Cement Tariffs Boost Prices & Production
Supply disruptions, cement production & prices Increase
Cement Tariffs Impact on Prices & Production
Moderated tariff scheme reduces, but does not eliminate adverse impacts to the industry.
Overview
The new tariffs will impact US economic activity, job creation, inflation, and interest rates. These factors in turn, will adversely impact construction activity and cement consumption. For a detailed discussion on these factors, please check my report entitled Tariffs Nudge Economy Toward Recession.
This report specifically addresses the potential impact tariffs may have on the United States cement market. The discussion centers on the landed cost increases, whether the costs are absorbed by the importer, and strategies undertaken to mitigate price increases. While these new tariffs may be part of a negotiating strategy by the Administration, for the purpose of identifying the impact of these tariffs to the US cement industry, let’s treat them as at face value.
Context: The Economy and Cement Market
The Administration rolled out very aggressive “reciprocal” tariffs levied on 90 countries. If implemented, those tariffs would have raised the cost of cement imports entering the US market by 19%. Days later the Administration adjusted its tariff policy. Tariffs were reduced to an across the board 10% tariff. Canadian and Mexican tariffs are exempt from any tariffs. China’s tariff was increased to 145%. Specific tariffs on automobiles, steel, and aluminum are unchanged. Planned tariffs on lumber and pharmaceuticals are still planned.
While the new tariff regime is an reduction from the initial scheme, make no mistake, they will cause US economic distress and adversely impact construction activity and cement consumption. Prior to the tariff ordeal the US economy was slowing, plagued by uncertainty, and becoming vulnerable to any disruptions. Even if the spin is that this was all part of the “art of the deal”, the recent gamesmanship will have significant adverse consequences. Retaliation will add to the hurt. A further weakening of the economy is expected.
The US construction and cement markets will not strengthen unless the job markets remain strong and interest rates (mortgage and commercial) decline significantly. That is not going to happen this year. The only way a significant decline in interest rates materialize is in the context of a substantial economic downturn. IN any case, for the third year in a row, US cement consumption is expected to retreat.
Tariff Costs
There is a difference between a cost increase and a price increase. A cost increase may lead to a price increase – but not necessarily. The new tariffs will raise the cost of bringing a foreign produced ton of cement to the US market. How much the costs increase is dependent on the origin of the cement. Most cement imports entering the US marketplace will carry a 10% tariff. Applying the tariff rates by the 2024 market share held by each importer yields the average increase in costs implied by the new tariff structure. By this calculation the new tariff rates increase the costs on imports by 8.5%. For the market as a whole, tariffs add an incremental increase of 1.86% to total costs of servicing the market.
The tariff cost is paid by either the foreign exporter or the domestic importer. Some of that cost increase will be passed on directly in the form of higher prices. Price negotiations between the importer and exporter will likely materialize. The importer may partially or fully absorb the added cost associated with the tariff – limiting the price increase the importer to the detriment of profits. How much of the tariff cost is passed through determines the price increase.
Factors Influencing the Pass Through of Tariff Costs
The assessment of tariffs impact on the US cement market is squarely rooted in how much of the cost increases associated with the tariffs are passed on in the form of higher prices. Without an assessment of price any assessment of the tariff impacts on the US market of are hindered.
A multitude of factors can influence how much of the added tariff costs will be passed onto consumers. This pass through will likely vary by region, state-by-state, and possibly within some states. Assessment of the local market conditions are critical. While more detailed local market analysis is preferred, the following analysis segments the market by seven major import regions (see the following table).
It is also important to note no information exists on import share or volume by state, or region. Imports by port-of-entry is used as a proxy. It is assumed that the volume cement imported into Boston, for example, stays completely in the New England area. Imports into Los Angeles stays in the Southwest.
The factors determining pass though of tariffs onto consumers focus on the level of competition and the alternatives to imports that prevail in a local market. In addition to local market condition assessments, weakness in market demand and excess global capacity could play roles. An extra wrinkle is the nature of multinational corporations and whether the imports are being sourced from within company.
Exporters will likely absorb much of the tariff cost increases
The global cement industry is currently operating at 57% utilization. This reflects roughly 1.65 billion metric tons in excess capacity. The tariffs will likely slow world economic growth. As evidence of this, the Baltic Dry-Index has declined 21% since April 1st. The dry-bulk ocean freight rate reflects the shipping costs for dry bulk ships used to transport cement, steel and coal. As global conditions weaken, so will the transport rates. As a small consolation, the global economic disturbance caused by the tariffs is working to lower shipping costs – offsetting slightly the tariff premiums on cement exports.
Weakened business conditions limit ability to shed tariff costs onto consumers
During robust demand periods, characterized by strong cement consumption levels, the increases in costs are easily passed onto the consumer. The opposite is true. During economic downturns characterized by weak cement consumption levels, the exporter is more likely to absorb cost increases to preserve volumes.
The US cement market is expected to weaken through most of 2025. Competition for scarce projects will intensify. With this erosion in global and US demand, the likelihood increases that cement exporters will absorb a high proportion of the tariff costs. Based on these assessments a high level of the tariff costs will likely be absorbed by exporters. This dramatically reduces the increase in cement prices. For exporters and importers that don’t increase the absorption on the tariff, consumers will likely shift to exporters that will.
Increases in domestic production are determined by degree of pass through
There are actions that could be undertaken to reduce import volume as a result exposure to the tariffs. The domestic US industry, for example, is operating near 72% clinker capacity utilization. Increasing the utilization rate and SCM usage could decrease the reliance on imports and reduce the price impacts of the tariffs.
Increasing domestic clinker production by 10 MMT and reducing imports by an equal amount is possible. Under the scenario whereby most tariff costs are absorbed by the exporter, incentive exists to increase reliance on domestic sources of supply. Some increase in will materialize, but if it occurs, it will be limited. The opposite is true. The less that tariffs are absorbed, implies more domestic production.
Regional and Company Impacts
Some regions, more dependent on imports, may feel the sting of tariffs a bit more. US cement companies that rely more heavily on imports to source their markets could also feel the sting. Exporters to the US market will hurt most. They will likely absorb a good portion of the tariff and volume shipped to the US will decline – resulting in a significant hit to their bottom line.
To find out how the Federal Reserve might respond and the outlook for interest rates, subscribe to The Sullivan Report. The Sullivan Report is a regular (weekly) report that looks at key forces working in the economy and provides insight hoping that business and individuals can make better respond decisions.
Brief Bio
Ed Sullivan has held senior level positions at the Portland Cement Association, Chase Manhattan Bank Economics, Standard & Poor’s, and Wharton Economics. Ed has lectured at The War College, Fordham University, Fairfield University, Manhattanville College, Villanova and St. Joseph’s University. The Chicago Federal Reserve has cited Ed for his forecast accuracy. While at the CIA, Ed has played supportive analytical roles in major US trade policy including Japan's Voluntary Automotive Export Restraints and NAFTA.