Ed Sullivan, Chief Economist PCA Cement Outlook: 2010-2014 CEA 2010 Annual Meeting May 13, 2010 Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

Overview

Portland Cement Consumption Thousand Metric Tons - 54 MMT Growth Rates 2007: - 9.6 2008: - 15.1 2009: - 26.9 =

Market May have reached a Trough Point – Earlier Than Expected Point One Market May have reached a Trough Point – Earlier Than Expected

Portland Cement Consumption SAAR, Thousand Metric Tons = 2010 2008

Portland Cement Consumption: No Snow, No ARRA SAAR, Thousand Metric Tons = No Snow, No ARRA 2010 2008

Portland Cement Consumption: Trough Point SAAR, Thousand Metric Tons = 2010 2008

Trough Point May Have Materialized – Earlier Than Expected Trough point for market may have materialized during Oct 2009 – Feb 2010 PRELIMINARY ESTIMATE Two months – Early estimate Snow effects Depressed Jan-Feb Inflated March-April March up 1.5%, Snow Adjusted down 6% Core market conditions have improved SAAR less snow, less ARRA Growing at a 7% annual rate during past two months. Residential, Oil, Farm and possibly a flattening in state discretionary spending

First Quarter Weakness In Context of Full Year Results Point Two First Quarter Weakness In Context of Full Year Results

Portland Cement Consumption 2010 First Quarter Performance: 2 MMT in the Hole SAAR = -2,067 Volume Change Versus 2009 -943 -2,104

Portland Cement Consumption 2010 Performance: Fourth Quarter SAAR 2009 Total = +1,422 Volume Change Versus 2009 + 642 +909

First Quarter Losses Are Offset by Fourth Quarter Gains Down 15% from 2009 levels - 2,067,000 metric tons from 2009 levels Fourth Quarter; Weak 2009 performance = 62,500,000 SAAR + 1, 422,000 from 68,400,000 SAAR (2009 total) 14% Gain over 2009 levels Net: -645,000 from flat performance Note: April = +300,000 to +600,000 based on anecdotal information

First Quarter Losses Are Offset by Fourth Quarter Gains Weak 2009 performance = 62,500,000 SAAR + 3,000,000 from 75,000,000 SAAR (PCA Forecast) 20% + Gain over 2009 levels Net: +1,000,000 from 2009 levels +1.5% Year total growth if flat conditions persist in 2nd/3rd quarters

Tepid Expected National Gains – Vary Significantly by Region/State Point Three Tepid Expected National Gains – Vary Significantly by Region/State

Portland Cement Consumption Thousand Metric Tons Growth Rates 2007: - 9.6 2008: - 15.1 2009: - 26.9 2010: + 5.2 2011: + 13.4 2012: + 18.4 2013: + 12.4 2014: + 8.2 - 54 MMT =

National Outlook National outlook relatively unchanged at +5%, or, +3.5 MMT. Growth is dependent on: Tepid single family housing recovery: +815,000 MT Oil gains: +375,000 MT Farm gains: +280,000 MT Increased ARRA highway spending and intensities: +3,600,000 MT Increased ARRA non-highway spending including; airports, water, conservation : +300,000 MT to +500,000 MT This growth more than offsets nonresidential, multifamily & state discretionary drags

National versus Regional Outlook States with: High foreclosure exposure will not fully participate in the modest housing recovery. High ARRA resurfacing priorities will see less stimulatory impact. Little exposure to oil or farm sectors will bare brunt of nonresidential declines.

ARRA Highway Intensities Top States Lowest States 1. ARIZONA 0.859 IDAHO 0.848 FLORIDA 0.781 ARKANSAS 0.774 TEXAS 0.726 MISSOURI 0.712 HAWAII 0.631 DELAWARE 0.600 OHIO 0.585 LOUISIANA 0.572 KANSAS 0.571 NORTH CAROLINA 0.558 50. OREGON 0.135 49. NORTH DAKOTA 0.147 48. MASSACHUSETTS 0.159 47. SOUTH DAKOTA 0.163 46. WYOMING 0.183 45. RHODE ISLAND 0.189 44. MARYLAND 0.198 43. MAINE 0.204 42. CALIFORNIA 0.208 41. ILLINOIS 0.216 40. ALASKA 0.222 39. VERMONT 0.252

Operating Conditions Remain Adverse Point Four Operating Conditions Remain Adverse

Cumulative Market Imbalances Million Metric Tons =

Portland Cement : Utilization Rates Percent Utilization Based on Clinker Capacity = Slow Demand Improvement, Digestion of New Capacity & Inventory Reductions Will Delay Utilization Recovery

The Economic Recovery Process: How & When There is light at the end of the tunnel….it’s just a really long tunnel

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

Economic Growth & Job Creation Percent Change & Thousand Jobs % Jobs Net Other GDP Growth = Net Other = All, excluding inventory changes and ARRA impacts

