The first time I remember being exposed to the overall concept of 'Megatrends' was about 40 years ago with the publication of 'Future Shock' (Toffler, 1970). This book described the social changes associated with the rapid growth of information and technology change. Since then there have been several books, many with 'Megatrends' (Naisbitt, 1982) in the name, that have described how the future was going to be affected by many factors including globalisation, decentralisation, networking, many choices, women, religion, growth, arts, individual rights, demographics, conscious capitalism, global power shifts, energy, the environment and ethics to name more than a few. The purpose of this article is to take five obvious megatrends of today and to describe how the gypsum industry is likely to be affected by these over the next 15 years.
The megatrends that will be discussed in this article are information, energy supply, sustainability, demographics/wealth and globalisation/power. It is possible to write a book about every one of these topics, so I will not try to cover these topics in detail, only to point out that each of these things are very important today and that they will affect the gypsum industry into the future.
I will describe some basic points of each topic as a background for the discussion about how this will affect the gypsum industry, specifically how it will impact on markets, customers, products and services, suppliers, costs/profits and the gypsum companies that operate in this industry globally.
Megatrends
Information: There is no question that the rate of information growth is accelerating. Estimates have been made of the quantity of information that represents our current knowledge, or at least that which is now stored in a digital form. In 2010 we apparently passed the one zettabyte (ZB) milestone, or 1,000,000,000,000GB. It is estimated that by 2020 this figure will have climbed to 35ZB, an increase of 35 fold in 10 years1.
While much of this has nothing to do with gypsum, it is a reflection of the advancement and innovation that is taking place at an accelerating rate. There is no doubt that the advancements in composite materials, materials science and process engineering are advancing alongside computer animation. However, information is not just being developed, it is being spread around as well. The internet has made it very easy to access information today compared to 30 years ago and once again this is accelerating. It is estimated that today about 10 exabytes (0.001ZB) of information is transferred over the internet every month2. By 2014, only three years from now, it is estimated that this traffic will increase fourfold. It is not even possible to estimate the level of information sharing that will be in place by 2025. On the other hand it is absolutely safe to assume that whatever you want to know, if it is public, it will be instantly available. If you have an application where you can use this information, then there will not be any impediment to progress imposed by access to information.
Energy Supply: For many years there has been talk about the world running out of petroleum-based energy sources. However, enhanced recovery techniques have been developed for oil and natural gas so that the point at which we are consuming faster than producing continues to be pushed into the future, but at an increasing cost. Technology is also improving the economics of renewable energy sources and nuclear energy is coming back into favour again.
In spite of all this new technology, the energy source that will show the greatest growth over the next 15 years will be coal, the source the carries the greatest stigma for environmental concern. Considerable effort has been made to reduce the world's dependence on coal, in particular by the OECD (Organisation for Economic Co-operation and Development) countries, but the tremendous growth in coal use by non-OECD countries in Asia will mean that coal will continue to be the fastest-growing energy source in the world for the next 15 years3. Technology developments in energy production and use will mean higher efficiencies in all areas, accompanied by higher costs, but consumption will climb at an increasing rate as the economic conditions improve in developing economies.
Sustainability: When I graduated from university many years ago there was considerable attention being paid to environmental protection. As time went on this fell out of favour, with the focus moving to economic development. Even more recently attention has shifted to sustainability, the balance of economic growth, social development and environmental protection to give a sustainable society.
Clearly this is a difficult balance to maintain. There is much attention being paid by companies and governments to sustainability with plans and reports in abundance. Improvements have been made in energy efficiency, recycling and renewable energy sources such that our overall energy intensity (energy divided by GDP) and carbon intensity (CO2 production divided by GDP) have shown modest declines. However, the growth of global GDP has far outweighed these improvements so that our overall sustainability position is deteriorating rapidly. Of course we cannot complain that the world is improving from an economic and social development standpoint, but we must also accept that this means that our ability to sustain our current lifestyle is seriously threatened4.
Demographics and wealth: Global population is currently about 6.8bn, with another 1bn expected by 2025. The growth rate is slowing but is still substantially positive. They are clearly regional differences with developing countries, such as Mexico, continuing to have children at more than the replacement rate whereas some countries have a birth rate that will cause the population to drop over the next 15 years5. This is the case in Germany and Japan.
