Ed Sullivan, Chief Economist PCA Cement Outlook: 2011-2015 World of Concrete January 2011 Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

Portland Cement Consumption: Fall Thousand Metric Tons Growth Rates 2007: - 9.6 2008: - 15.1 2009: - 26.9 2010: + 0.7 2011: + 1.3 2012: + 3.7 2013: + 16.6 2014: + 18.0 = Early 2011 Characterized by Large Y-O-Y Percentage Gains PCA believes this will be a false read for 2011 Performance

Capacity Utilization Percent Capacity Utilized = NESHAP Closures

Economic Outlook

Economic Adversity Abates 2011/12 2006 2007 2008 2009 2010 2011 Sub-Prime/Exotics Energy The abatement of the conditions that put us in recession…are receding…but remain in place. Lending Standards Labor Markets State Deficits

Synchronized Recovery Theory Job creation determines how quickly the recovery cycle spins. Incremental Demand Gains Job Gains Sentiment Gains Lending Standards Ease & Hiring Accelerates Heals Structural Restraints In the context of moderating productivity Gains Leads to: Defaults & perceived lending risks decline Sentiment includes Consumer, Business & Banks:

Housing Recovery

Residential Contribution to Recovery Muted Thousand Metric Tons 19 MMT Gain or 68% Recapture =

Ingredients for a Starts Recovery Homebuilders Expected ROI Inventory no higher than 5 months supply Price stability Weaker the price environment…lowers the months’ supply trigger point. Carry costs erode expected ROI.

Foreclosures Accelerate Foreclosure Impacts Add to Inventory Depressed HomebuilderROI Depress Prices 2.8 Foreclosures in 2009. 871K Bank possessions. Equates to one out of every 4 homes on the market. Adds supply. Bank owned properties discounted. Pressures new home prices. Longer carry costs. Lower revenues. Erodes expected ROI. Delays recovery in starts.

Residential: Re-Set Scenario $ Billion Alt-A Subprime Resets Option Adjustable =

Months’ Supply: Single Family Number of months required to burn off existing inventory at current selling rates Projected = Source: PCA Projections

Single Family Starts Projections Thousand Homes =

Single Family Starts Projections Thousand Homes =

Single Family Starts Projections Thousand Homes =

Nonresidential Drag

Commercial Nonresidential Drag Lessens Thousand Metric Tons 8.4 MMT Gain or 64% Recapture =

Nonresidential Conclusions No longer a significant drag on cement consumption growth. Large imbalances exist in before a positive NOI materializes Slow job growth implies slow healing process Credit environment hostile. Conditions for positive ROI years off. Not a significant contributor to cement consumption growth until 2013

Office Buildings: Recovery Process New Office Hiring Vacancy Rates Decline Leasing Rates Stabilize Credit Troubles Ease Asset Prices Firm Leads to a recovery in office construction. 1/5 of all jobs in the office. Defaults & perceived lending risks decline After reaching threshold of roughly 14% vacancy rate

Since 1 in 5 Jobs Are In The Office Office Buildings Recovery Timing 32.0 Million Office Jobs Equates to Full Occupancy 27.5 Million Office Jobs Equates to Stable Leasing Rates 27.0 Million Office Jobs Today Implying….. 500,000 Office Jobs must be created before leasing rates stabilize Since 1 in 5 Jobs Are In The Office This equates to a total job creation number of roughly 2.5 million Jobs This condition may not materialize until 2012

Public Recovery

ARRA Spending Composition Assumptions Billion $   ARRA Spending Composition Assumptions Billion $ Cement Consumption 2,951,000 MT Cement Consumption 2,310,000 MT Cement Consumption 583,000 MT Cement Consumption 214,000 MT = Resurfacing Widening & New Route Bridge Chart Excludes “Other” Spending

State Fiscal Conditions FY 2011 Budget Gaps ME RI MA VT NH AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC MD DE PA NY CT NJ HI Source: PCA/CBPP Oct. 2010 No Shortfall Under 11% 11%-20% Over 20%

State Deficits $ Real Slow Job Creation Leads to Slow Deficit Heal = National Estimates: States Do Not Heal in a Synchronized Fashion

