Gypsum wallboard in the USA

The United States of America is the third largest,¹ third most populous¹ and richest nation in the world.² It also has the world's largest gypsum wallboard industry, which, like other aspects of the construction industry, has suffered badly during the recent recession. However, the US has been showing increasing indications of a full-blown gypsum market recovery, alongside a general economic turnaround.

The continent of North America, home to myriad indigenous peoples, was 'discovered' by Spain's Christopher Columbus in 1492. The USA as a country was not formed until the signing of the Declaration of Independence on 4 July 1776. Prior to this date, the eastern side of the modern US territory had been under the control of Great Britain, which had fought France, Spain and other colonial powers for control of the 'new world.'

Based in the east of the current USA, where settlers had first landed from Europe, the 13 original states gradually acquired land across the rest of central North America. Amid other battles, land acquisitions and purchases, the most notable period of unrest was the Civil War from 1861 to 1865. During the war, 11 states in the south east of the US attempted to leave the Union in a dispute with President Lincoln over secession and the abolition of slavery. The war was fought mainly in the south as the north looked to regain control, something that it achieved after four years of conflict, with a death-toll of around 650,000.

The USA was a late-entrant to both the First and Second World Wars, although it provided a decisive boost to Allied forces in both conflicts. The USA's longest conflict to date was the Cold War with the USSR, the defining backdrop to the second half of the 20th Century.

Economy - Introduction

For long periods the growth of the US economy has been steady and rapid. This has been achieved by applying free market policies to most economic areas.¹ Notable exceptions to the US economy's growth have included the Great Depression in the 1930s, which saw industrial production drop to 52% of previous levels and unemployment rise by 600%, and the recent economic downturn, which began in 2008. Its after-effects still affect business in 2013.

Regionally, the US economy is localised in municipal areas and 'metroplexes.' These include: New York, a world-leader in finance and the country's largest metropolitan area; Los Angeles, home to Hollywood and the high-tech research area of Silicon Valley; Chicago, a historical manufacturing centre; and Dallas-Fort Worth, one of the seats of the Texas oil industry and location of more company headquarters than any other metroplex. Many smaller regional centres also exist.

In 2012 the US economy was the largest in the world at an estimated US$15.66tn, 2.2% larger than in 2011.² It has been the largest economy since at least the turn of the 20th Century. However, the USA ranks behind a small number of developed nations in terms of GDP/capita.² The country has a service-based economy (~80% in 2012) with an historical emphasis on production and manufacturing, particularly of oil/gas, vehicles, domestic appliances and electronics.

However, higher reliance on cheap imports from the Far East and an increase in mechanisation in manufacturing has undermined domestic manufacturing in recent decades. Some areas, like Detroit, Michigan, have suffered mass depopulation as people follow industry and move out of town.⁵ Indeed, 'Mo-Town,' once the home of the US motor industry, was declared bankrupt in July 2013.⁶

Economy - Far from fair

The US economy has grown dramatically over the past century but income-distribution is not even. Indeed, the country is becoming less equal.¹ This has been particularly true of late and is reflected by the fact that virtually all increases in household income since 1975 have been absorbed by the wealthiest 20% of households. Indeed, the US ranked only 82nd in a global study of income equality in 2011, behind most European nations and some countries in the Middle East and Asia, including India.⁷ Another distinguishing feature of the country is that, compared to many other developed nations, there is relatively little in the way of welfare provision.

Economy - Recent developments

In the past five years, the US economy has been severely buffeted by the current economic downturn, although recently the economic situation appears to have stabilised at a new, lower-growth level.⁸

In 2007 the nation's GDP expanded by nearly 2% year-on-year, but in 2008 'growth' was flat and in 2009 the country saw a 3.5% contraction in its economy. In 2010 the majority of this contraction was reversed, with 3% growth. In 2011 the economy grew slightly more slowly, growing by 1.6% between the fourth quarter of 2010 and the fourth quarter of 2011.

In some quarters this led to speculation of a new recession in 2012, but this was not realised. In 2012, the economy grew in the first (2.0%), second (1.3%) and third (3.1%) quarters. The fourth quarter of 2012 saw a contraction of 0.1% in the economy.

