalized returns on investment, which stimulated capital expenditure.

Assuredly, the years ahead for cement producers will not be without their challenges. Those "loose cannons"-be they over-optimism, over-building, excessiv e importing, or market correction-can exert considerable influence. As opposed to reaction, the game plan of responsible business posture and behavior promises continued reward. Given this, present record performance can remain, demonstrating that making more cement keeps on being a remunerative undertaking.