More than two years of rebuilding is near completion at U.S. Gypsum's Norfolk wallboard plant at Buchanan Street and South Main in Berkley. (John H. Sheally II/The Virginian-Pilot)

NORFOLK -- For more than two years, U.S. Gypsum Co. has been rebuilding its wallboard plant in an industrial section of Berkley at a cost of $132 million.

When construction is completed later this year, its factory on the Elizabeth River will be able to produce enough wallboard in a year for almost 79,000 new single-family homes. That's nearly three times what it currently can turn out.

But will the demand for additional wallboard be there?

U.S. Gypsum is the biggest player in an industry notorious for its booms and busts. During the best of times, manufacturers operate their plants at full blast, and distributors ration what they sell. That hasn't been the case this year.

U.S. Gypsum's parent, USG Corp., reported a sharp decline in sales and earnings for the January-through-March quarter, blaming the national downturn in home construction. Operating profit for its U.S. Gypsum subsidiary plunged 57 percent from the year-earlier quarter on a 26 percent drop in shipments, USG said.

Earlier this week, the Commerce Department offered more evidence that the weakness in homebuilding may linger. The annual rate of building permits issued for new-home construction fell 28 percent in April from the year-earlier rate.

Those figures haven't dampened U.S. Gypsum's push for improving its plants' productivity and reducing their operating costs, said Robert Williams, a spokesman at USG headquarters in Chicago.

"When it takes two years to build a plant, you can't look at the housing-start numbers from last week," he said. "These plants are built to last decades."

U.S. Gypsum, which has 21 wallboard plants, also is spending $180 million on a new one in central Pennsylvania. And last month, it announced plans to build a plant in Stockton, Calif.

The amount of its new investment hasn't escaped the attention of securities analysts who follow the building-materials industry.

"USG is constantly improving its cost position by closing or replacing old, high-cost production with more efficient plants," the brokerage and investment banking firm Merrill Lynch said in an April 12 report on the company.

U.S. Gypsum, which sells its product under the Sheetrock brand name, is the industry leader with a 31 percent share of wallboard shipments, the report said.

One reason for having factories scattered across the country is access to gypsum, the main ingredient in wallboard. Some of U.S. Gypsum's plants are built close to veins of gypsum. Others, such as the one in Norfolk, rely on ships to deliver the raw material they need.

Inside a wallboard plant, gypsum is crushed, mixed with water to form a slurry and then sandwiched between two sheets of thick paper. When the slurry has hardened, the board is cut into panels and dried. Because the product is heavy and expensive to ship long distances, plants tend to serve markets within a radius of only a few hundred miles.

U.S. Gypsum's Norfolk plant, which has a work force of about 116, is expected to add 25 jobs when the expansion is completed.

Before deciding to rebuild the plant, the company weighed whether to build a new one in Maryland or South Carolina, Williams said. One factor that influenced its choice, he said, was a package of financial incentives from the city and state, including a $500,000 grant from the Virginia Investment Partnership. The program provides incentives to companies already doing business in Virginia that add equipment and jobs.

U.S. Gypsum also is eligible for state funds to improve rail access to its plant on Buchanan Street and for work force training from Virginia's Department of Business Assistance.

The Norfolk plant, which opened in 1947, relies on ships to deliver gypsum from mines in Nova Scotia. As part of the rebuilding process, U.S. Gypsum is adding equipment that will enable the plant to use synthetic gypsum, a by-product from the air-pollution "scrubbers" used at some coal-fired power plants. If it uses synthetic gypsum, the company will be eligible for a recycling tax credit from the state.

Williams declined to say where the Norfolk plant will obtain synthetic gypsum for use in its wallboard. However, plenty of the material may be available nearby. Dominion Resources Inc., the utility holding company, announced two years ago that it was spending $500 million to install scrubbers at some of its Dominion Virginia Power plants, including one on the Elizabeth River in Chesapeake.

To speed up production at its Norfolk plant, U.S. Gypsum is installing a 300-yard-long table to handle newly formed wallboard. The longer table and more advanced machinery will enable the plant to produce 750 million square feet of wallboard a year, Williams said. That compares with its current capacity of 270 million square feet. While making these changes, the plant continues to produce wallboard, he said.

Handling volatile swings in demand for its major product is only one of the challenges that U.S. Gypsum and its parent have encountered in recent years. Between 1920 and 1978, some U.S. Gypsum building materials contained asbestos. Faced with mounting litigation costs related to asbestos-related claims, USG sought court protection from its creditors in 2001 by filing a Chapter 11 bankruptcy.

The company emerged from the bankruptcy reorganization in June after creating a trust to pay for asbestos-related claims. USG also promised to repay its lenders, bondholders and suppliers in full.