Sometimes clients wonder why I devote so much time to producing (and updating) a wide array of industry-wide analyses. For example, you’ve likely seen the posts I’ve published covering the housing (here) or transportation (here) sectors. The reason is simple: industry dynamics are typically the critical force shaping sales for any individual company.

Take today’s focus: $EXP (Eagle Materials), a leading U.S. producer of wallboard and cement, with additional operations in concrete and aggregates. See the first scatter plot. It highlights the strong correlation between U.S. wallboard sales and new home starts (that is, newly constructed houses). While not all wallboard goes into new housing, this single variable explains nearly 90% of total sales, reflecting the interconnectedness of adjacent areas within the housing complex.

This is why understanding the cycles of new home starts in the U.S. is essential for accurately forecasting sales for Eagle Materials’ wallboard segment. From there, it’s a straightforward process to estimate $EXP’s market share and, with further analysis, explore the dynamics between capacity utilization and wallboard pricing—take a look at the second chart for a visual depiction.

During the mid-2000s housing boom, capacity utilization at $EXP and its competitors reached very high levels (as did the price of wallboard). As the cycle turned and housing starts collapsed, utilization rates dropped—and prices followed. Then, something unusual happened: in the early 2010s, wallboard prices climbed sharply, even though the industry’s fundamentals seemed weak. For a while, my analysis questioned its relevance—until, almost a decade later, Eagle Materials (along with USG, the market leader) was fined tens of millions of dollars in a class action for price-fixing. In short, the major players had been colluding.

Looking ahead, pricing should remain relatively disciplined, especially with fewer homes expected to be built in the coming years (see my recent analysis on U.S. Census Bureau data and future new home starts - here). That said, if significant industry players resume collusive behavior, all bets are off—so I’ll be keeping a close eye on price developments in this segment.