On the face of it, the fourth quarter 2012 result appeared alarming, but the quarter was very unusual in that it preceded the expected 'Fiscal Cliff,' a potentially-'toxic' combination of planned tax increases and budget cuts that looked certain to lead to recession at the start of 2013.

In the event, last minute brinksmanship at the end of December 2012 led to agreements to soften the Fiscal Cliff. So far in 2013, this has helped the situation. The US economy grew by 2.5% in the first quarter of 20139 and by 1.7% in the second quarter of 2013.¹⁰

Gypsum industry - Production and demand

Above: Summary statistics for the USA and its gypsum and gypsum wallboard industry.

Gypsum wallboard, as it is known today, is an efficient, easy-to-use, sustainable and safe product that perfectly suits the US construction market. This is, in part, because the two developed hand-in-hand over the course of the early 20th Century. The US remains the largest gypsum wallboard market today, although it has diminished in size relative to other regions. The US also has some of the largest high-quality gypsum reserves in the world, estimated at 700Mt in 2012.⁴

In 2012, domestic production of crude gypsum was estimated to be 9.9Mt, representing a value of about US$69.3m. The leading crude gypsum-producing States were (in descending order) Oklahoma, Texas, Iowa, Nevada and California. Together these accounted for 58% of total crude gypsum output.⁴

Developed from Sackett Board, an earlier product that used gypsum in combination with wool felt paper, the early 1900s saw paper-encased boards become more and more commonly used in construction throughout the country.¹¹ More efficient production methods, quicker installation times and increased fire resistance were key elements in decisions to use gypsum boards to rapidly build army barracks during the First World War.

Gypsum demand, along with demand for all other building materials and almost everything else, took a hit during the Great Depression of the 1930s. However, following the Second World War, the 1950s economic boom saw consumption of gypsum take off in a big way (See Figure 1¹² - It should be noted that Figure 1 refers to masses of gypsum and thus does not necessarily represent equivalent amounts of wallboard.)

Apparent gypsum consumption rose in line with the spread of an enlarged middle class into new suburbs that were built using the new product, increasing from 3.9Mt/yr in 1945 to 14.5Mt/yr by 1960. Away from domestic construction, its modular and light-weight construction made gypsum wallboard ideal for use in high rise constructions in city centres that enhanced the reputation of wallboard as a modern construction material.¹²

While the US greatly expanded its own production capacity during the first half of the 20th Century, the country also began to import gypsum from abroad. This is represented by the divergence of the apparent consumption line and the production line in Figure 1.¹²

In the 1960s gypsum demand levelled off, with apparent consumption and domestic production the same in 1970 as in 1960. Demand picked up in the 1970s, with apparent consumption and domestic production hitting 17.8Mt/yr and 11.8Mt/yr respectively in 1980.¹²

In the 1980s and 1990s the growth in consumption and production continued to accelerate. In 1990 domestic production hit 15.6Mt/yr, while apparent gypsum consumption rose to 22.4Mt/yr. By 1999 domestic production hit 27.6Mt in 1999 and apparent consumption had risen to 37.1Mt.¹²

Domestic gypsum production peaked at 29.8Mt in 2005. In the same year apparent consumption reached its all-time peak of 40.8Mt/yr. Much of the additional gypsum was imported amid a building boom that had developed during the early 2000s. US cities were growing fast on the back of easy credit and house-prices that seemed on an endless upward trajectory.

However, with the benefit of hind-sight, 2005 proved to be a peak in consumption. The current economic slump, which the US now appears to be on the cusp of leaving, has since seen apparent consumption fall by 42% of its peak value to just 23.7Mt in 2011. This is the same level as last seen in 1992. Also in 2011, domestic production was down by 31% from its peak value to 20.7Mt, the lowest value since 1997. Imports fell by 70% from 11.2Mt in 2005 to 3.33Mt in 2011, the lowest since 1954 (See Figure 3).

