WHO will benefit the most if President-elect Clinton decides to spend some extra taxpayer dollars on new highways, bridges, and other infrastructure projects?
Foreign cement companies.
Yes, some of the federal money to help the United States grow will ultimately end up in the bank accounts of foreigners since 65 percent of the US cement industry is now owned by foreign companies. Many of those same companies are also cement importers - which also stand to benefit from any Clintonian infrastructure spending. "They get a double dip," says George Wells, the president of Ash Grove Cement Company, a US-owned company in Overland Park, Kan.
The likelihood of increased cement imports - which also hurts the US trade balance - is quite high. The industry currently has 84 million tons of capacity. It is now running at 85.5 percent of capacity. There is some doubt whether it can produce at higher than 90 percent of capacity. Lack of new cement plants
"Have the facilities been maintained to assure the tonnage is really there?" asks Kenneth Simmons, a consultant to the industry. Mr. Simmons notes the industry is currently running a lot of old plants - the average age of US kilns is 23 years old. "There have not been a lot of new efficient plants built in the last five to seven years," he says. Simmons is based in Riegelsville, Pa.
The industry has not invested in large part because demand has been soft and prices low. But that may be changing.
William Toal, the chief economist at the Portland Cement Association (PCA) in Skokie, Ill. is forecasting demand this year at 84 million to 85 million tons, up from 81 million tons in 1992. In 1994, he projects demand of 90 million tons. The PCA has already spotted some shortages in Texas, southern Ohio, and parts of the upper Midwest.
If there are shortages cropping up, they are coming at a time when cement demand could really get fired up by the 1991 Intermodal Surface Transportation Efficiency Act, which provides $151 billion in federal funds over six years to repair the nation's highways. For fiscal year 1993, Congress appropriated $18 billion for the program. Although some of the money will be spent on mass transit, the PCA estimates that every billion dollars in highway spending requires an extra 500,000 tons of cement. Low concrete prices
Prices so far have not reflected any tightening in supply. In Denver, Ginger Evans, the engineer in charge of building the new airport, reports that concrete prices "did not flicker" with the huge project. In fact, she says Denver used more concrete paving than normal because of low prices. Concrete, which uses cement as its major raw material, is usually more expensive than asphalt. "We got 1960s prices on concrete," she says. The Federal Highway Administration says road construction costs decreased 9.5
percent in the third quarter in large part because of lower concrete prices.
Prices are low because the industry is highly fragmented. Companies have historically fought for share of market with price. "If the industry is really going to run at 90 percent of capacity, it has to set some prices and make them stick," Simmons says. However, the ready mix companies that pour the concrete have often whittled price increases down.
The low prices are not daunting so far to foreign companies. The largest producer with 12.4 percent of the market is Holnam Inc., owned by Holderbank, a Swiss company. The second largest with 9.7 percent of the market is Lafarge Corporation, owned by Lefarge Coppee, a French firm.
Still more foreign companies are looking at the US. "We are in touch with the foreign companies and many are targeting the US as part of their business strategy," says Elmer Gates, the vice chairman of the Fuller Company, a Bethlehem, Pa. firm that produces capital equipment for the industry. Mr. Gates says South Korean producers are now focusing on the US.
Imports are currently at a very low level in large part because of a successful anti-dumping suit concluded in 1991 against foreign producers. Thus, Mr. Toal expects imports in 1992 to total under 7 million tons, down from a peak of 11.5 million tons in 1988. Because of the anti-dumping suit, Mexico, for example, will only ship 850,000 tons, down from 5 million tons four years ago.
If demand and prices rise, cement producers might be tempted to expand capacity. However, it now takes three to five years to get all the environmental permits needed to build a new facility. "You just cannot decide one week to do it and have it on line the next year," Mr. Wells says.