Masonry Magazine June 1973 Page. 8
BRICK
Supply & Demand
By Richard W. Otterson
Executive Vice President
Brick Institute of America
Many groups and individuals in the masonry industry are greatly concerned about the disparity that exists between the demand for and supply of brick. They have reason to be, for this disparity is a serious problem.
Perhaps it is natural, however, for brick manufacturers who are deeply involved with the problem to feel that at least some of the discussion that has taken place in recent months concerning this disparity has not reflected a full understanding of what caused it, what is being done about it now, and what can be done about it in the future.
To begin with, it is necessary to acknowledge that a disparity between supply and demand is not a new problem for brick manufacturers. In fact, there have been few years over the past quarter century when the two elements have been approximately equal.
Ordinarily, the disparity has involved an excess of supply. This is the problem that, since the end of World War II, most brick manufacturers have been familiar with. They have been able to produce more brick than the building market could absorb.
Now, however, in a reversal that has been both abrupt and dramatic, the problem has turned around, and there is an excess of demand for brick.
We have only to look back a mere three years to get an impressive demonstration of the reversal. In 1970, brick producers suffered through one of the worst years in a decade. Brick production capacity was 8.5 billion standard brick equivalents. Shipments of brick that year amounted to 6.5 billion. As a result, inventories rose drastically and production had to be curtailed.
The brick industry in 1970 suffered along with most of the building industry because of a shortage of mortgage funds, concomitant high interest rates, and government policies that depressed construction. The following year the money squeeze was relieved, mostly by government action, and home building rose by 41 per cent over 1970. As a result, inventories were depleted and production rose close to the brick industry's capacity.
In 1972, the home building boom continued at the same time that other building categories-commercial, industrial and institutional-which had been expected to be stable, increased instead. The result was that early in 1972 brick producers found they could sell everything they could make and they produced at full capacity. By the latter part of the year, production began falling behind demand, and it remains behind demand six months later.
In summary, then, brick producers went from famine to feast in about 18 months, and then found themselves without inventories or added productive capacity to help meet demands which have remained high well into the second quarter of 1973.
While I believe that this recitation of recent history will explain to most people why the problem occurred, it does not by itself answer the question of why the problem has not yet been solved.
To get at the answer to that question, it must be understood that there are three entirely objective factors at work which make it difficult, if not impossible, for the brick industry to expand its productive capacity overnight. Two of these factors are traditional and have been with us for a long, long time. The third factor is radically new and very serious in its implications.
• The first factor is the length of time required to substantially increase the production of brick. Designing and installing additional brick kilns and other productive equipment is a long-term process. It requires months of planning and work. Even if money, labor and materials are readily available, there is a limit beyond which the process cannot be hurried.
• The second factor is that the availability of money for long-range capital investment in added brick productive capacity is affected by what we may call "market security" -that is, the strong belief that when money is invested now to produce more brick a year later, there will be a demand for that additional brick. The history of the building industry, with its fluctuations from feast to famine, has not helped create a feeling of "market security". Indeed, it is a negative element. Add to this the fact that the Brick Industry is a capital investment Industry, where it takes two dollars of invested capital to produce one dollar in sales, it becomes even more complex.
The third factor which has hindered the brick industry's ability to increase its production has been the critical shortage of natural gas. Gas shortages have been building up for several years. They are now affecting production at many brick plants. Furthermore, they are affecting plans to expand the industry's production-and this may be more serious in the long run than present production cutbacks.
At BIA's national convention late in 1972, an informal survey of attending manufacturers showed that expansion plans would effectively increase the industry's productive capacity 10 per cent by the end of 1973.
Recently, at a regional meeting of manufacturers, several companies who last November indicated plans to expand production said they were being forced to re-examine those
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masonry
• June, 1973