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Integrity • Tenacity • Clarity
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Welcome to the ITC Tax Podcast, where we cut through the complexity of taxes and help businesses plan smarter, save money, and stay ahead. Each episode will dive into real conversations about things that matter right now, data centers, site selection, incentives, property tax, and more. If your business is growing or planning big projects, you don’t have to navigate it alone.
Let’s get into it.
Mark: Hey, ed, mark, is that here? Pleased to have you. I’d like to introduce. [00:01:00] Ed Sullivan. Ed is an economist who publishes the Sullivan report. Ed has been with the cement industry for over 20 years, as well as been an economist for other associations as well. Glad to have you here today, ed.
Ed: Mark. Thank you very much,
Mark: ed. My first question for you, what are the maybe two or three economic issues that you see facing the cement industry today and what you foresee, say, maybe for the next 12 to 24 months?
Ed: Okay, so, uh, right now it’s, uh, high interest rates. High interest rates are going to restrain private, uh, construction activity, particularly in housing.
Uh, I, the, the second issue is if, if you look at it, uh, the, uh, infrastructure investment and jobs act, that’s where all the money comes for the highways. Well, that’s been, you know, the, the, the [00:02:00] effectiveness and the power of that has, um, been eroded from inflation, and it’s a mirror of what it was a few years ago.
Well. That’s up for renewal. Renewal in September. And so what comes of that? Keep in mind, uh, I don’t believe there’s any, um, uh, key discussions in terms of what levels they’re talking at, but it’s gonna come in the context of people’s becoming more and more aware of the big federal deficits. And so that could constrain it and maybe narrow it.
Two of the big issues, I think thirdly is where is the economy going? There’s a lot of uncertainty out there. Uh, it’s inflation. Is it tariff driven? Are we still waiting on that or have we passed that? And um, also, you know, we, we see these real strong GDP growth numbers, but [00:03:00] it’s not translating into the job market.
So what’s going on there? So that goes to a third area where the construction industry, uh, is facing and that def they’re facing labor shortages in the midst of this slowdown. Construction is short and immigration policy adds to that, and we’re lucky in, in some ways that we do have, um, a little bit of a slowdown in the market right now.
Or that shortage would be much greater and it would be restraining construction activity. So that’s near term. That’s what they’re doing. Guess, you know, I, I think in 18 months from now, um, the inflation issues I think will be resolved by itself. That means interest rates will come down because the inflation premium added to the loans, the long-term loans is lower.
I think in addition [00:04:00] by then. We’ll have a new, uh, infrastructure bill in 18 months as those interests. And I also think we got a new federal chairman coming in. Okay. And there’s good potential, even though his track record is not this way, there’s a good potential, uh, that um, he will. Reflect some President Trump’s views, and that means a more aggressive easing in monetary policy, which again, forces interest rates down.
So if you look 18 months, while things right now I think are a little tough, I I I’m thinking for the next six months, you’re gonna, what, what you’ve seen over the last six months is what you’re gonna see. This, uh, construction restrained. But once we pass this 18 months from now, you have the potential of lower interest rates, potentially mortgage rates at five and a half.
That unleashes tremendous [00:05:00] pent up demand. You gotta strengthen an economy that’s gonna help net operating income for nonresidential. It’s also gonna lower their long term rates. And then finally, do you have the potential of a stronger, more vibrant? Infrastructure bill, you could be looking at all three key sectors that push construction activity, beating positive.
When you have that happening, you typically get growth in the cement industry year over year of 3%, maybe more. So, uh, two different, two different things. It’s, it’s like the tale of two cities right now. Um, things. A tough, you know, the, the market’s been in decline for, for three years. Um, it’s debatable what this year comes out as.
It’s probably gonna be kind of a flat saddle year. Give it time, [00:06:00] 18 months, 24. Uh, I think you, you, you’re looking at some, some good numbers.
Mark: Okay. Yeah. Because it seems like with an election year. You know, you just never know what’s gonna happen. But I would think both parties, you know, want jobs. Both parties want investment.
It’s just can they agree on it, how to do it.
Ed: Yeah. And you know, and it’s, you know how Congress works now. It, it, sometimes, I, I wonder if it’s the best policy for people or is it just, you know, tit for tat against each other. So, and that can constrain what happens.
