Welcome to the first Critical Trends in the North American Cement Industry report, an exhaustive survey intended to gauge the major issues of the day in the industry. The 2006 survey was a collaborative research project between the Portland Cement Association and Cement Americas magazine. An interesting aspect of this research is that many of the topics and questions in this survey were generated by representatives of the cement industry. In case you were wondering, 40 companies responded to the survey, an impressive number considering the size of the industry and the fact that this is a first-time project. We believe you will find the information on the following pages interesting as you consider the state of the cement industry and useful as you plan for the coming year.

GENERAL BUSINESS TRENDS

While respondents see sales increases coming in the next few years, the overwhelming number believe that the percentage increase will taper off after three previous years of double-digit growth in some cases. Whereas for the last three years, 35% of those companies responding saw 0% to 5% growth in sales (with 25% seeing more than 15% growth during the same time period), now more than 57% see their future sales number climbing 5% at most in the next three years (80% of respondents expect a sales increase of 10% or less).

Half of the respondents indicated that the shortage moderately increased production and sales, while another 22.5% saw greatly increased production and sales. Hand-in-hand with the sales impact is the fact that product availability concerns are the top end-user issue for 75% of responding companies.

More than one-third of the respondents (37.5%) of respondents cited environmental, safety, and health as the most critical national issue in the industry, followed by supply shortages (25%). Similarly, 40% of respondents think environmental permitting troubles will be the most significant issue in the next five years. Thirty-five percent of companies cited controlling costs as their most pressing issue at the plant level, while 17.5% each indicated that environmental regulations and product shortages were their most pressing issue.

Not surprisingly, six in ten respondents report fuel costs of less than 20% of total operating costs, compared to 70% of companies reporting similar costs for electricity.

MAINTENANCE TRENDS

Maintenance represents more than 20% of operating costs for nearly six in ten respondents. In fact, the largest segment of companies (30.8%) reported spending 25% or more of operating costs on maintenance. Nine in ten respondents have a preventative maintenance program, and 92.5% have a program of planned maintenance. Most companies with planned maintenance programs reported that it is semi-automated. Only one in 10 respondents have a manually entered plan.

Unplanned shutdowns are caused by equipment failure for 62.5% of responding companies. When asked what their most significant unplanned maintenance expense was in the past 12 months, responses ranged from a $1 million broken clinker conveyor and replacing refractory brick or kiln chains to motor failures and explosions in the plant.

LABOR TRENDS

Most respondents to our Critical Trends survey believe their is a shortage of quality candidates in the industry. Nearly two-thirds (62.5%) of the companies felt that this describes the current state of the industry's labor pool. This is borne out by most respondents (57.5%) indicating that they are currently adequately staffed, but concerned about finding replacements; only 2.5% believed they were adequately staffed and no worried about staffing issues. Nearly all respondents (95%) report that they require more skills and qualifications from their technical employees.

More than two-thirds of companies responding agree that technical schools/universities need to do a better job of training, while 42.5% agree that these institutions need to do a better job of recruiting. Our respondents believe in training: not one reported not sending their managers to training programs. Ninety-five percent send their managers for safety and health training, and 82.5% send them for technical education. Nearly three-fourths (72.5%) send them supervisory training.

TRANSPORTATION TRENDS

Fuel costs were the transportation challenge chosen most often (43%) by respondents, with rail service availability and cost coming in a close second (33%). Also cited by companies were truck and driver availability, water transportation availability and cost, and state and/or federal regulations. Shipper availability (35%) and direct shipping cost (27.5%) are respondents' most significant logistical constraint, followed by container availability (not enough rail cars) and terminal access/availability.

Trucks are the most efficient mode of transportation and the one the industry is turning to more often, according to our survey. Rail was chosen as the second most efficient and the one the industry is turning toward. Most respondents (53%) spend 10% to 19% of their operating costs on logistics.

ENVIRONMENTAL TRENDS

Nitrogen oxides are the most significant current environmental constraint and will continue to be so over the next five years as well, according to our survey results. Just under one-third of respondents (31%) cited nitrogen oxides in each case. Carbon dioxide ranks second (24.1%) as a environmental concern over the next five years, while particulates are the second-ranked current constraint (at 21.9%). More than half of the respondents spends 10% or less of their total plant operating costs on environmental compliance.

AUTOMATION TRENDS

Respondents most need plant operational controls (kiln or mill systems) and raw material handling controls (stacker/reclaimer, etc.). One-third of companies named each of these areas as their greatest current automation technology need at the plant level. Nearly all (92.5%) respondents have invested in automation technology, and 70% note that this has had no effect on their customer base.