USG Corp (USG): Excess Wallboard Production Capacity

These paragraphs are also from the USG Corp (USG) Q1 2010 quarterly report.

Industry shipments of gypsum wallboard in the United States (including imports) were an estimated 4.57 billion square feet in first quarter of 2010, down approximately 7% compared with 4.89 billion square feet in the first quarter of 2009. U.S. Gypsum shipped 1.15 billion square feet of SHEETROCK® brand gypsum wallboard in the first quarter of 2010, a 12% decrease from 1.31 billion square feet in the first quarter of 2009. The percentage decline of U.S. Gypsum’s wallboard shipments in the first quarter of 2010 compared with the first quarter of 2009 exceeded the decline for the industry primarily due to our continuing efforts to improve profitability. U.S. Gypsum’s share of the gypsum wallboard market in the United States was approximately 26% in the first quarter of 2010, unchanged from the fourth quarter of 2009 and down from approximately 28% in the first quarter of 2009.

Currently, there is significant excess wallboard production capacity industry-wide in the United States. Industry capacity in the United States was approximately 34.4 billion square feet as of January 1, 2010. We estimate that the industry capacity utilization rate was approximately 52% during the first quarter of 2010, unchanged from the fourth quarter of 2009 and down from approximately 53% during the first quarter of 2009. We project that the industry capacity utilization rate will remain at approximately the first quarter level for the balance of 2010. Despite our realization of some price improvement since the latter part of the first quarter, at such a low level of capacity utilization, we expect there to be continued pressure on gypsum wallboard selling prices and gross margins.

Here is more of my commentary on USG Corp (USG).

Historically, the housing and other construction markets that we serve have been deeply cyclical. Downturns in demand are typically steep and last several years, but they have typically been followed by periods of strong recovery. If the recovery from this cycle is similar to the recoveries from past cycles, we believe we will generate significant cash flows when our markets recover. 

Will this housing downturn be followed by a period of "strong recovery"? That would require clearing the glut of housing from the market.