Mark: Okay. Alright. My next question. How does, how do you think the one beautiful bill and immigration policy are impacting the cement and the construction industry right now?
Ed: Okay. Well, uh, the big beautiful bill, um, [00:07:00] I think there’s two sides. Uh, one is kind of, it’s gonna reduce some of the regulation. Uh, it, that means, you know, maybe you can bring some, um, programs in, big programs in faster. Okay. Uh, maybe that reduces your costs. The second area is right up your alley mark, and that’s gonna be, um, the tax benefits, the depreciation issues.
Now, I think, um, both combined, uh, will add significant to. Economic growth. When I say significant, I’m, I’m thinking it could add as much as a half a point to GDP growth this year. Alright, mark, that’s significant. Now it’s important too because you know, in my mind when I go through everything, it looks like the economy is, is, is getting weaker, but then the GDP numbers come out fantastic.
So this is gonna be a good. Um, [00:08:00] support for the industry particularly, um, uh, maybe more so in the, in the second half of the year. But it’s, it’s there. So that’s the, the big beautiful bill. What was the second question
Mark: on how do you think immigration, oh, you know, some of the policies, how are they impacting the construction industry?
Because that’s kind of the,
Ed: yeah.
Mark: What downstream. The concrete seems to the news. A
Ed: yeah. Um, so, uh, I, I don’t wanna into political side of it. Let’s look, just look at the economic side. Um, you know, the, the construction industry right now faces shortages in labor. It is everywhere. Some states states it’s more severe than others, but it’s everywhere in our industry.
Uh, the placement of [00:09:00] concrete, um, it’s a higher percentage that we rely upon undocumented workers. It’s huge. I, I, I, you know, I’ve done the, the, the analysis and the reports. I, I think it’s in excess of 20% in some, some areas. Guess what you also see in specific trades like electricians, et cetera, et cetera.
Uh, we don’t have enough of those. Um, well, you can’t finish a house if you don’t have the electricians. It has a huge impact on construction and ally. Cement. My guess is that the ice, um, program, it’s very aggressive. Um, it will worsen the whole labor shortage issue. And as I was, you know, thinking is that, you know, that labor [00:10:00] shortage issue, we’re lucky right now in a way, oddly perversely because construction is down.
If construction is gonna be robust, like, I think it’s gonna be in that 18, 24 months, and we have labor shortages that are aggravated by aggressive, um, ICE actions, it’s gonna make securing labor’s tougher. It’s gonna come out in one way, it’s gonna be higher costs, and so it’s also gonna probably delay. It may forego some construction activity.
I don’t think those are concerns now. I think they could be concerns when that market turns.
Mark: Okay. Fair. Fair enough. Like I said, it’s, it’s out there, but you know, we’re having to speculate and who knows.
Ed: Yeah. Mm-hmm. Yeah.
Mark: Next question. What have you seen outta, you know, [00:11:00] here in the US production? Have you seen any major changes out there?
Or future growth? Just in certain areas or just in general? Do you see the industry, you know, how is it, you know, I think some of the laws have changed or maybe. Some of the European countries have sold off some of their cement plants and US companies over here, you know? But now you know, is there gonna be as much push toward green cement?
Do you see that coming? Yeah. Or do you see maybe a little bit of retrenchment and well, how do you think the opportunities will be there for the cement industry,
Ed: you know, the cement industry in, in each of those part participants? The cement companies themselves been very aggressive in lowering their carbon emissions, and in many instances they’ve been very successful.
They’re looking at fuel substitutions, they’re looking at, um, you know, uh, putting, uh, uh, uh, [00:12:00] PLC uh, Portland limestone cement, which reduces the carbon dramatically. And so those are all gonna continue. Now, I understand that the, the president administrations is not as, um, worried about, um, climate change and all that as say, the previous administrations, but it seems to me that the industry is still very much committed to it.
Now, perhaps that’s because many of them are foreign owned, European owned, and they haven’t. Taking that step back, uh, if you, so I think that’s a, that’s a constant. It may not have just as much of an attention from the administration, but that’s a constant. Here is an issue though, in my mind. If you look at where they go green, um, they have all these, you know, materials [00:13:00] and material substitution and fuel substitution.