Above - Figure 4: Map of United States (excl. Alaska and Hawaii). Colour-coded by gypsum wallboard production capacity according to Global Gypsum Directory 2013. Hawaii and Alaska have no gypsum wallboard production capacity.³

Gypsum industry - In global terms

The United States took an early lead in the use of gypsum in wallboard and also for use in cement, which was also a rapidly-developing industry in the early 20th Century. As a result, the US consumed over 50% of the global gypsum supply in the 1920s (See Figure 2) and again after the Great Depression.¹³

In the 1950s the percentage dipped below 50% and US gypsum consumption has since continued to fall relative to the rest of the world. After accelerating again in the late 1990s and early 2000s due to the residential building boom, the US now consumes the lowest proportion of global gypsum production that it ever has, at 15 - 16%. This has been due to other nations producing and consuming more gypsum as well as the US consuming less gypsum at present.

Gypsum wallboard industry - Recent history

In 2013 the United States has the largest gypsum industry in the world. The Global Gypsum Directory 2013 states a gypsum wallboard capacity of 3549 million square metres (MM²/yr) in the country across 64 plants operated by seven producers.³

With a global gypsum capacity of 12,866MM²/yr, the US represents around 28% of the world's gypsum wallboard production capacity. Figure 5 shows the rise and fall of gypsum wallboard production in the US since 1993.¹⁴

Prior to the current financial crisis, the US consumed far more gypsum and wallboard than it produced, with the difference made up by way of imports (See Figure 3). During this period there was intense construction of new homes in many areas of the US as well as extensive reconstruction and renovation work following a series of hurricanes (notably Katrina) in south eastern states in 2004 and 2005.

Gypsum wallboard - Chinese controvery

During the US building boom, which lasted until 2007, many imported boards came from China, where there had been excess wallboard production capacity at the time.

However, a while after installation of the imported board, some of the residents whose properties had been renovated using wallboard from China began to notice a series of problems, ranging from sulphurous smells to corroding metal and a variety of alleged health problems.¹⁵

Studies linked these effects to the presence of sulphur-based gases, not the byproduct of gypsum wallboard under normal conditions. The origin of the gas (and indeed its presence) is disputed by various parties. Potential causes include: A higher level of pyrite in Chinese boards, which may cause gases to be released via its oxidation; The presence of lower-quality fly-ash than that found in US-made boards and; The presence of Thiobacillus ferrooxidans, iron and sulphur reducing bacteria in affected boards.¹⁵ It is also possible that environmental conditions unique to the transport and use of these batches of Chinese wallboard gave rise to the observed problems. No similar issues have been reported from China, circumstantial evidence that it is not the Chinese boards themselves that were 'defective.'

Whether 'defective', as labelled by the US media, or not, Chinese wallboard became vilified by residents, with domestic wallboard producers eager to distance themselves from the affected products.

The intensely litigious culture of the US gave rise to a large number of claims against not only the producers of the allegedly defective wallboard but US-based suppliers and even the contractors that physically installed the boards. While some, including cases against the Chinese subsidiary of a major European-based multinational wallboard producer and a large US-based building supplier, have been settled, others continue.

Problems have been reported in thousands of homes and it is estimated that around 60,000 - 100,000 homes may have some affected board present.¹⁵ Many of the most severely affected residents have spent several years attempting to secure damages. In many cases homes have had to be totally re-fitted with replacement wallboard.

Gypsum wallboard industry - Producers¹⁷

The seven producers of gypsum wallboard in the US are: American Gypsum, CertainTeed Gypsum, Georgia-Pacific, Lafarge North America, National Gypsum, PABCO and USG Corporation.^3,17 Of these, only Lafarge and CertainTeed are non-American controlled. This is the effect of the large-scale wallboard producers becoming prominent in the US earlier than in other countries before widespread industry globalisation.