Cement recovery will occur in the context of slow economic growth Point Five Cement recovery will occur in the context of slow economic growth

Point Five: Cement Market Recovery Will Take Place in the Context of Slow Economic Growth Recent strong GDP growth distorts the underlying fundamentals of the economy….. While fundamentals are improving, many of the factors that gave rise to the collapse are still operating….. Sluggish gains in GDP growth are expected… Yet…. GDP Growth = 2.7% Nearly one million jobs created (170K in first quarter) Tightening of credit winds down, outright easing materializes in some sectors Vacancy rates marginally improve from current levels – beginning the process of nonresidential recovery. Deterioration in state deficits may be better than expected

Ingredients for a “Recovery” in Cement

Ingredients for a “Recovery” This Implies continued weak consumption levels during first half of 2010 Cement Consumption: + 5.2% 2010 PCA’s 5.2% growth in 2010 translates into 4 MMT. This “recovery” must be considered in the context of a 54 MMT peak-trough decline. Residential Public Late 2010 Recovery in Starts. ARRA continues to accelerate. Cement projects materialize 2nd half 2010

First Half weakness, Second half Strength Point Six First Half weakness, Second half Strength

Point Six First half of 2010 characterized by year-over-year declines. Turning point may have materialized sooner than expected. Second half gains reflecting a backend recovery. Very large percentage gains characterize fourth quarter.

Criteria For Housing Recovery

Residential Cement Consumption Thousand Metric Tons - 29.6 MMT Residential sector’s adverse impact on cement consumption has run its course. = 55% of Total Cement Consumption decline is attributed to residential

Ingredients for a Starts Recovery Homebuilders Expected ROI Inventory no higher than 5 months supply Price stability Weaker the price increases…lower 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 5 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.

Point Seven

Upside Risk? PCA’s projections lie below consensus estimates by a significant margin. May imply upside risks to cement consumption … Roughly 1.5 million metric tons in 2010 and 2011 Pricing recovery for new homes. Foreclosure assessments.

Ingredients for a Public Recovery

Ingredients for a Public Cement Recovery Highway/Street Cement Consumption 2009: 0.6 MMT Aaa A Aaa A 2009: -5.4 MMT ARRA Stimulus State Fiscal Sterilization 2010: 4.1 MMT 2010:-0.5 MMT Outlays accelerating. Design & concrete intensive projects roll out last. Decline in discretionary state cement consumption have been massive during past three years.

Sterilization by State Fiscal Conditions State Sterilization Sterilization by State Fiscal Conditions

State Fiscal Conditions Real 1996$ = State Deficits Worsen in 2010.

PCA ‘s Assumptions Extremely Conservative. Highway Construction as Percent of Total Budget Real highway/Real State Expenditures = PCA ‘s Assumptions Extremely Conservative.

Decline in State Discretionary Construction Spending Percentage Change Real $ =

Discretionary State Highway Cement Consumption Thousand Metric Tons =

Despite a worsening in state deficits, cement drags will lessen Point Eight Despite a worsening in state deficits, cement drags will lessen

Point Eight State fiscal conditions are expected to worsen. Cutbacks in discretionary state construction spending will continue. State construction spending strategies aimed at resurfacing and stretching scarce dollars will continue. State cement consumption will decline ….but less so that 2009. Some suggest state cement consumption bottomed in 2009… Suggesting upside risk to PCA projections of 500,000 metric tons

ARRA-Led Recovery

ARRA Spending Assumptions Billion $ =

ARRA Spending Composition Assumptions Billion $ = Resurfacing Widening & New Route Bridge Chart Excludes “Other” Spending

Point Nine

Point Nine ARRA spending will more than double in 2010. Even at same 2009 intensities, implies a 700,000 to 800,000 metric ton increase in 2010. Composition of obligated ARRA spending is disappointing. Nevertheless, more cement intensive projects will materialize in 2010 – raising cement intensities. ARRA will be a much more potent contributor to consumption in second half of 2010.

Nonresidential Drag

Commercial Nonresidential Drag Thousand Metric Tons =

Oil & Farm Cement Consumption Thousand Metric Tons Oil & Farm Conditions are Favorable. Gains in these sectors partially offset nonresidential weakness. =

Nonresidential Drag Commercial nonresidential cement consumption is expected to decline 29% in 2010, following 50% decline in 2009. Drag on 2010 cement consumption is less due to extremely low 2009 base. 2009 = -6.1 MMT 2010 = - 1.8 MMT Assumes intensity constant. They should increase. Starts versus continuing construction intensities Nonresidential Farm & Oil cement consumption are expected to increase. 2009 = -3.0 MMT, 2010 = +600,000 MT

Ten Year Peak-to-Peak Recovery Beyond the Crisis Ten Year Peak-to-Peak Recovery

Ed Sullivan, Chief Economist PCA Cement Outlook: 2010-2014 CEA 2010 Annual Meeting May 13, 2010 Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009