If you look at the end of the day, in order for them to meet their goals, carbon neutrality, you’re gonna have to see carbon capture. It’s extremely expensive. Also, you gonna require pipelines that go into that. It’s, it’s really just, um, the, the testing on that for a cement plant are really only ongoing now.
I think we have the first, uh, plant going in, but um, you know, there’s a question whether you can get the technology and the pipeline all working in time for that, you know, 2050 carbon neutrality. That’s the biggest question I have to get that going. You need the government support. And so the issue is will [00:14:00] the current administration continue to fund it?
To meet that goal. And I, I have some concerns, uh, about that. You know, maybe the best is, is, you know, we’re gonna lower the carbon, gonna lower significantly designating zero by 2050. That might be. Where they, they, they might be off a little bit.
Mark: One of the areas that I see a lot of announcements being made is people are talking about investing in, you know, ai, you know, artificial intelligence, data centers, you know, hyperscale data centers.
Of course. Then there’s what they call behind the meter power, dispatchable power. You know, it needs power to operate these data centers. It needs to operate these data centers. A lot of that power generation, especially if it’s say, small nuclear, you know, modular reactors, you know, just power plants in general require a lot of cement, [00:15:00] you know, and then maybe the roads to the data centers is gonna require a lot of, you know, cement concrete.
What are your thoughts on data construction and power plants? Will that have, do you see a large impact on the cement industry? What you can now?
Ed: I, I, I think it’s, uh, you know, right now in the context of high interest rates and nothing else is moving. This is an exciting area. Uh, mark, I, I don, uh, uh, estimates on this, uh, on the data center.
And, uh, you know, if you look back at, um, 2020, it was roughly about a hundred and a little more than a hundred thousand tons of cement that went into data center construction. Last year it was over 1.5 million tons. Now that goes from almost nothing to something significant. You’ve seen tremendous growth rates.
This year, [00:16:00] we’re expecting to go from about 1.5 to 2 million. The growth continues. It’s exciting. If you are in a region and you have a hyperscaler in there, it can change. What your, your, your year’s performance looks like from things where the cycle is pressing, housing down and everything else to this going on.
You did pretty well. Um, I, I think it’s important to put things into perspective. While I think data centers are gonna continue to grow, and you’re right, the infrastructure has to go there, the energy construction of these modular nuclear. I think that’s coming too. Um, you know, and this is also data centers.
Also, this onshoring thing is going on too. We’re building some big plants and, and so that adds to it. I, I did, uh, an analysis on the onshore and there was as much cement [00:17:00] generated, consumption generated on the secondary impacts, building the roads, building the. The, the housing that goes with it, et cetera, et cetera.
Uh, then there were in actually the facility. So there are huge secondary impacts, um, put it into perspective. So it’s gonna be 1.5 this year outta what? A hundred million ton market? Still relatively small. It’s, it’s probably less than 2% and it’s gonna go up. Strong growth, maybe it’ll go to two and half percent of the whole market.
To put it into perspective, in the non-residential arena, which is where data centers lie, um, retail is five to six times the amount of cement is consumed annually. There then currently data centers, and I don’t need to [00:18:00] tell you that retail, uh, construction is down. It’s, it’s weakness is, is and sometimes offsetting, um, fully, uh, what’s going on on the data center.
The other thing too, to keep in mind, mark, is when you look at these hyper centers, that’s really where the, the, the big volume is gonna be. Okay. There’s, there’s the edge in, oh, I can’t remember all of, there’s the edge in the, uh. Um, yeah, the small ones from 10 to 15, 10 to 20 million to the hyper scales, which could be a billion dollars.
Um, but if you look at that, uh, you know, it’s concentrated in a few key states. Texas is one of them. Um, Ohio, uh, Virginia is big. Uh, I think you see Arizona and Oregon, but there’s a lot of states that [00:19:00] you’re not getting the hyperscalers and it’s just ’cause, you know, energy or, or, or workforce issues. But it’s going to be dynamic over the years to come.
It really is. It’s not gonna just go away. Just, you know, and it’s, it’s, it’s, it’s where our economy is going. We’re going much more on this tech side. And that’s a structural change in, uh, what our economy’s all about.
Mark: You know, good points. All like you say, you know, data centers small, but they said it’s all that related secondary market that goes with those where the Yeah, we, you’re right.
