Diesel particulate: it matters

According to reports from the field, the Mine Safety and Health Administration has begun enforcing an exposure limit of 160 micrograms of total carbon (TC) per cubic meter of air (160TC µg/m3) and said it has developed a practical sampling strategy to account for interferences from non-diesel exhaust sources when TC is used as a surrogate for measuring a miner's exposure to diesel particulate matter (DPM). The limit applies to underground metal and nonmetal mines.

The limit has been 350TC. MSHA measures a miner's personal exposure to DPM by analyzing a sample for TC, which is a DPM surrogate obtained by combining elemental carbon (EC) and organic carbon (OC). In its May 2006 DPM final rule, MSHA said it would propose a rule to convert the 160 TC PEL to a comparable EC PEL prior to the effective date of May 20, 2008, if sufficient scientific data were available to support a proposed rule. But MSHA chose not to issue the proposed rule, instead offering a protocol for calculating a location-specific adjustment for situations in which the EC on the miner's personal sample is less than 160 micrograms per cubic meter of air times the error factor for EC, and TC on the miner's personal sample is greater than 160 micrograms per cubic meter of air times the error factor for TC. MSHA said it believes there is still insufficient evidence suggesting an appropriate conversion factor. Read the entire article here. Your comment?

Housing starts up

Well, at least it's a bit of good news. April 2008 housing-start figures released by the U.S. Census Bureau and Department of Housing were back over the benchmark level of one million units, on a seasonally adjusted annualized basis.

At 1.032 million units, April was the third lowest month in this latest cyclical downturn, according to Reed Construction Data. March, at 954,000 units, and December 2007, at exactly 1.000 million units, were even lower. The first four months of this year have averaged 1.039 million units annualized, which is -28.9 percent versus the first-four-month average of last year, at 1.462 million units.

Housing starts are now down nearly 60 percent from their peak in January 2006 to the present. A strong case can be made, however, that the past five months are likely to be the trough in this cycle for housing starts. All three major new home indicators have moved into alignment. Permits, starts and completions are all right around one million units. The fact that completions have finally fallen to the level of starts is quite positive. Completions-above-starts is one of the factors, along with falling sales, that causes a buildup of unsold inventories.

Employment prospects, which are so influential in terms of establishing consumer confidence, continue to be a sore spot. There were month-to-month job losses in each of this year’s first four months. However, first-quarter Gross Domestic Product (GDP) came in stronger than expected (+0.6 percent) and this may well point to better economic conditions ahead. Your comment?

Vulcan gets vote of confidence

For those who follow the relationship between stock performance and industry success . . . This morning Longbow Research analyst David MacGregor raised his price target on Vulcan Materials (VMC), based on the company's demonstrated pricing strength, and positioning in key markets. As a result of its shares recently surpassing Longbow's prior target price, the company is raising its target on Vulcan to $98/share (+$20) and maintaining its BUY rating.

The price target of $98 reflects approximately 21x FY09 EPS forecast of $4.60 and 17x FY10E of $5.80. The shares of VMC are currently trading at 18.0x and 14.3x our respective FY09 and FY10 EPS forecasts. This compares to a historical forward P/E range of 11x-21x. "We like the long-term benefits of the combined VMC-FRK and believe the company is well positioned in the California and Florida markets to benefit longer term from a) attractive demographic prospects, b) publicly announced need for infrastructure improvements, and c) supply-constrained local markets.," McGregor said. "We remain impressed by VMC's ability to raise prices above historical "inflation plus" rates during FY08 when we estimate volumes for Legacy VMC to be down approximately 10 percent. In the growth phase of the next cycle, we believe pricing could potentially again increase by a low-teen annual percentage in part due to a) highly consolidated local markets, b) ever-rising replacement costs, and c) a growing market acceptance of significant yearly aggregates price increases." Your comment?

Diesel situation to get dire

Producers all over the country are struggling with high diesel prices. Well, prepare for prices to go higher. According to a recent report, crude-oil prices have begun another rise following increased demand after the recent earthquake in China. Analysts at Goldman Sachs boosted their oil price predictions for the second half of the year from $107 to a whopping $141 a barrel.