Personal income is continuing to grow, once again especially in the developing countries. On the other hand, for the first time in 40 years, the average personal income in the United States declined in 2009. The 'have not' countries are gaining on the more prosperous countries in overall GDP per person. Although the Western world may be concerned about losing their jobs to those in Southeast Asia, the shift is resulting in improved economic conditions for some historically depressed regions.
Globalisation-power shift: For many years, economic development focused around Western Europe and North America. The G7 countries, (Canada, France, Germany, Italy, Japan, United Kingdom and United States), would meet to agree on actions to guide the overall economic conditions globally. In 1997 Russia joined this group and it became the G8.
More recently there's been much discussion about the BRIC countries (Brazil, Russia, India, and China) and the growing influence they will have on the global economy in future.
In 2010 the GDP of the G7 countries represented about US$32tn compared to about US$10tn for the BRIC countries. By 2020 the G7 countries will climb to about US$38tn, a growth of US$6tn, whereas the BRIC countries will be at US$27tn at almost three times the growth rate6.
Market channels are also changing. Around 2000 years ago the 'Silk Road' described the trade routes between Europe and China. For the last 200 years the main trade routes have been between North America and Europe. Over the next few years the major growth areas will be between Southeast Asia and South America or the Middle East.
Impact on the gypsum industry
Markets: The good news about the overall market is the growth that is expected in the industry over the next several years. Around 30 years ago, North America represented about half of the gypsum wallboard market. Board became more popular in Europe with the shift away from plasters and now the same thing is happening around the rest of the world. Of the 6.8bn people on the planet today, less than a third would say that gypsum board is the most common interior lining. Over the next 15 years there will be considerable change as the rest of world learns to use gypsum board. By 2025 it is expected that the 'rest of world' (ROW) board shipments will surpass both North America and Europe7 (See Figure 1).
With the evolution of the business around the world there will also be a shift in where the board is being used. In general, as gypsum board is introduced into a new market, new non-residential construction is the easiest entry point. As time goes on building systems are developed for residential construction.
Once built, changes will be needed and the renovation sector develops. Construction of all types will be slow in North America for several years, as will Europe. Renovation will become more important. In developing markets, growth will move from new non-residential to residential over the next few years. Globally there will be an overall long term shift towards renovation of gypsum board based building systems. (See Figure 2).
Customers: The economy of scale that is being applied to manufacturing companies is also being applied to distribution. Gypsum products are generally sold through agents even if they are shipped direct to the job site. In North America there is a consolidation of customers in all market channels, one example being the growth in the number of Home Depot big-box renovation stores.
Home Depot opened its doors in 1978 and has grown in North America to 2244 outlets (31 December 2009), up from 917 in just ten years8. A similar pattern is being shown by its competitors in the renovation market, causing those distribution outlets that have traditionally focused primarily on gypsum products to also streamline and consolidate.
With the increasing number of outlets per customer comes a corresponding increase in volume that in turn generates significant buying power in the market channels. This buying power in the market channel results in increased expectations from the customer in order to retain the business. Satisfaction of these expectations requires consistent quality, a full product range, geographic spread, technical support for products and building systems and of course rock-bottom prices.
Products and services: One of the best examples of how gypsum board has changed over the last 30 years has been the overall weight of the product. Gypsum board has been a cost effective building material because of the low production cost and its fire resistance properties.
One of the complaints against gypsum board, however, is the overall weight of full-sized panels. In 2000 Brian Burrows of USG presented a paper outlining the reduction in board weight within the company from over 2100lb/msf in 1960 to about 1575lb/msf in 20009. In the summer of 2010 USG announced its Sheetrock(TM) 'UltraLight' product with a board weight of about 1200lb/msf. (See Figure 3 – red line).
So is this the end? Can we go no further? In looking at the technology used to make this product compared to what is now known overall in composite materials and materials science there is every reason to believe that board weight will continue to drop in future and that by 2025 we should be able to see even lower weight boards on the market sold into the renovation market (green line in Figure 3). To satisfy the requirements for fire resistive construction it will be necessary to maintain a heavier weight board unless new technologies are used to replace the fire resistance brought to gypsum board by the water of hydration in the gypsum core.
Another change that has been ongoing for the last 30 years has been the introduction of specialty boards, those products with enhanced performance properties over and above what we have grown to expect from regular gypsum board. The first improvements were in fire- and moisture-resistance, followed by reduced smoke generation, sag resistance, racking resistance, mould resistance, abuse resistance, abrasion resistance, radiant heating, impact resistance, flexibility, exterior weather resistance and formaldehyde adsorption.