The Lafarge North America plants are currently owned by the French multinational cement firm Lafarge SA, although a recent deal with an affiliate of US-based Lone Star Funds will see its assets transferred soon, subject to approvals. CertainTeed is part of French building materials multinational Saint-Gobain.¹⁶ Figure 6 shows the capacities of gypsum producers in the US.³

American Gypsum: With over 50 years producing gypsum wallboard and other gypsum products, American Gypsum is the fifth-largest wallboard manufacturer in the US with a capacity of 308.6MM²/yr. It is owned by Eagle Materials, which also has substantial US cement and concrete assets. American Gypsum has four wallboard plants, three in the southern and central states of Colorado (Gypsum Plant), Oklahoma (Duke Plant) and New Mexico (Albuquerque Plant) and one in South Carolina (Georgetown Plant) in the south west.

In 2013 American Gypsum's parent company, Eagle Materials, has reported that its revenue had increased by 30% year-on-year to US$643m for the financial year to 31 March 2013, from US$495m in the same period of 2011 – 2012. It saw fourth quarter results improve across all business lines.

Eagle also reported that its profit for the fiscal year ending 31 March 2013 more than doubled to US$103m compared to a US$40.5m net profit for the fiscal year ending 31 March 2012. It reported that revenues for its gypsum wallboard business rose by 41% to US$307m from US$218m. Sales volumes of gypsum wallboard also rose by 17% year-on-year to 177MM² from 152MM². The company attributed the increase in operating earnings to higher wallboard prices and sales volumes.

In the first quarter of the 2013 fiscal year, Eagle's Gypsum Wallboard and Paperboard division, which includes American Gypsum, reported first quarter operating earnings of US$35.3m, an increase of 83% from the same quarter of the 2012 fiscal year. It said that improved sales prices were the primary driver of the quarterly earnings increase. Additional contributions came from improved sales volumes in both wallboard and paperboard.

Revenues from the division for the first quarter totalled US$114.9m, a 28% increase from the same quarter of the prior fiscal year. Eagle's average gypsum wallboard net sales price for the quarter was US$1.57/MM², 23% greater than the same quarter a year earlier. Gypsum wallboard sales volume for the quarter were 49.4MM², a 16% increase year-on-year.

CertainTeed Gypsum: Today based in Valley Forge, Pennsylvania, CertainTeed Gypsum is part of the French multinational building materials giant Saint-Gobain, which manufactures building products around the world. CertainTeed has eight wallboard plants across the US from Washington to West Virginia and has a total gypsum wallboard capacity of just over 500MM²/yr. In addition to wallboard CertainTeed manufactures roofing, vinyl and fibre cement sidings, trim, fences, railings, decking materials, foundations, insulation, ceiling systems and pipe products.

Started as the General Roofing Manufacturing Company in East St. Louis, Illinois in 1904, the company was renamed as the CertainTeed Corporation in 1917. Following many years of diversification and growth, which included an entry to the gypsum wallboard market in 1923, the company became majority owned by Saint-Gobain in 1978. It became a wholly-owned subsidiary of the Saint-Gobain group in 1988. Today CertainTeed is unique in that it is the only Saint-Gobain subsidiary to still operate under its own brand-name.

Saint-Gobain said that its Interior Solutions unit, which contains gypsum wallboard operations, reported 1% growth in the first half of 2013 on the back of continued strong momentum in its second-quarter sales in the US.

Georgia-Pacific Gypsum: Founded as a lumber supplier in 1927, Georgia-Pacific is now a widely-diversified manufacturer and supplier of building materials and associated products across the US and Canada.

Entering gypsum production in 1965 with the acquisition of Bestwall Gypsum Company in Paoli, Pennsylvania, rapid expansion followed for Georgia-Pacific throughout the 1960s, with 1966 seeing the opening or acquisition of a further six plants across all activities. In 1969 Georgia Pacific started construction of its first new wallboard facility in Buchanan, New York. The company acquired Domtar's nine gypsum wallboard facilities in 1996 but closed three plants in response to oversupply in 2001.

Since being acquired by Koch in 2005 for a massive US$21bn, Georgia-Pacific has not released individual fiscal reports. Koch is one of the largest privately-run companies in the US and as such, it does not publish financial results. Georgia-Pacific's last pre-merger results (2004) showed total sales of US$16.7bn across all sectors, from which the company made a profit of US$623m.

