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Cement shortage building

As the cost of construction materials rise, political pressure builds to lift an antidumping duty on cement from Mexico.

By STEVE HUETTEL
Published November 26, 2005

The escalating cost of cement, a basic building block of construction, has Florida developers and builders fuming and looking to Washington for help.

A nationwide building boom has caused unprecedented demand for cement for new homes, office and commercial structures, schools, and roads. Even with domestic producers running at full capacity and imports on the rise, spot shortages have been reported in 32 states, including Florida.

Prices for cement and concrete (made with cement) jumped 10 percent nationwide over the last year and will likely rise another 10 to 15 percent in 2006, according to the Associated General Contractors of America, the nation's largest construction trade organization.

The pain is especially acute in Florida. With a growing population and an explosion of home and commercial construction, the Sunshine State's appetite for cement is huge: a projected 10.5-million tons this year or 8.4 percent of the nation's total consumption.

Concrete prices in the Tampa Bay area are up 18 percent this year, said Sam Ellison, managing director of the Beck Group in Tampa, a contractor for major construction projects.

For buildings made from concrete poured on site, he said, concrete can account for up to one-third of construction costs. Buyers ultimately end up paying the additional costs.

Political pressure is building for the federal help. Since 1990, the government has imposed an antidumping duty on cement from Mexico. Lifting the tax, currently 55 percent, would increase the supply and stabilize cement prices, supporters say.

"A steady supply of cement from a reliable source will have enormous economic impact, especially for a state facing ... rebuilding after costly natural disasters," Gov. Jeb Bush wrote Commerce Secretary Carlos Gutierrez in July. Governors of five other states also wrote in favor of lifting the tariff.

Supporters now raise a new issue: Eliminating the tax could hold down the higher construction costs anticipated with the rebuilding of areas hit by Hurricane Katrina. Last week, the Greater Tampa Chamber of Commerce wrote local member of the House and Senate asking for legislation to temporarily remove the tariff.

Domestic producers fiercely oppose any change. A group of companies from the South originally petitioned the government to penalize Mexican giant Cemex for selling cement in the United States at prices below what it charged in Mexico.

Cemex would resume dumping without the tariff, said Joseph Dorn, a Washington, D.C., attorney who represents 23 U.S. cement producers. U.S. companies have invested heavily to expand production and wouldn't continue without protection from Cemex, he said.

Besides, cement prices are in line with the costs of other construction materials driven up by heavy demand from the construction industry, Dorn said.

Gypsum products such as drywall jumped 10 percent in each of the last two years, reports Associated General Contractors, and the price of PVC pipe has increased from 20 percent to 100 percent.

Diesel fuel prices - 22 percent above last year - are a triple whammy. They run up the cost of operating construction vehicles such as dump trucks and off-road equipment like tower cranes. Plus, contractors get hit with fuel surcharges for deliveries to job sites.

Local developers say they've been able to handle the changes so far by negotiating maximum guaranteed prices with builders that factored in most price increases.

Lou Prida of Franklin Street Developers in Tampa said he had to raise prices slightly for some unsold units at his 40-unit condo north of downtown after signing a construction contract in January.

"If I had to do the project today, the costs would be 30 percent higher," said Prida, whose Residences of Franklin Street is scheduled to be completed in June 2006.

But the uncertainty over materials and labor costs are making some developers wary of launching new projects.

Opus South, developer of high-rise condos in the area, sees a market for new warehouse space, says senior vice president Jerry Shaw. But materials and labor expenses make construction prices so high that rents won't support them, he says.

In Deerfield Beach, Prudential Real Estate Investors put off a 250,000-square-foot addition to its Quiet Waters Business Park because of escalating construction costs, the Wall Street Journal reported.

Developers are telling Jeff Cash, an AmSouth Bank executive in Florida, that construction costs could rise from 15 percent to 20 percent next year. None say their projects are on hold, but they are wary about unknowns such as the impact of the Katrina rebuilding on costs.

"This is still a period of uncertainty," said Cash, the bank's senior vice president for commercial real estate. "They don't know the full impact because it's still ongoing."

New construction in New Orleans won't likely begin until the second half of next year, said Ed Sullivan, chief economist for the Portland Cement Association, the nation's trade group for the cement industry.

Rebuilding the whole city would take 9.5-million tons of cement. But if enough people don't come back, Sullivan said, it could be as little as 3.5-million tons. Spread over a five-year reconstruction, that won't do much to change total U.S. demand, now 125-million tons a year.

The group hasn't taken a position on the Mexico cement tariff. Florida would benefit from a new source such a short distance away, Sullivan said. But only so much Mexican cement could reach the United States because of limited port terminal space and overcrowded rail lines, he said.

Supporters "created unrealistic expectations," Sullivan said. "It will help, but it's not the solution."

[Last modified November 26, 2005, 02:30:29]