Why is Warren Buffett Investing in the Gypsum Industry Right Now?

LONDON, February 6, 2014 /PRNewswire/ --

Warren Buffett is considered to be one of the world's most successful long-term investors. His company, Berkshire Hathaway, maintains large positions in several well-known North American companies, such as Heinz and Coca-Cola, and wholly owns several large businesses, such as Burlington Northern Santa Fe Railroad.

In January 2014, regulatory filings revealed that Berkshire Hathaway had acquired more shares in USG Corporation by exchanging US$243.8M of convertible notes it held in the Chicago-based company. This exchange made Berkshire Hathaway the largest single shareholder in USG.

USG Corporation, formerly known as United States Gypsum Company, is the largest producer of gypsum plasterboard in North America, and the producer of several other homebuilding products. USG's plasterboard is sold under the trademarked brand name SHEETROCK®, which is synonymous with the product itself, much as the Coca-Cola® brand name is with carbonated drinks. USG is also a leading producer of ceiling tile.

As Roskill pointed out at international minerals conferences in North America in late 2013, the latest data for annual US housing starts shows limited improvement. Housing starts reached an annualised 923,000 in 2013, but this was still less than half the 2005 peak. This was despite extensive support from the US government and low interest rates. Until the recession of 2008, annual starts had never fallen below 1M, even when the population of the USA was less than 200M. Since 2008, they have never been above 1M.

Roskill also notes that more than 1Bnm²py of plasterboard capacity was closed over the period 2009 to 2012 in the most mature market for this gypsum product, the USA. But Berkshire Hathaway's exchange followed the news in October 2013 that USG would be forming a new US$1.67Bn joint venture with Boral of Australia. The two companies will hold an equal share in the venture, called USG Boral Building Products, which values Boral's assets at A$1.35Bn and USG's at US$250M.

USG will gain Boral's Gypsum Asia and Australian assets in the agreement, while USG will contribute a ceiling factory in China and its Middle East assets, including a gypsum asset in Oman that will supply the lucrative Indian market. In February 2014 it was reported that USG and Boral continue to progress toward completion of their 50:50 strategic joint venture. While completion was originally anticipated to occur by the end of January 2014, it is now expected to occur on or before the end of February, due to additional time being necessary to obtain regulatory approvals.

Other recent changes that Roskill has noted among the world's largest gypsum plasterboard producers include that:

•Knauf has quietly increased its plasterboard production capacity by approximately 0.5Bnm²py. It also acquired the businesses of USG in Europe and Lafarge in Australia and has announced plans to add substantial capacity in China during 2014

•Etex has acquired all of Lafarge's South American and European plasterboard operations

•Lafarge, in selling almost 1Bnm²py of plasterboard production, has enabled these changes and is focusing on its core businesses.

The boom in global construction prior to the onset of the global financial crisis plus the adoption of construction methods that employ plasterboard, had resulted in a 28% increase in plasterboard production capacity worldwide between 2004 and 2009, from 7.8Bnm²py to 9.7Bnm²py. Capacity then increased by a further 33% to 12.9Bnm²py but in early 2014 relatively few plants are under construction or planned before 2018.

In 2013 gypsum plasterboard capacity in Asia represented 32% of global capacity and was second only to that of North America (34%). This gap narrowed so quickly between 2009 and 2013 that Asia is expected to overtake North America and become the largest geographic market during 2014. Another significant change in 2013 was the emergence of an industrialising country, India, as the largest global gypsum importer. Historically that position had been held by the USA. The centre of gravity for the gypsum industry, both production and consumption, has moved from North America to Asia.

Gypsum production, trade, prices and end user markets are analysed in detail in the new 2014 edition of Roskill's Gypsum report. The 11th edition of this Roskill report profiles over 300 producers and end users of gypsum, providing an overview of the entire supply chain.

Gypsum and Anhydrite: Global Industry Markets & Outlook is available, until the 28^th February 2014, at an introductory price of £3,528 / US$5,440 / €4,165 from Roskill Information Services Ltd, 54 Russell Road, London SW19 1QL ENGLAND. Tel: [phone]. Fax [phone] Email: [e-mail]: http://www.roskill.com/gypsum.

Note to editors

Roskill Information Services Ltd. of London, UK is a leading provider of multi-client and bespoke market research services to the minerals and metals industry.

For further information on this report, please contact Alison Saxby, [e-mail] or [phone].