U.S. crude for June delivery was up $2.96 a barrel to $127.08 on the New York Mercantile Exchange. Earlier, crude hit $127.82, topping the previous intraday record of $126.98 set last Tuesday. A week ago, oil closed at a record $125.96 a barrel. "Everything the market looks at is bullish," Peter Beutel, an oil analyst at Cameron Hanover, wrote in a research note.

Diesel fuel has been in tight supply for the last several months following a cold winter in the Northern Hemisphere, and as the popularity of diesel cars grows in Europe and the developing world. With diesel prices outpacing gasoline, refiners in the United States have been ramping up production of diesel and sending it abroad. That has displaced some domestic gasoline production, helping push gas prices higher.

The downline impact of that kind of price escalation could wreak havoc on the general economy, not to mention the P&L sheet of the average producer. Your comment?

Fatality #7

According to
MSHA, on April 24, 2008, a 48-year-old laborer with 32-weeks experience was fatally injured at an underground industrial-sand mine. The victim was checking the roof and ribs for scaling when she was struck by a front-end loader as it backed up. This is the 7th fatality reported in calendar year 2008 in the metal and nonmetal mining industries. As of this date in 2007, there were 10 fatalities reported in these industries. This is the 2nd Powered Haulage fatality in 2008. There was one Powered Haulage fatality in the same period in 2007. Your comment?

Expect the worst

The U.S. economy is suffering from a severe economic weakness and its impact on cement consumption and the construction industry will not be mild, according to the latest Portland Cement Association (PCA) forecast of cement, concrete and construction.

In 2008, portland cement consumption is expected to drop 11 percent, followed by an additional 5.5 percent in 2009. PCA predicts total cement consumption in this year to be 101.7 million metric tons. A record consumption of 128 million metric tons was reached in 2005. Peak-to-trough declines in consumption will total nearly 30 million metric tons, marking one of the worst industry downturns since the Great Depression.

"We are currently in the third year of a four-year industry contraction that began in 2006," Edward Sullivan, PCA chief economist said. "High fuel prices, slow job creation, and tight lending standards will all adversely impact the entire spectrum of construction activity."

Sullivan anticipates that while harsh residential conditions continue to act as a significant drag on cement consumption, the nonresidential sector will also see large declines for the next two years.

"Although it grew nearly 11 percent in 2007, nonresidential construction spending is expected to fall almost eight percent in 2008 and another 12 percent in 2009," Sullivan said. "Nonresidential construction is closely tied to economic activity. As the economy softens, the expected return on commercial investments decline, reducing the incentive to build and expand."

An additional slowdown in public construction, which accounts for nearly half of total cement consumption in the United States, is predicted for 2009 and will continue through 2010.

PCA targets the second half of 2010 with the trend of strong growth in cement consumption. By this time, according to the PCA report, all regions of the United States should be experiencing a recovery in housing and nonresidential construction will be on the upswing. Your comment?

Two against one

According to a report on CNN, repealing the 18-cents-per-gallon gas tax for the summer has become a political football, with presidential candidates Hillary Clinton and John McCain favoring the repeal and Barack Obama lining up against it. "I think [Americans] should have some immediate relief," Clinton said. But the Congressional Budget Office has estimated that suspending the federal gas tax for a period of approximately three months would only save American families on average about $10. per month.

Obama calls the Clinton plan, and a similar proposal by McCain, a sham and pure pandering for votes. "Though most economists agree with him, arguing against a gas tax holiday is tricky politically," said Candy Crowley, CNN senior political analyst.

Industry associations, from AEM, NSSGA and NRMCA on down, are on record as saying a repeal of the gas tax is a bad idea. “Ten dollars a month won’t provide true economic relief to American families and would do virtually nothing to stimulate the economy,” said National Ready Mixed Concrete Association (NRMCA) President Robert Garbini. “The only thing a gas tax holiday would do is put an already near bankrupt Highway Trust Fund (HTF) in further jeopardy, set a bad precedent and potentially cause troubles for transportation infrastructure in the future.” Your comment?