The ongoing correction to the residential market will continue to adversely impact construction activity and cement consumption in 2007, according to the most recent forecast from the Portland Cement Association (PCA), Skokie, Ill.
Despite a strong performance in the commercial and public sectors early in 2007, the decline in cement consumption this year could exceed 3%, according to PCA. PCA's spring forecast had predicted a 1.5% decline in cement use.
Record housing foreclosures will worsen the housing inventory situation and prolong the downturn in new construction activity in this sector, according to PCA Chief Economist Ed Sullivan. Sullivan believes the recent use of exotic and sub-term mortgages are a primary contributor to the high foreclosure rate as well as a drag on consumer spending.
"As these mortgages reset, consumers are being faced with monthly payments that increased as much as 50%," Sullivan said. "Coupled with record fuel prices, consumers are likely to use credit card debit to maintain their standard of living, and this will lead to a deteriorating credit quality and overall slower economic growth."
Sullivan expects the slowdown to extend to the nonresidential sector, although not until the second half of the year. Year-to-date nonresidential construction in 2007 has grown 17.7%, but Sullivan anticipates momentum to be lost as with the reduction in growth.
With the decline in cement consumption, a reduction of cement imports also is expected.
"A large pullback in imports is materializing," Sullivan said. "Compared to the strong import levels in 2006, increased freight rates and pessimism regarding 2007 consumption could lead to a 5 to 6 million-ton reduction in imports compared to 2006 levels."