Georgia-Pacific Gypsum today produces gypsum wallboard at 14 sites across the US. Its capacity is over 600MM­²/yr, making it the third-largest producer of gypsum wallboard in the US.

Four of Georgia-Pacific Gypsum's wallboard plants are very recent acquisitions. It completed the purchase of Temple-Inland's wallboard facilities at Cumberland City (Tennessee), West Memphis (Arkansas), Fletcher (Oklahoma) and McQueeny (Texas) from International Paper in July 2013 along with Temple-Inland's other building material assets. The deal was originally announced in late 2012. The gypsum capacity transferred to Georgia-Pacific Gypsum by the deal was nearly 194MM²/yr, around a third of its post-deal capacity.

Lafarge: Lafarge North America, part of France's Lafarge SA, operates a number of gypsum assets in North America, including three wallboard plants in the US. While the French multinational is best known for its cement and concrete activities, it had significant gypsum manufacturing capabilities as recently as 2010, when it had around 1BnM²/yr of capacity and 41 wallboard plants and 7949 workers employed in gypsum-related tasks in 30 countries.

Since 2010, Lafarge has slowly-but-surely left the global gypsum industry. It has sold its Asian gypsum assets to Australia's Boral, its European and South American assets to Belgium's Etex Group (the assets of which remain 20%-owned by Lafarge) and its Australian wallboard assets to Germany's Knauf.

In June 2013 Lafarge announced that it would finally sell its last wholly-owned wallboard plants, those in North America. In 2012, these operations generated sales of US$310m. Lafarge had entered the US gypsum industry in 1996.

Lafarge's divestment, which includes its three gypsum wallboard facilities in the US, will see the US private equity firm Lone Star Funds enter the US gypsum industry in a deal worth an enterprise value of US$700m. It is expected to be approved in the coming months. Lone Star will acquire 298MM²/yr of wallboard capacity upon completion of the deal.

National Gypsum: The original National Gypsum Company was founded in 1925 in Buffalo, New York. Having become a building products conglomerate by the 1970s, the company was reformed in 1993. The new National Gypsum Company became private in 1995. It operates in 50 locations across North America in the US, Canada and Mexico. In the US, National Gypsum has 17 wallboard plants in major wallboard-producing states in the south, north-east and Mid-West regions of the country.

Regular investment in new wallboard plants has seen it rise to be the second-largest manufacturer in the US. More recent commissionings include at Shippingport, Pennsylvania (1999), Apollo Beach, Florida (2001) and Mt. Holly, North Carolina (2005).The company is in the hands of private investors and so it is not obliged to publish financial results.

The combined capacity of National Gypsum's 17 plants is ~830MM²/yr.

PABCO Gypsum: PABCO Gypsum is part of PABCO Building Products, a privately-held US-based building materials manufacturer and supplier.

The smallest gypsum wallboard producer in the US market, PABCO operates two wallboard plants. It set up its first plant in Newark, California in 1972. A second plant in Las Vegas, Nevada was acquired from global insulation giant Johns Manville in 1977. After modifications and expansion programmes at Las Vegas in 1998 and 2005 and at Newark in 2009, the plants now have the capacity to produce 147MM²/yr. Following careful attention to detail and continual efficiency improvements, the Las Vegas plant is one of the cheapest-to-run gypsum plants in the country. It also benefits from its position close to the rapidly-growing city of Las Vegas. However, other markets in New Mexico, California and Washington have suffered as a result of the recent economic downturn. While PABCO informed Global Gypsum in early 2013 that it was operating at 50% of capacity it is not possible to know how this has affected the company's bottom line. As a private company, PABCO is under no obligation to provide financial reports.

PABCO also owns and operates PABCO Paper, a customised gypsum face and back paper mill in Vernon, California. The mill was acquired in 1984 and has since undergone significant upgrade work. It consumes 100% recycled paper as its 'raw' material.

USG: USG Corp, based in Chicago, Illinois, was incorporated in 1901. One of its six subsidiaries is United States Gypsum Company (USG), which was formed by the consolidation of 30 gypsum and plaster companies, to become the first nationwide gypsum company in the US. USG developed the first commerically viable wallboard product, Sheetrock™, in 1917.