See, in Texas, Virginia, Arizona, even places like Ohio. Yeah, and Louisiana’s got a big mata one going on. So cement is always not always generated in the, in the right places. And you know, I don’t think there’s, you know, there’s no, there’s not a cement plant in the state of Louisiana, so obviously some of these places you’re gonna be having to bring in the [00:20:00] raw material for that data center, I guess imported, whether it’s by rail or by boat, or barge or whatever.
Ed: You know, it’s kind interesting, mark, when, when I go out to these conferences, I was at the world of Concrete and I talked to people because that’s really, you know what it’s, I, I, I immersed myself in numbers. You really get an idea what’s going on when you talk to people. And I could talk to some people and they’re saying, ed, it’s, it’s not good.
It’s not good. And then I can turn around and talk to someone else and it’s fantastic because they’ve got. Going in, you know, that it can make that much of a difference. And so, you know, uh, and it’s very regional, you know, you could be in a, in a state where you, you got the, the construction of a going on, but, and distant parts of the state, they’re not getting much of an impact.
So, you know, it, it, uh, [00:21:00] it’s, it’s interesting. What’s, what’s happening. You know,
Mark: we talk about, you know, maybe demand going up, you know, maybe even a 3% growth rate, you know, of course. I, I don’t know how balanced you would say the US production is versus imports, but what role do you think tariffs are playing right now and what role could they play should the market start growing at, say, 3% a year?
Because you don’t just build a cement plant overnight and get the production, you know, next year. It takes years to get permits to go one of these facilities.
Ed: So Mark, let’s make be very clear, because right now. For 2026, I see the market growing something close to zero. Okay? That 3% is probably a 28, 2028 number, okay?
So that’s, that’s important. If, if you look at, there’s a couple things that I think will happen as, as the market responds in terms of volume [00:22:00] consumption, uh, you’re gonna see the utilization rates rise. First of all, you’re gonna get that overhead. Um, you know, the fixed cost is huge. You, you’re gonna let the, the utilization rates rise.
Once you approach 80%, I think then you’ll start to see an increased reliance on the imports. Now look, things don’t always grow. Um, all in I synchronized way. So could you see certain regions. Um, see imports increase at a fast rate. Sure, you can, I think as you get toward the end of our forecast horizon. So this is now 28, 29, 30, that’s when you’re gonna see renewed increase on imports.
Materialize. Now I think it’s going to be, you know, uh, the tariffs, first of all. Will they still be in [00:23:00] play? Will they be in effect? I don’t know. Um, I can tell you right now from my, what I’ve seen, um, they’ve been absorbed. Much of them have been absorbed so far. Now are they absorbed by the importer? I believe so.
Are they imported by the distributor? Could be. But you look at prices in the market. At best now they’re holding flat. There’s reasons where you see prices falling, and that’s kind of conditions where we see it going forward, uh, really through the first, at least through the first half of next year. And so that means if there is tariffs still in play, they’re not impacting the, the, they’re not impacting the consumer of cement.
They’re impacting whoever’s, you know, absorbing those tariffs in terms of margins. And the, the industry does very well in terms of margins. [00:24:00] Uh, so yeah, it has some room to absorb them if, if they need to. I, I think it’s really gonna be out again. When the market is in full recovery. Do you see an increased reliance on imports?
And, you know, going back to the, the thing, you can’t just build a cement. No, you can’t. And in fact, um, you can ex there’s plants that are expanding, et cetera, modernizing. I got it. But to build a green, a greenfield plant, oh, it, I, I, I couldn’t even guess how, how long that takes. I’m, I’m guessing six, eight years.
I don’t know. You know. And, you know, the, the costs now associated with building it with all the environmental regulations. Even if some of ’em are pushed down right now under the current administration, there’s no guarantee that they’re gonna be, you know, that way in years to come. And the other thing to keep in mind too is that globally there’s a glut [00:25:00] in terms of capacity.
And so it might be the easier way to go is rather than build these things is, you know, maybe you build terminals or what have you and you increase your reliance on the imports going forward.
Mark: Okay. No, that makes sense. Now, of course I’m hearing Texas, you know, we’ve got oil out in the Permian Basin and you know, you’ve got, you know, all the way up to say, you know, North Dakota and.
