Ed Sullivan, Chief Economist PCA Cement Outlook: 2009 Ed Sullivan, Chief Economist PCA

Introduction: Overview Economic fundamentals are deteriorating quickly. Outlook shaped by policy actions. Details and size of the stimulus plan are fluid and still subject to considerable change….adds risk to PCA projections.

Introduction: The Need for Stimulus Lacking stimulus, the economy enters a deep and long contraction GDP declines 2.7% in 2009 and another 1.5% in 2010 An additional 6 million more jobs lost and unemployment reaches 10.4% State deficits reach $79 billion in 2009, $102 billion in 2010. Cement consumption declines 15% in 2009 followed by another 8.5% in 2010. Single Family housing starts decline to 400,000 annually in 2009 and 2010. Significant recovery does not materialize until 2012.

Portland Cement Outlook: No Stimulus Thousand Metric Tons Projections Without Stimulus = Note: 11 Plant Closures in 2008. Utilization Rates drop into low-mid 60% range in 2010

It is a Recession, and going to last longer than previously expected Economic Outlook It is a Recession, and going to last longer than previously expected

Economic Outlook: Five Factors Financial Crisis Energy/ Inflation Labor Markets State Deficits Sub-Prime Mortgage Payments Credit Cards Defaults Tight Lending Standards Home Price Declines Reliance on Home Equity Gone Defaults Write-Downs Risk Aversion Tight Lending Standards Commercial, Consumer, homeowner capital access reduced Global Structural Global Realities Gasoline Prices Heating Prices Fertilizer/Biofuels hit Ag Prices Supply Side Costs Ingrained Cost of Business Adds Weakness to Dollar Slower Economic Growth One Million Job Loss in 2008 Housing Recovery Delayed Nonresidential Declines State Fiscal Crisis Looming Public Declines Slower Job Revenues Slow Entitlement Programs Continue Deficits Drag on Recovery Offsets Possible Federal Stimulus Package

Economic Adversity 2006 2007 2008 2009 2010 Sub-Prime Energy Financial Crisis Inflation Labor Markets State Deficits

Net Job Creation (Loss) - Annual Change, Thousand Net Jobs = Job Loss 2009 = 4.1 Million Job Loss 2010 = 1.8 Million Unemployment Peaks at 10.5% Early-2010

No Stimulus Job Loss Estimates Million Jobs 2008 2009-2010 2009-2010 Obama Economists PCA

Portland Cement Outlook: No Stimulus Thousand Metric Tons Projections Without Stimulus = Note: 11 Plant Closures in 2008. Utilization Rates drop into low-mid 60% range in 2010

Introduction: The Need for Stimulus Obama’s $775 billion plan may not be enough. Obama economists expect an additional 2.8 million jobs lost. And plan aimed at creating /saving 3.7 million jobs. PCA estimates that 8.5 million jobs may need to be created/saved. Stimulus plan required = $1.2 trillion. House Appropriations = $825 billion – size of stimulus increasing in recognition of greater economic adversity. More increases required… but …taxpayer backlash may hinder size and hence economic outcomes.

Economic Policy Actions

Introduction: Stimulus Overview Details and size of the stimulus plan are fluid and still subject to considerable change….adds risk to PCA projections. Based on what is on the table now, several assessments can be made: Tax cuts will only temporarily mask weak fundamentals – not a job creator or sustainable change in growth path. State Aid and “Hard Infrastructure” are largest job creators/savers. Shovel Ready projects may materialize later than many expect and with less stimulatory and job creation impact than “Hard Infrastructure” investment.