Today the company is the largest producer of gypsum wallboard in the US, with an installed production capacity of 835MM²/yr across 14 plants in 12 states from Maryland to California.

Through some of its subsidiaries USG Corp runs 140 quarries, mines, facilities, laboratories and ships, with which it transports raw materials up and down the coast. The corporation also owns five recycled paper plants for gypsum wallboard facings.

Following a poor 2012, in which it made an operating loss of US$8m, USG Corp reported first quarter 2013 net sales of US$814m, a rise of 4% compared to the first quarter of 2012, when it had net sales of US$783m. USG's first quarter 2013 operating profit was US$49m compared to a US$24m operatating profit a year earlier. Its first quarter 2013 net income was US$2m, compared to a US$27m net loss in the first quarter of 2012.

"We are pleased to report our first quarter of net income in more than five years," said James S Metcalf, Chairman, President and CEO. "All segments showed improved results in the period and our commitment to innovation and lowering our break-even are evident in our results."

In the second quarter of 2013, USG Corp reported that its net sales rose by 15% year-on-year to US$916m in the second quarter of 2013 from US$798m in the same period in 2012. Net income rose to US$25m in the quarter compared to a loss of US$57m in 2012. Business unit highlights from the second quarter of 2013 included a 12% rise in wallboard shipments to 120MM² from 107MM².

"We are pleased to generate net income for the second consecutive quarter," said Metcalf. "Results in all major business units have improved from one year ago."

Gypsum wallboard industry - New boards¹⁶

The US wallboard industry continues to see the development of increasingly-sophisticated wallboard systems. Today the world's largest consumer market is offered a seemingly endless collection of wallboard options as producers attempt to differentiate their products from those of other producers. Such developments include: coloured, light-weight, thick, sound-resistant, impact-resistant, fire-resistant, mould-resistant, sag-resistant and even curvable gypsum wallboard products and products with varying combinations of these properties.

One trend that developed in the 2000s and early 2010s is that of lower-density wallboards. These not only help installers from a workload and health and safety standpoint but also helped manufacturers by introducing a higher level of differentiation between wallboard providers while being cheaper for them to transport.

Most of the major US wallboard producers have launched products into the low-density wallboard arena. USG has marketed its Sheetrock Brand UltraLight 1/2 inch (12.5mm) thick wallboard product, which is only 4.5kg/sheet for a number of years. USG says that the panels also offer best-in-class sag resistance and can even be used for ceiling applications.

Lafarge produces Lafarge LiftLite™, a wallboard formulated to be up to 25% lighter than standard 1/2 inch (12.5mm) wallboard. As well as sag-resistance and easier installation, the product has enhanced resistance to fire. National Gypsum sells High Strength LITE® board, which, again, is 25% lighter than standard 1/2 inch (12.5mm) wallboard and Temple-Inland offers Lite Weight boards at 20% reduced density. American Gypsum sells LightRoc™ boards and PABCO makes PABCO LiteCore™. Manufacturers point out that lower density board does not necessarily equal higher margin board, due to the increased use of additives required for 'Lite' boards.

Elsewhere, Georgia-Pacific's range of 'Dens-' products emphasises their toughness and resistance without a low-density version at present. However, its recent acquisition of Temple-Inland now gives Georgia-Pacific an entry into the low-density gypsum wallboard market.

Gypsum industry - Synthetic gypsum trends

Despite its large, high-quality natural gypsum reserves, the US has recently seen a significant increase in supplies of synthetic gypsum, particularly flue-gas desulphurisation (FGD) gypsum from coal-fired power stations. This has been due to the Clean Air Act of 1970, which was introduced to reduce the amount of sulphur dioxide being emitted from US industrial installations.¹⁸ Power producers responded to the regulations by installing gas scrubbers that remove sulphur dioxide using calcium carbonate.