Discretionary State Highway Cement Consumption Thousand Metric Tons =

SAFETEA-LU Math 2010 2011 PCA Washington: 50/50 Lame Duck Passage 2010 2011 SAFETEA-LU - Delay in Extension -1 to -2 MMT 0 MMT - Recapture 2010 ----- +1 to +2 MMT Volume Impact - 1 to -2 MMT +1 to +2 MMT Net Change 2011 (No Delay) +2 to +4 MMT PCA Washington: 50/50 Lame Duck Passage

Portland Cement Consumption: Highway Thousand Metric Tons = State Discretionary Highway Bill Stimulus

“New Normal” or “New Headaches” Beyond the Crisis “New Normal” or “New Headaches”

Portland Cement Consumption Thousand Metric Tons Recovery Occurs in Context of “New Normal” =

After the Crisis: “New Normal”: Economics American consumer, the engine of US economic growth May distance from debt spending patterns (lowering GDP). Baby boomers may not re-capture wealth Higher inflation erodes spending. Impacts Slower growth – Is 50 basis point enough?

After the Crisis: “New Normal”: Policy Fiscal Policy Stimulus spending must be paid for…resulting in higher interest rates, higher taxes, and potentially higher inflation. Monetary policy easing (U.S. & global) & QE2 Could add to inflationary pressures. QE2 compounds the inflationary risks. Raises prospects of Federal Reserve tightening. Weakens dollar in context of large public debt. Heightens debt costs. Opens door for fiscal austerity. Key economic consequences American consumer, the engine of US economic growth, may distance from debt spending patterns (lowering GDP). Dollar may show a structural weakening. …combining for the potential of slower longer term economic growth (50 basis points).

After the Crisis: “New Normal”: Construction Not a typical recession recovery. Amplified by structural corrections. Amplified by possible policy errors. Long impacts Pent-Up Demand Being generated across all sectors. Longer period of distress, more pent-up demand Timing and magnitude of release impacted by economy. Regional impacts from resulting growth. Residential, nonresidential & public synchronized – 2013 & Beyond. Typically suggests strong cement consumption growth rates.

After the Crisis: “New Normal”: Global Emerging economies, led by China/India, account for key growth drivers. Accounts for larger share of world GDP than OECD by 2014 (IMF). Exerts “new” potent demand on world markets “Synchronized” world growth returns 2013-2020. Commodity prices (oil), freight rates, trading patterns subject to change. Impacts concrete competitiveness (oil prices = paving position, residential ICF) Impacts sourcing decisions – high freight rates raising import costs. New challenges could lead to potentially new economic/political tensions.

Announced New Coker Installations Cumulative: Thousands of Barrels Per Day

After the Crisis: “New Normal”: MIT Researchers at the MIT Concrete Sustainability Hub are working to quantify the full cradle-to-grave life-cycle environmental and economic costs of paving and building materials. Residential Buildings – More than 90% of the life-cycle carbon emissions are due to the use phase, with construction and end-of-life disposal accounting for less than 10% of the total emissions. Residential Buildings – Concrete structures built with insulated concrete forms (ICF) enjoy long-term operational energy savings of 20% or more over wood-framed buildings. In the context of synchronized world growth, higher oil prices, homebuyers may increasingly emphasize energy saving aspects of concrete homes.

Per Home, Lifetime C02 Savings ICF Home Over Frame Co2 Metric Tons, Per Home Total Heating & Cooling C02 Saving: 92 Tons per Home Additional C02 Emitted by Cement Production Conservatively Assumes 50 Year Life of Home

After the Crisis: “New Normal”: Regulation Activist EPA Plant shut downs High compliance costs. New Source regulations! Resumption of demand growth Import Dependence Grows In context of weak dollar In context of emerging economy demand growth Higher freight rates. Sourcing strategies Near term, import dependence – longer term?

Cement Consumption: Long Term Million Metric Tons Growth in Context of Population Changes, Slower US Economic Growth, Strong Global Growth, Climate Change Legislation and the “Green” Revolution.

Ed Sullivan, Chief Economist PCA Cement Outlook: 2011-2015 World of Concrete January 2011 Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009