Concrete is the foundation of just about everything
Concrete is responsible for modern civilization. I mean to
be blunt
You walk on a concrete sidewalk
Dean Martin planted his feet on the specially prepared concrete.
When you travel your aircraft lands on a concrete runway.
Drinking water is provided through concrete pipes, not to
mention what we know was concrete jungles, cities. In
fact, concrete is so popular that it's the most widely used
man-made product on Earth. For every person in the world, about
three tons of concrete gets used every year,
It's been a very durable, sustainable resilient material
for 1000s of years.
After all, it was essentially concrete that built Rome those
1000s of years ago. To make concrete we need cement. First,
the two materials are inherently tied together, but they're
entirely different products. But, this essential construction
material has fell victim to pockets of shortages across the
U.S.
The cement itself is becoming more and more difficult to get
We're not unlike many industries. Covid caused
disruptions in supply.
Now, demand is expected to increase the global cement
market could be worth over $458 billion in 2028. As more
millennials buy their first homes and after the Senate
passed a major $1 trillion infrastructure package.
I believe it's a historic investment in roads and rail and
transit and bridges.
All of which need a ton of concrete,
We don't have enough workers, ingredients, capacity to deal
with the demand right now just coming out of the private
sector.
At the same time, this kind of production emits a significant
amount of carbon dioxide. One study estimates that global
cement production accounts for 8% of global co2 emissions. That
makes it the largest single industrial emitter of carbon
dioxide. Here's how the cement-concrete supply chain
works and whether it can handle the demand from the new $1
trillion infrastructure spending plan.
Demand for concrete rises along with construction activity. In
2019, 70% to 75% of U.S. cement sales were to ready-mix concrete
producers, which was worth at least $65 billion. First, it's
important we point out the difference between cement and
concrete. Cement is like the egg of the concrete recipe.
So, concrete is produced with cement, makes a paste with water
and that's joined with rock and sand to heart. So, concrete is
more of a value-added product.
There are many different recipes for cement, but the most common
one is for Portland cement.
There are different types of cement. One that's cheapest to
make and is most prevalent is great Portland cement, called
Portland because it's named after the gray stones on the
Isle of Portland, England.
The first step to making Portland cement is getting all
the ingredients or raw materials, mainly rocks
Four primary ingredients: calcium, silica, alumina, and
iron. These are the most common elements in the Earth's crust.
Calcium is the main ingredient calcium carbonate, aka
limestone.
The process of making cement is still the same today, you have
to get raw material. You got to get raw material or from a
quarry
Cement companies own quarry space where they use explosives
to break apart the earth to find the right minerals needed. This
quarry here is part of Lehigh Cement's operations in Union
Bridge, Maryland. It's expected to have about 80 to 100 years
worth of limestone. All the raw materials get crushed together
into a powder.
And then after it's ground and crushed, they put it in a rotary
kiln
That can heats up to typically about 27-2,800 degrees
Fahrenheit. And by the way, that's about a quarter of the
surface temperature of the sun. So it's really, really hot. And
because it's so hot, we have these really complex chemical
reactions that are taking place.
After the crushed rock cooks in the kiln
It turns into material called clinker
Then, the clinker gets ground up again into a powder. This time
materials like gypsum are added into the mixture. And then
it becomes cement. The process is still the same.
Well it's pretty much the same. The U.S. cement industry has a
rich history.
American industry shows the impossible accomplished. Almost
overnight, the world's largest cement plant rises...
These early U.S. cement manufacturers helped build the
Holland Tunnel, the Empire State Building, Rockefeller Center,
and
The dream of the Panama Canal came true when America...
A project that changed global trade as we know it today. Now,
cement production occurs in 37 states, making the industry
super local, which is part of the supply chain problem now.
When the coronavirus pandemic struck in 2020, the U.S. economy
came to an abrupt halt. The cement industry wanted to
prepare for the coming recession. The last recession
after the 2008 financial crisis caught the industry off guard.