Cement of course. Now with, you know, Venezuela, I shall say, coming back online. Do you think people who are in that industry, I know it’s pure speculation at this point, but do you think if the oil supply increases demand for production here goes down, do you think that’ll impact some of the people in that industry Are too right to tell at this point?
Ed: So, um, so when you look at this, I think it’s important to recognize that, uh, Texas Oil. Is a heck of a lot cheaper than most oil, uh, [00:26:00] around the country. So, and I, I can’t remember the exact break even, you know, because they have the break even. I think it’s, I think it’s in the low sixties. Well, Texas is, okay, so do I think as oil prices drop, there’ll be less oil?
Well, cement consumed absolutely doesn’t necessarily mean it’s Texas. It’ll be those who are the higher cost. So maybe it’s, uh, you know, some of the, the shale producers, et cetera, that have a much higher cost exposure.
Mark: If they start bringing on oil online in other countries, which, you know, may or may not happen, that cement there will probably be supplied by another region anyhow.
Ed: Yeah. You know, keep in mind it, it, it’s an important, uh, sector of overall, uh, cement consumption. Oh, what is it? Maybe 5% total demand. So again, incrementally, um, you could get changes in that and it, it doesn’t [00:27:00] upset, you know, uh, the apple cart too badly. And it’s also very regional in, in, you know, it’s gonna be the southwest that, that get hits more than anybody else.
Um, you know, so yeah, Louisiana or Texas, New Mexico, whatever.
Mark: Okay. And last question, what are some of the issues being brought up that we didn’t touch upon or that you’re starting to see, or maybe you heard talked about maybe at the world of concrete, or just some issues that I haven’t addressed today that we should be aware of or consider going forward?
Ed: Uh, a lot of them, you’ve, you’ve touched on, uh, one specific thing that I’m working on right now. Um, so you, you know, I have to do a, a five year forecast. And this actually did come up at the world of concrete, and, uh, the guy was very concerned. Hi. His, his, his, his son was graduating from college, uh, this year, this coming this May.
And he’s heard about [00:28:00] all this difficulties in, in terms of the graduating class, finding jobs. And a lot of it’s because of ai. You know, we talk about all.
There’s a potential that it’s gonna cause a restructuring in terms of labor markets. And the way I look at this is it’s, it’s gonna occur in stages. There’s people who say, oh, it’s gonna kill all these jobs and it’s gonna be massive unemployment. And there’s other people know, it’s like, uh, the auto industry replacing the, the horse and carriage, it’s gonna create jobs.
I think both are right. It’s timing. It begins in stages. And it first starts with the adaptation of it and realizing you don’t have to hire that new person because you can get, you can get through there. And I think that’s what’s happening right now. I think AI is already started [00:29:00] gradually to transform our markets and it will continue to build.
A year from now, we might be seeing some job losses as a result of it. And it’s only when, when the AI reaches a certain threshold that you start to see the jobs being created. But I think we have to go through the cycle. It’s a cycle stage cycle, and I think we’re in parts of, so I think in the next couple years, you know.
Um, you’re gonna see some easement in jobs. Now let’s translate that back. We got a labor shortage in construction. Might some people wanna go into construction. Sure. They’re not necessarily the skills, et cetera. And so I think we’re gonna have to turn to maybe some of our community college trade schools, et cetera, [00:30:00] to see if we can’t train some of these.
We got shortages of electricians and plumbers. These are skilled trades. Um, and so I, I think that’s maybe, uh, maybe it helps some of the shortages that we see in, um, in the construction industry. It might. AI that helps us relieve things, particularly as we hit those peak years, 3% growth in 28, 29, what have you.
Mark: Great. That’s all the questions I have. I really, there
Ed: are good ones. Mark. Hey, next time if we do this again, I wanna see those questions so that they’re easy ones.
Mark: Oh, come on, ed, you’ve, you’ve probably forgotten more about the industry than five of me would ever know. So I that’s, no, I really appreciate you taking the [00:31:00] time.
Like I said, I know you’ve attended some conferences. You were at World of, I think you’ve gone to the, uh, Texas, you know. I think if anybody’s informed on the industry, that would be you and I. I know you’re also very busy, so I really appreciate you taking the time and sharing some of your, uh, hard earned knowledge with us today.
Ed: Mark, thank you for inviting me.
Mark: You’re welcome. Thank you so much.