“Shovel Ready” Timeline Jan Feb March April May June July August House Bill Obama Inaugurated Job Creation May Come Later Than Many Expect Senate Passes & Bill Signed Federal Paperwork State Paperwork Bid Letting Bid Review Contractor Paperwork Construction Begins

“Stimulus Timeline Phase I Phase II Phase III 2011 2009 2010 Policy Tool Objective 2009 2010 2011 Job Saving Job Creating Tax Cuts, Entitlement Spending, State Aid Stabilize Economy, halt adverse momentum Phase I Shovel Ready Projects Job Creation Phase II Job Creation, Address Structural Economic Issues Long Term Investments Phase III

Economic Growth Outlook Percent Change, GDP Growth Rate Recession Scenario: With Stimulus Recession Scenario: No Stimulus

Stimulus: GDP Impacts 2009-2010 2009-2010 Change in GDP From No Stimulus Scenario Obama Economists PCA 2009-2010 2009-2010 GDP 4th Q 2010: $12.2 Trillion GDP 4th Q 2010: $11.6 Trillion Note: Stimulus in PCA Outlook Overlaid upon weaker Fundamentals.

Stimulus: Job Creation Estimates Million Jobs Obama Economists PCA 2009-2010 2009-2010 Unemployment: 8.8% Unemployment: 7.0% Job Estimates have large impacts on Cement/Concrete recovery assessments.

Stimulus: Infrastructure Job Creation Estimates Percent Job Premium Compared to A Resurfacing Reconstruction, Capacity New Bridge New Route Major Widening Bridge Replacement Concrete Intensive Projects Create More Jobs Than Resurfacing

Portland Cement Outlook Thousand Metric Tons Projections With Stimulus Projections Without Stimulus =

Capacity Expansion Thousand Metric Tons Stated Capacity Expansions Potential Increases From Specification Changes

Market Imbalances - Changes in Cement Consumption Tons + Capacity Expansion Tons = 1980-82 1990-91 2000-01 2007-2010 1973-74

Import Volume Thousand Metric Tons

Capacity Adjustments * Thousand Metric Tons Capacity Adjustments Due to Delayed Expansions and Plant Closures * Adjustments Include Five Delays in Plant Commissioning and Eleven Plant Closures

Capacity Utilization Rates Clinker Production/Clinker Capacity

Stimulus Payback in context of Global Recovery Beyond the Crisis Stimulus Payback in context of Global Recovery

Introduction: Overview Cyclical correction is temporary.

The “V” Economic Recovery: 2008 2009 2010 2011 Sub-Prime Drag Abates Bank Lending Aversion Improves Stimulus Gains Employment Traction Lending Risk Declines: Credit Easing Energy Stimulus State Deficits Improve Pent-Up Demand Released

Single Family Housing– United States 000 Starts Pent-Up Demand = Housing Peaked January 2006 2007: -29% 2008: -37% 2009: 0.0% 2010:+34% Interest Rates low, Decline in Home Price, Job Recovery Translate into Improved Affordability Excess Inventories Worked Off

Nonresidential Long Term Trend Million Real $, 1996 =

Current: Gasoline Prices Vs Asphalt Prices Per Barrel Price Per Barrel

Gasoline - Asphalt Margin Per Barrel Differential - Net Threshold of $14 Per Barrel Price Differential Per Barrel Threshold Differential = $14 per barrel Estimated on a Ten Year Payoff for Coker Investment

Announced New Coker Installations Cumulative: Thousands of Barrels Per Day

Liquid Asphalt Supply Thousands of Barrels 44 Million Barrel Decline by 2011

Parity Achieved in Fiscal 2009 Projected: Initial Bid Concrete Vs Asphalt Paving Costs Per Two Lane Road Mile - Urban Asphalt Concrete Parity Achieved in Fiscal 2009

Concrete Advantages Materialize in Fiscal 2009 Projected: Life Cycle Concrete Vs Asphalt Paving Costs Per Two Lane Road Mile - Urban Asphalt Concrete Concrete Advantages Materialize in Fiscal 2009

Portland Cement Consumption Thousand Metric Tons =

Ed Sullivan, Chief Economist PCA Cement Outlook: 2009 Ed Sullivan, Chief Economist PCA