The onset of the Clean Air Act had a profound effect on some aspects of the US gypsum industry. Firstly, with the onset of the regulation, the proportion of synthetic gypsum used out of all gypsum in the US has increased. Between 1973 and 2010 the percentage of gypsum used in the US that was from FGD sources rose from 1.5% to 48% (See Figure 7). Secondly, the price of gypsum has dropped as a result of increased supply (See Figure 8). The average cost of gypsum in the US between 1900 and 1970 was US$87.09/t.¹² As higher amounts of synthetic gypsum became available the price decreased to an average of US$56.54/t from 1971 to 1980 and US$15.42/t from 1981 to 2011.

At present, far more FGD gypsum is produced than is consumed. In 2010, only 49% of the 20Mt made was used. The gypsum wallboard industry could double in output in the US, maintain its 48% FGD utilisation rate and there would still be FGD to spare. Despite this, the USGS is of the opinion that FGD will constitute around 40 - 45% of the gypsum used in wallboard production in the coming years.

The USGS points out that FGD gypsum production is a function of the need to reduce sulphur dioxide emissions and not gypsum demand. With the recent increases in shale gas exploitation in the US, coal may become a less important fuel for the country. This could, in the longer term, reduce the availability of FGD gypsum and put the emphasis back on natural gypsum.

Indeed, the amount of natural gypsum mined in the US rose in the first quarter of 2013.¹⁹ Mined gypsum supply in the US rose by 43% to 3.41Mt in the first quarter of 2013 from 2.38Mt in the same quarter of 2012. Imported gypsum rose year-on-year to 0.85Mt and synthetic gypsum production fell year-on-year to 1.79Mt in the first quarter of 2013. The overall total supply of gypsum rose by 21% year-on-year to 6.05Mt from 5.01Mt.

Above: Apparent gypsum consumption, FGD gypsum consumption and percentage of synthetic gypsum consumed in US.¹⁸

Gypsum wallboard industry - Price allegations

Figure 8 shows the price of gypsum in the US since 1900. While prices have come down, some customers of the industry have complained that high concentration in the wallboard market is leading to high prices. Around 99% of board is sold by the country's seven manufacturers and complainants say that manufacturers have exploited the situation with artificially-high prices.²⁰

More than a dozen lawsuits alleging price-fixing on the part of the manufacturers, which at the time included Temple-Inland in addition to those above, were consolidated in the Eastern District of Pennsylvania in April 2013. The case stated that, since at least September 2011, the major producers conspired to all increase gypsum wallboard prices from the start of January 2013.

Actual collusion in cases like this is very hard to prove. In a concentrated market, price-selection by individual companies can often appear collusive when producers are simply responding to the earlier announcements and price-increases of their competitors. Separating behaviour like this from full-on collusion is the bane of anti-trust authorities.

Whatever the situation and however the case turns out, progress has been slow. Quiet at the moment, the case may start to develop again towards the end of 2013.

Gypsum wallboard industry - Future

The only wallboard producers obliged to release public-facing financial results, USG and American Gypsum (Eagle Materials), have both reported improved financial performances so far in 2013 relative to those of 2012.

Eagle saw both its revenue and profit increase, while USG returned to profit following a loss in 2012. If indicative of performances across the sector, these results would add to a host of recent evidence (including increased housing-starts and improved builder and consumer sentiment) that the construction market, and hence the gypsum wallboard market, is improving in the US in 2013.

Production of mined gypsum has also increased in 2013, possibly indicating improved demand. However, total supply of board products stood at 327MM² for the first quarter of 2013, a slight decline compared to 334MM² for the first quarter of 2012 and a 19% fall compared to 403MM² in the fourth quarter of 2012.

It is possible that the colder weather seen in North America in the first quarter of 2013 compared to the first quarter of 2012 may have quenched demand. As yet unreleased second quarter statistics will offer the chance to review this stance and will give a better indication of the likely future trajectory of the industry.

The USGS is conservatively optimistic with respect to increased gypsum production over the whole of 2013, although it does not publish consumption or demand forecasts. For the cement industry, another industry that has strong correlation to a nation's economic performance, the Portland Cement Association changed its long-held conservative stance to a far more optimistic position for 2013 earlier in the year. This was based on the partial mitigation of the Fiscal Cliff and pent-up demand for new construction. It is reasonable to think that the same conditions could apply to the wallboard market.