Like they expected to have big shutdowns because of what
happened 10, 12 years ago 2008 and 2009, all of us expected the
same thing to happen, demand fall off a cliff. And that
didn't occur.
This affected supply levels, which is why the industry isn't
seeing cement volumes it normally would right now causing
that supply, tightness and local markets across the U.S. Sullivan
says the cement market still grew by 2% overall in 2020.
And a lot of that growth came at the very end of the year
Like Lehigh cement and union bridge. They're sold out for at
least the rest of the year. Another pandemic issue the
ongoing labor shortage.
It's such a process just to lay a concrete slab. That's human
beings, and there's not enough of them that do that kind of
work. And the hitter the market, the greater the increase in
prices.
It's hard to find truck drivers who move the product around
locally.
We rely upon trucks to deliver the cement from the plant to our
terminals. I think 97% of all our product flows by trucks.
The red hot housing market in the US during the pandemic
increased demand for concrete.
Instances which supply is unable to keep up with demand. What
that leads to is bidding wars and people competing for
concrete slabs to lay foundations and that raises the
price of those kinds of things. Not just for foundation
building, but also for things like patios, and driveways, and
so on and so forth. So, lots of demand out there, supply chain
disruptions, higher prices, big inflation numbers, frustrated
homebuyers.
Plus, weather events and cyberattacks can shut down
production. Another reason the industry sees delays, these
current supply chain kinks will work out in the coming months if
economies continue to reopen at the same pace. And as of now,
it's predicted that the U.S. has the capacity to manufacture the
cement it needs, assuming imports of chemicals and
ingredients arrive on time drivers and laborers are hired.
And that extreme weather events don't shut down production, and
that there aren't any Covid related shutdowns.
Of course, that demand will increase even further. Thanks to
the infrastructure deal
We have ample capacity to meet even the most robust
infrastructure bill. You've got to identify what projects, you
got to identify the supplies of those projects, you got to do
bids, reviews, and it takes time.
But, you also have to look at it with carbon emissions. What
happens through the lifecycle of that product? How's it produced?
How's it used? What happens when it ends?
Cement production also comes at an environmental cost.
There is some positive correlation between economic
activity and our greenhouse gas footprint. To the extent that
demand is higher the industry is more active, you'll tend to see
more carbon released in the air.
But we're looking at carbon neutrality throughout our entire
value chain and reaching that by the year 2050. Our value chain
isn't just cement or concrete or for that matter what happens at
a cement plant. From a material fun standpoint, that concrete
absorbs co2. Now, it's not a game changer. But right now, we
estimate about 10% of the co2 emitted during the manufacture
of cement and concrete is actually reabsorbed through the
lifespan of a concrete structure. And when a concrete
structure is demolished, we can reuse that aggregate for new
concrete.
The prospect of more climate-friendly cement has
attracted big name investors. Breakthrough Energy Ventures,
which is backed by Bill Gates, Jeff Bezos, Richard Branson and
other high profile investors, recently invested 2.5 million
euros in Ecocem Materials to roll out new formulations of
environmentally friendly cement.
I think it's going to be two key issues. One is green and
everything that surrounds that on the product side as well as
on the production side. And the second one is, is the
infrastructure bill
Even without the pandemic-driven labor shortage, the industry
needs to train more workers to make up for retirements and the
already-shrinking labor pool.
So, as an economist who wants to see a larger U.S. economy, a
more efficient U.S. economy, one that has more infrastructure
available to its people. It's frustrating to see so few young
Americans in particular, enter the skilled trades. And that's
again, one of the reasons that we have these shortages of
infrastructure, these very high prices. So in the long-term, I
suspect we will have enough cement, but in the short term we
can do to have the supply chain difficulties, particularly in
certain markets. And so prices are rising. And so right now
apparently, supply is not rising up to meet demand. The capacity
is not there. I still think that we're going to be faced with
shortages and high prices through the balance of the year
but you'll start to see more and better equilibrium form over the
course of this year and then into next year.