There is every reason for this trend to be continued, with many areas of improved performance as modern knowledge of composite materials are applied to this inexpensive building material. In particular, the industry should develop more products that could be used in load-bearing applications, potentially displacing several products currently made from wood, concrete, plastics and metal.
The third significant trend in gypsum products and services will be the growth of 'green' building products and systems based on improved gypsum technology and engineering. LEED (Leadership in Energy and Environmental Design), Greenguard(TM) and other 'eco' programs are growing around the world, promoting improved energy and materials efficiencies in the manufacture of gypsum board product and systems. There has been considerable attention paid to technologies which could reduce the overall CO2 emissions.
The World Bank has summarised the potential savings in CO2 emissions and has reviewed their overall viability or readiness for commercial application. It is interesting to note that the three items that are highest impact/easiest to implement all have potential application to the gypsum industry10. 'Building energy efficiency, transport energy efficiency and industrial energy efficiency' are all addressed by modern dry lining with lightweight gypsum board over insulated walls. In addition there is significant potential to reduce the energy content of gypsum board products through the reduction of water demand of hemihydrate plaster used to make gypsum board, such as the work that is underway using the NuGyp(TM) process.
Raw material supply: Thirty years ago synthetic gypsum was just starting to become available in Japan, Germany and to some degree the US. A decline in emphasis on environmental programs in the US through the 1980s caused Japan and Germany to take the lead in flue gas desulphurisation. With the Clean Air Act 1990 and the Clean Air Interstate Rule considerable attention was paid once again in the US and many commercial gypsum producing scrubbers were built. As described earlier in this article, coal will continue to be used and given the attention being paid to environmental matters, these new coal plants around the world will be equipped with SO2 scrubbers and synthetic gypsum supply will grow globally from this source.
Attention is also being paid to the recycling of building materials and this trend will also impact on the gypsum industry. The industry routinely recycles production waste and is learning how to take back new construction waste from the marketplace. There is increasing pressure to also recycle gypsum products from buildings that are being replaced, a more technically difficult step unless greater effort is made to 'deconstruct' the building rather than to simply demolish it.
In 1970 almost all the gypsum used was natural gypsum from mines and quarries. By 1995 there was some recycling and considerable synthetic gypsum being used. This trend has continued with natural gypsum now representing less than half of the overall gypsum used to make board around the world. The next 15 years will show a continuation of this trend to use synthetic gypsum, as well as an increased use of gypsum board returned from the marketplace. New natural gypsum will constitute only about one third of the rock produced to make board by 2025 (See Figure 4).
Liner supply has also changed over the last 30 years. The basis weight of paper liners has dropped significantly and will continue to do so in a manner similar to what has happened with board weight. A bigger change however is going to be the move to more products with liners made from materials other than the traditional recycled paper. The DensGlass® product range in North America has been a major success for Georgia-Pacific. The
GlasRoc® product introduced by BPB a few years before DensGlass® in the UK was also a technically superior product but did not enjoy the same market penetration shown by the DensGlass® line. With the expiry of the Georgia-Pacific patents, many companies have now introduced glass mat line products similar to DensGlass®.
Lafarge has also introduced a 'wet area board' that uses liners that are a composite of organic and inorganic fibres that shows enhanced performance properties. Other similar products have been manufactured but have had limited distribution. Given the expectation for enhanced product properties from a more demanding marketplace and increased global competition, it is expected that new liners will be used that are composites of coatings, binders, and paper, glass, polyester and other fibres.
The third major commodity used in making gypsum board is energy. In spite of the growth of coal in the developing countries, there are too many advantages in using natural gas or liquid fuels in making gypsum board for coal to displace these fuels. It is expected that the industry will continue to rely on natural gas as a result of a reasonable price, the less complicated equipment for direct drying and the reduced CO2 emissions compared to other fuels. While the source of fuel may not change, there will be significant change in the quantity of energy that needs to be consumed per msf of board. (See Figure 5).
New technologies such as NuGyp(TM) that reduce the water demand of stucco used to make boards will become standard operating practice in the board plants and with experience more and more air will be used to replace water in the gypsum core.