Whatever happens in the US gypsum wallboard market in the coming years, the country will remain a dominant force in the industry from a global perspective. The US' locally-based producers are currently locked in a battle over a reduced number of customers, a situation that has led to increased efficiency and differentiation but also raised accusations of market collusion.

There have been indications from a number of sources that the market is improving and will continue to improve in the near term. This should enable the most efficient and responsive wallboard producers to recoup ground lost to the Great Recession and take advantage of pent-up demand.

References

1. CIA World Factbook website, 'United States,' https://www.cia.gov/library/publications/the-world-factbook/geos/us.html.

2. World Bank Data Indicators website, 'GDP/capita (current US$),' http://data.worldbank.org/indicator/NY.GDP.PCAP.CD & 'GDP (current US$),' http://data.worldbank.org/indicator/NY.GDP.MKTP.CD.

3. PRo Publications International Ltd., 'Global Gyspum Directory 2013,' Epsom, UK, November 2012 & research conducted towards, 'Global Gypsum Directory 2014.'

4. USGS website, 'Gypsum,' http://minerals.usgs.gov/minerals/pubs/commodity/gypsum/mcs-2013-gypsu.pdf.

5. Rick's Picks website, 'Is Decline of US Manufacturing Exaggerated?' http://www.rickackerman.com/2009/12/is-decline-of-u-s-manufacturing-exaggerated; Michigan Department of Technology, Management and Budget, 'Labor Market Information,' http://milmi.org/cgi/dataanalysis/AreaSelection.asp.

6. BBC website, 'Detroit becomes largest US city to file for bankruptcy,' http://www.bbc.co.uk/news/world-us-canada-23369573, 19 July 2013.

7. Vision of Humanity website, http://www.visionofhumanity.org.

8. Trading Economics website, http://www.tradingeconomics.com/united-states/gdp-growth.

9. Wall Street Journal website, 'Economic growth stays soft,' http://online.wsj.com/article/SB10001424127887323789704578446513668963282.html, 26 April 2013.

10. New York Times website, 'US economy grew 1.7% during the 2nd quarter, topping forecasts,' http://www.nytimes.com/2013/08/01/business/economy/us-economy-grew-by-1-7-in-2nd-quarter-faster-than-expected.html?pagewanted=all&_r=1&_r=0, 31 July 2013.

11. Gypsum Association website, 'History of gypsum board,' http://www.gypsumbuilds.org/gypsum-101/history-of-gypsum-board.

12. USGS website, 'Gypsum Statistics, US Geological Survey,' http://minerals.usgs.gov/ds/2005/140/ds140-gypsu.pdf.

13. Figure 3 derived from reference 12.

14. USGS website, 'Gypsum statistics and information,' http://minerals.usgs.gov/minerals/pubs/commodity/gypsum.

15. American Home Inspectors Training Institute website, 'Chinese drywall problems affecting United States homes,' http://www.ahit.com/news/chinese-drywall.htm.

16. Company and product information taken from relevant company websites and their parent / subsidiary companies and 3. Financial results taken from back-stories from Global Gypsum Magazine and Global Gypsum website.

17. Global Gypsum website, 'International Paper finalises sale of Temple-Inland,' http://www.globalgypsum.com/news/item/842-international-paper-finalises-sale-of-temple-inland, 19 July 2013.

18. Crangle, R., USGS Gypsum Specialist, 'Trends in US synthetic gypsum consumption,' presentation at Global Gypsum Conference & Exhibition, Istanbul, Turkey, 16 October 2012.

19. Global Gypsum website, 'US mined gypsum production rises by 43% in Q1 2013,' http://www.globalgypsum.com/news/item/837-us-mined-gypsum-production-rises-by-43-in-q1-2013, 9 July 2013.

20. Global Gyspum website, 'US wallboard price fixing allegations head to Pennsylvania court,' http://www.globalgypsum.com/news/item/824-us-wallboard-price-fixing-allegations-head-to-pennsylvania-court, 10 April 2013.