Cement & Construction Outlook RMCAO 49th Annual AGM & Convention September 12th, 2008 David Czechowski Sr. Canadian Economist Portland Cement Association The U.S. is in the hospital. Canada is sick but still showing up for work

U.S. Snapshot

States in Recession As of May, 2008 Recession At Risk Growing 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 AK HI Recession At Risk Growing

Foreclosures are concentrated… Below U.S. US: 2% Near U.S. Above U.S. % of households defaulting on their 1st mortgage, 08Q1 Source: Equifax, Economy.com

Construction Declines May Not Be Short or Shallow! 2006 Foreign Capital Inflows 2007 Housing 2008 Consumer 2009 Commercial Public Energy

The U.S. Prognosis Near Term Adversity Economic outlook remains dim May continue longer than expected No recovery in housing until 2010 Nonresidential may require longer recovery Potential for fiscal crisis at state level

U.S. Cement Consumption Outlook Double-digit decline in consumption this year Peak (2005) to Trough (2009) = 30 MMT (% decline equals 80-82 Recession) Large capacity increases magnify potential market imbalances Imports record large, sustained declines (- 40% ’07) Global conditions suggest high freight rates continue 2008 bearing burden of correction (-46% YTD) Utilization Rates decline Materializes to a greater extent in 2009 Past peak (2005) not realized until 2014

National

On the Radar… Employment Slower Growth materializing Oil Prices Expected to remain high Dollar Hampering External Market Recovery Inflation Bank of Canada’s focus Consumer Debt Pressure is building Prolonged U.S. Recession Too many shots on goal!

Employment Canada U.S. 3.0 2.0 1.0 0.0 -1.0 04 05 06 07 08 Forecast 2008 1.8% 2009 1.3% 2010 1.3% 2011 1.2% Year-Year % Change 3.0 Canada 2.0 1.0 U.S. Housing Market Collapse Foreclosures accelerating Credit Risk Aversion now Spreading Labor Markets in Decline Outlook not favorable Consumer Confidence Tumbling Consumer debt loads signaling a retrenchment Energy Costs Stealing from growth and stimulus Fiscal/Monetary Actions Long to develop Q1: 2.0% 0.0 -1.0 04 05 06 07 08

Is This a Turning Point? In U.S. $ $/BBL Forecast 2007 .931 2008 .987 140 Dollar (R) 1.05 100 0.95 Forecast 2007 .931 2008 .987 2009 .947 2010 .925 2011 .906 West Texas (L) 60 0.85 20 0.75 05 06 07 08 09

Consumer Credit Outstanding Duration (Months) Growth in Excess of 8% Year-Year % Change 16 19 63 21 12 8 4 3MMA 90 92 94 96 98 00 02 04 06 08

Real Growth Month-Month % Change 0.8 0.4 0.0 -0.4 -0.8 06 07 08

Economic Outlook Real GDP Growth: 1.8% - 2.4% 2007 2008- 2009 2010 - 2012 2.3% Slower Growth Marginal Improvement Employment Dollar .931 Stubbornly High Softening Begins Supportive but Slowing 4.7% Slowdown Continues Consumer Spending Housing Starts 0.4% Slow Growth All Provinces Weaken Real GDP Growth: 1.8% - 2.4%

Risks Prolonged or Deeper U.S. Recession Canadian Consumer Retrenches Ultimately Canada could would succumb Canadian Consumer Retrenches Debt levels become unmanageable Commodity Price Collapse Global financial and economic meltdown pressures commodity prices and drags on growth Nearly 5 years of +8% consumer debt outstanding Mortgage debt +92% since 2000

Construction Markets

Cement Markets Exposure (Five Year Average) Construction Spending Cement Consumption Residential: 47% Nonresidential: 19% Industrial: 3% Commercial: 9% Institutional: 7% Engineering: 33% Transportation: 6% Other: 28% Residential: 35% Nonresidential: 29% Industrial: 7% Commercial: 16% Institutional: 5% Engineering: 33% Transportation: 20% Other: 13% (Oil/Gas/Electric/Communications/Other)

Residential Sector Forecast 2008 - 4.9% 2009 - 2.2% 2010 0.8% Units 300 Forecast 2008 - 4.9% 2009 - 2.2% 2010 0.8% 2011 1.4% 270 240 210 180 05 06 07 08

Nonresidential Permits Billions $ 28 22 16 3MMA - SAAR 10 01 02 03 04 05 06 07 08

Nonresidential Sector Office vacancy rates down in all top 5 metros

On The Radar… Residential Singles weakening Multiples surprise on the upside Affordability and consumer stress Outlook weak Central Provinces in search of a trough Western Provinces showing some fatigue Nonresidential Commercial/Industrial/Institutional remain supportive Engineering Infrastructure requirements and funding plentiful Provinces need to pull the funding trigger