Reduced board weights, reduced stucco water demand and improved equipment efficiencies will reduce the overall energy content of gypsum board by about 25% over the next 15 years. The gypsum industry should choose to follow this path on its own initiative rather than risk legislation to reduce energy consumption similar to what is now being implemented to limit water consumption in those areas with limited water supply, as is being seen in Australia.
Costs/profits: Manufacturing costs have dropped considerably for the production of gypsum board over the last 30 years. Reductions in board weights and liner weights have meant that less material and energy is required. Larger plants with better controls have reduced unit labour costs. Synthetic gypsum supply closer to the marketplace has also had a significant impact on the overall cost of manufacture such that gypsum board is now the least expensive building material used in floors, ceilings or walls in North America.
This trend will continue as board weights, liner weights and energy consumption are all further reduced. Synthetic gypsum prices will continue to drop and become negative as more coal is burned in power plants equipped with scrubbers and supply outstrips demand. Plants will continue to get bigger and will be designed in future to take advantage of much lower water demand stucco and much higher air content. This is the area of current research focus within Innogyps.
With the reduction of manufacturing costs, one might expect profits to improve. This is not likely. The industry produces a commodity product with some additional enhanced value products and services. The market will continue to be cyclical, with better profits when business is good and difficult times when the market is slow. However, with the expected consolidation of the more mature markets and the growth potential in the developing markets it is expected that the huge cycles in profitability will be reduced to some degree, perhaps less profitable on average overall but certainly more stable than the past 20 years has given us in North America. Share price performance is more likely to model the large European building products companies than the very cyclical share prices of USG or Eagle Materials. (See Figure 6).
Gypsum Companies: One of our basic needs is for shelter and thus suppliers of building products have been available since antiquity. However, the availability of gypsum board systems and products is only a recent phenomenon. Current building products suppliers have access to the markets. With technology readily available they will continue to enter the market with modern gypsum products. As the market place matures, however, there will be an increasing demand for performance guarantees and service related items that can be expensive to set up and maintain unless it is possible to spread these costs over a large volume of product, perhaps over several counties, countries or even continents! So once again there will be a natural evolution towards acquisition of independents and industry consolidation.
The major multi-nationals will continue to build plants in developing/emerging markets to expand their business, but they will also be looking for opportunities to purchase the smaller regional operations that can take advantage of their overall scale of operation and proven technologies. With the growth globally and the relative stagnation of the North American market over the next five years, it is likely that companies outside the US will be looking to acquire those within the US in order to bring proven cost reduction practices, products and building systems into their developing organisations.
With the gypsum industry becoming more globally competitive, higher growth rates and profits will come to the players that consistently demonstrate an ability to bring new innovations to market quickly.
Conclusions
The market for gypsum board will continue to grow but with emphasis shifting from North America and Europe to the rest of the world. There will be more and more customers, they will be getting bigger and bigger and they will demand more and more from the manufacturer. It will not be sufficient to just supply product, but also performance guarantees and a list of services that will need to be made available instantaneously on demand.
Innovations will continue to be important but it will no longer be possible to survive just by developing new ideas in-house. To be competitive it will be necessary to watch the horizon with your telescope rather than look for your own solutions by microscope! Manufacturing costs will drop and reasonable profits will be made, with the profitability being more stable as a result of growing market demand and larger companies with longer term perspectives. There will be many new independents that will survive just fine and there will be global consolidation with even large national companies being prime acquisition targets. Overall this is not a bad picture for the future for the gypsum industry.
But back to the question:"Megatrends: Can the past predict the future?" Perhaps the answer is best provided by the following quotation from Mark Twain from about 150 years ago. "History doesn't repeat itself, but it does rhyme."
References
1. 'IDC Digital Universe Study (Sponsored by EMC) May 2010,' The Economist, 4 September 2010.
2. 'Cisco' – The Economist 4 September 2010.
3. 'US Energy Information Administration International Energy Outlook 2010', 2010.
4. 'World Development Report 2010: Development and Climate Change,' The World Bank, 2010.
5. 'CIA World Fact Book 2009', CIA, 2009.
6. 'Global Economics,' Goldman Sachs, May 2010.
7. Innogyps estimate based on regional shipments and sector trends
8. SEC documents reported for The Home Depot.
9. Brain W Burrows, Presentation: "A Decade's Experience of Gypsum Board Weight Reduction in the US," International Baustofftagungin, 2000.
10. 'World Development Report 2010: Development and Climate Change.'
