Want to build a house? You'll need cement. Want to build an office building? You'll need cement. So on and so forth. At the risk of gross oversimplification, if you want to build something much beyond a doghouse, a sandbox, or a bird feeder, you'll need cement. But cement is a capital-intensive industry that is also very sensitive to economic cycles. So while these are good days for the likes of Texas Industries
Having spun off its ownership interest in Chaparral Steel
While the company has operations in six states, it primarily supplies cement (and aggregate) to Texas and California -- the two largest cement markets in the country. For the quarter, the company shipped about 7% less cement but had double-digit volume increases for both aggregate and ready-mix. On the pricing side, prices were firm across the board as cement and ready-mix prices increased by double digits.
With actual shortages being reported in some markets, these are good days for cement companies. And the profits across the industry reflect that: Other suppliers such as Cemex
But sooner or later, new facilities will be built, substitutes will come into the market, and general economic activity will ebb. That's just the way it is with these companies. So while Texas Industries may yet have room to run, the time will most certainly come when prices and demand start to move in the other direction, and that won't be such a fun time to hold the shares.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
