Q2’16 North American gypsum wallboard shipments increased 6.5 percent YOY to 6.03BSF, and U.S. gypsum wallboard shipments increased 7.1 percent YOY (see Figure 1).This compares against a Q1’16 North American increase of 26.6 percent YOY and Q2’15 growth rate of 4.4 percent YOY. With pre-buying going into the April price increase, shipments slipped 1.7 percent sequentially between Q2'16 and Q1'16. Shipments to all U.S. regions posted positive YOY growth rates, mostly in the single-digit range. Regional results were led by the South Atlantic (DE, D.C. FL, GA, MD, NC, SC, VA, WV) and the East South Central (AL, KY, MI, TN) regions with a 10 percent YOY and a 9.7 percent YOY growth, respectively. The West North Central region posted the smallest YOY growth (up 0.7 percent YOY) among all regions. Figure 2 details the states reporting under each census region. Figure 3 provides the historical wholesale shipments. 

What does this mean for EXP, USG and CBPX? For EXP’s Q1’17 (June), we have modeled a 5.0 percent YOY volume growth. EXP’s wallboard plants in CO (Mountain), NM (Mountain), OK (West South Central) and SC (South Atlantic) could see meaningful tailwinds from the mid- to low-teen increases in the regional results. For USG, we have modeled a 4 percent growth in wallboard volume for Q2’16 (June). USG’s three plants in South Atlantic (MD, FL, VA), one plant in East South Central (AL), and two plants in Pacific (CA, OR) regions should see larger growth than its plant in the West North Central region (IA). USG's wallboard shipments typically fairly closely correlate to industry numbers. Finally, all of CBPX’s plants (i.e. FL plant in South Atlantic, KY plant in East South Central, NY plant in Middle Atlantic) could benefit from the 5-10 percent growth in those regions. 

TRG Opinion. We remain focused on two primary drivers that will dictate pricing in the coming months: 1) rising capacity utilization and 2) the impact of a shrinking coal fire footprint to eastern wallboard plants. Our thought piece published in May (Link to report) details that we are not far away from that “sweet spot” in terms of capacity utilization, and while synthetic gypsum isn’t scarce (yet), supply is shrinking, which will raise the cost for transportation. Distributors with whom we spoke believe this is a positive trend, one that will be supportive of pricing. To that end, our checks point to a more broad support of the April increase in the eastern portion of the United States vs. the western portion. A key distributor noted, as has been intimated by other wallboard producers, that there is greater support for a price increase in the second half of the year. Just last week CBPX announced its plan to increase pricing on all wallboard products shipped on or after Sept. 1, 2016, but the magnitude of the increase was not fully disclosed. The company also announced a full-year price increase of 20 percent effective Jan. 1, 2017. National Gypsum also has a price increase out for mid-August. In our Q2’16 Building Products Survey (published June 30, 2016), 45 percent of survey respondents remained “Undecided” as to a potential second price increase this year. We think 2H’16 pricing gains would be successful only in select markets in the western portion of the United States. Otherwise, the market is focused on a January 2017 increase (i.e., going back to the previous annual timing), which makes more sense from a seasonality standpoint (i.e., pairs better with annual builder negotiations).

USG will report Q2’16 (June) earnings on July 26 and CBPX will report Q2’16 (June) earnings on August 3.