Real Construction Spending Forecast 2007 3.1% 2008 -0.3% 2009 1.0% 2010 1.7% 2011 2.0% Index 1999=1.0 2.0 Engineering 1.7 Residential 1.4 Nonresidential 1.1 0.8 99 00 01 02 03 04 05 06 07 08 09 10 11

Cement Markets

Cement Imports 1200 900 600 300 99 00 01 02 03 04 05 06 07 08 Clinker 000 MT 1200 Clinker Cement 900 YTD May + 7% 600 300 99 00 01 02 03 04 05 06 07 08

Cement Exports 8.0 6.0 4.0 2.0 90 92 94 96 98 00 02 04 06 07 Forecast 2008 -15.0% 2009 -5.0% 2010 1.0% 2011 2.1% Million Tonnes 8.0 Clinker Cement 6.0 + 10% 4.0 YTD June - 20% Weak demand dragging on export flows 2.0 90 92 94 96 98 00 02 04 06 07

Canadian Share of U.S. Imports 2004 2005 2006 2007 Asia 29.5% 36.0% 53.9% 48.3% 21.1% 16.1% 14.1% Canada 23.4% 58.0% 61.9% 61.1% 55.9% Ontario Europe 19.7% 18.5% 13.0% 8.3% Point: Ontario’s share to the U.S. remains strong but weakened due to slower demand. Latin America 20.9% 17.4% 11.4% 11.8% Mexico 5.3% 6.5% 6.3% 7.5% Other 3.6% 5.5% 1.3% 0.7%

Ontario Cement Trade Forecast 2008 - 5.0% 2009 - 1.0% 000 Tonnes Million Tonnes 550 3.4 3.3 450 3.2 Imports (L) 3.1 350 Exports (R) 3.0 Point: 04/05 export volumes exceptional in wake of strong U.S. demand. 06/07 more in line with longer term trends. Point: Outlook: Flat/slow growth next several years U.S. demand continues to weaken in competitive environment 2.9 250 2.8 150 2.7 97 98 99 00 01 02 03 04 05 06 07 08 Export Customers Include: Bermuda/China/Japan/Jamaica/UAE Import Sources Include: China/U.K/Denmark/Croatia/Germany

Cement Capacity Utilization New Capacity Lafarge, Exshaw, AB +900,000 On Stream: 2010 Percent 95 90 85 80 75 97 98 99 00 01 02 03 04 05 06 07 Source: PCA Labor/Energy Input Survey

SCM Consumption Million Tonnes + 10.3% 1.5 YTD + 22% 1.4 1.3 1. 0 Jan +19% Feb +28% 1.1 1.0 0.9 00 01 02 03 04 05 06 07

Competitive Materials (Index 2002=100)

Cement Outlook

Cement Consumption Million ? Tonnes 12 10 ? 8 42% drop in 80-81 recession. Would return CA to a 5.6 mmt market? 6 4 69 73 77 81 85 89 93 97 01 05 08 Canadian Recession U.S. Recession

Portland Cement Consumption Year-Year % Change 40 1st Half -0.4% 30 20 10 -10 -20 04 05 06 07 08 5.0% 1.2% 1.7% 2.9%

Portland Cement Consumption Forecast 2008 -1.0% 2009 - 1.0% 2010 1.5% 2011 2.5% Million Tonnes 11.0 10.0 + 2.9% 9.0 Downside Risk $: 47/20/33 Cement: 35/30/33 8.0 7.0 99 00 01 02 03 04 05 06 07 08 09 10 11 Remember this Phrase N'oubliez pas cette phrase

Provincial Snapshot

Weaker Economic Growth Expected 2007 2008 2009 3.1% Atlantics 1.6% 2.0% Quebec 2.6% 1.5% 2.0% Ontario 2.1% 1.0% 1.5% Prairies 3.0% 3.2% 3.1% British Columbia 2.8% 2.3% 2.7%

Portland Cement Consumption Index 2000=1.0 2.0 British Columbia 1.8 9% 1.6 Prairies 1.4 4% Atlantics Performance Indicators Will Slow Employment Growth Advances at a Slower Pace Stubborn C$ funding consumer spending but will drag on trade Debt levels may slow consumer Residential Construction Markets Weak this Year and Next Fatigue in both Singles and Multiples Nonresidential Construction Maintains Rise Supportive but at a slower pace Engineering Construction Opportunity in Place Requirements plentiful with adequate funding available 1.2 4% Quebec 4% Ontario 1.0 - 1% 0.8 00 01 02 03 04 05 06 07 08 09 10 11

Provincial Assessment Performance Indicators Slowing Employment Growth Slows Stubborn C$ funding spending but dragging on trade Debt burden may slow the consumer Residential Construction Markets Weak Central provinces in search of a trough Western provinces showing fatigue Nonresidential Construction Supports Spending Industrial/Commercial sectors continue to support Engineering Construction Opportunity in Place Requirements plentiful with adequate funding available

Ontario Spotlight

Net Provincial Migration - Ontario Thousands 60 20 -20 -60 00 01 02 03 04 05 06 07 08 09 10

Employment Growth - Ontario Forecast 2008 1.5% 2009 1.1% 2010 1.3% 2011 1.4% Thousands 70 50 30 10 -10 -30 05 06 07 08

Employment Growth - Ontario Year-Year % Change 15 Construction 10 5 Services -5 Manufacturing -10 05 06 07 08

Residential Permits - Ontario

Housing Starts - Ontario Forecast 2008 - 0.3% 2009 - 3.4% 2010 0.8% 2011 1.5% Thousand Units 50 Multiples 40 30 Singles 3MMA - Urban 20 03 04 05 06 07 08

Nonresidential Permits - Ontario

Nonresidential Permits - Ontario Millions $ 1200 1000 800 600 400 00 01 02 03 04 05 06 07 08

Ontario Construction Spending Index 1999=100 1.6 Engineering 1.3 Residential Nonresidential 1.0 Point: Assumes some level of government support but not reflective of today’s initiatives 0.7 99 00 01 02 03 04 05 06 07 08 09 10 11

Real Economic Growth - Ontario Forecast 2007 2.1% 2008 1.0% 2009 1.1% 2010 2.0% Year-Year % Change 8 6 4 2 99 00 01 02 03 04 05 06 07 08 09 10 11

Provincial Summary - Ontario Residential Supported by multi-family – singles suffering Nonresidential activity advancing but lagging and at risk Key Industries under Pressure No hope for automotive? The Dollar helping little Energy/Input commodities Demographics not a growth supporter Engineering sector growth adequate $7.8$B (Building Canada – Ottawa) Moderate growth forecast

Ontario Cement Market

Ontario Markets Exposure (Five Year Average) Construction Spending Cement Consumption Residential: 58% Nonresidential: 23% Industrial: 3% Commercial: 11% Institutional: 9% Engineering: 17% Transportation: 7% Other: 12% Residential: 41% Nonresidential: 29% Industrial: 7% Commercial: 15% Institutional: 6% Engineering: 30% Transportation: 17% Other: 13% Point: Construction Spending weighted toward residential however cement consumption spans each sector more evenly. (Oil/Gas/Electric/Communications/Other)

Cement Distribution - Ontario Percent 90 Ready Mix Concrete Products 70 50 30 10 99 01 03 05 07 Source: Concrete Allocation Benchmark Model

Concrete Products - Ontario Tonnes Q1-2007 Q1-2008 Q2-2008 Brick & Block 14,333 29,521 37,023 Concrete Pipe 19,929 18,201 16,446 Precast 26,528 36,258 41,802 Source: PCA Survey of Cement Consumption by User Group

Residential Cement Intensity Ontario Tonnes/Start Singles Multiples 20 18 16 14 12 99 00 01 02 03 04 05 06 07 Source: Concrete Allocation Benchmark Model

Ready Mix Penetration - Ontario M3/000 f2 45 Residential Nonresidential 40 30 25 15 99 01 03 05 07 Source: Concrete Allocation Benchmark Model

Ready Mix Price Index Year-Year % Change 10 Canada 5 Ontario June $176 June $176 63% -5 $108 Index:3MMA Source: STC Price: Toronto $/cm Source: ENR -10 98 99 00 01 02 03 04 05 06 07 08

Competitive Opportunity - Ontario Index 2001=1.0 3.0 Asphalt 2.5 2.0 1.5 1.0 Ready Mix Concrete Source: OHMA,STC 0.5 01 02 03 04 05 06 07 08

RMC Cost of Business - Ontario Year-Year % Change 90 $1.43/liter Diesel 60 30 Electricity -30 -60 05 06 07 08

Ontario Cement Consumption Year-Year % Change 40 30 20 1st Half - 0.6% 10 -10 -20 05 06 07 08 -2.4% -2.0% -1.2%

Ontario Cement Consumption Million Forecast 2007 -1.2% 2008 -1.0% 2009 0.0% 2010 1.8% 2011 2.1% Metric Tonnes 4.0 3.5 3.0 Point: Internal Demand: Housing slows Slower Consumer Spending Point: External Demand: U.S. Recession Housing Slowdown Risks on the Downside Remember the Phrase! 2.5 2.0 00 01 02 03 04 05 06 07 08 09 10 11

2007 Forecast Performance Accuracy* Atlantics 95.1% Quebec 97.2% Ontario 99.4% Prairies 98.6% British Columbia 98.8% * Average Spring/Summer/Fall Forecasts

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