Ed Sullivan, Chief Economist PCA Cement Outlook Fall Committee Meetings August 2011 Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

Introduction: Overview: 2011-2012 Economic growth has slowed – Again Faltering confidence GDP & Jobs Outlook has been reduced Recession risks have increased From one in four to one in three chance Slower growth translates into slower job creation Current scenario expects 150,000 net job creation monthly . August = +75K Slower global growth diminishes concrete’s competitive position

Introduction: Overview: 2011-2012 Slower job growth translates into a slower construction recovery Stretches out timing for the turn. Has little impact on 2011 cement consumption Residential recovery stretched and slowed Re-sets ease in 2012, but foreclosure burn-off will take time Slower job creation diminishes household formation Nonresidential recovery stretched and slowed Major change regarding highway bill State & Local recovery stretched and slowed No sector drives growth in near term

Portland Cement Consumption: Summer Thousand Metric Tons =

Cement Capacity Utilization Percent Capacity Utilized =

Introduction: Overview: 2013-2016 Structural Imbalances created during last boom diminish Banks ease lending standards Sovereign debt crisis softens Foreclosures dramatically decline State deficits replaced by surpluses Economic environment characterized by: Higher interest rates, higher taxes, higher inflation & slower economic growth Construction environment characterized by release of pent-up demand. Concrete competitive environment characterized by: NESHAP costs Improved competitive price advantages versus other building materials.

Portland Cement Consumption: Summer Thousand Metric Tons =

Cement Capacity Utilization Percent Capacity Utilized =

Economic Outlook

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

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 Home Builder ROI Depress Prices 3.2 Million Foreclosures in 2010. 1.1 Million Bank possessions. 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 =

Residential Cement Consumption: Summer Thousand Metric Tons =

Nonresidential Drag

Nonresidential Conclusions No longer a significant drag on construction activity. 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 late 2011

Nonresidential Cement Consumption: Summer Thousand Metric Tons =

Public Recovery

National Estimates: States Do Not Heal in a Synchronized Fashion State Deficits $ Real = National Estimates: States Do Not Heal in a Synchronized Fashion

Discretionary State Highway Cement Consumption Thousand Metric Tons =

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

Highway Bill Cement Consumption Projections Spring Versus Summer Assumptions Spring Forecast Summer Forecast

Highway Bill Cement Consumption Projections Spring Versus Summer Assumptions Spring Forecast Summer Forecast Mica Proposal

Ed Sullivan, Chief Economist PCA Cement Outlook Fall Committee Meetings August 2011 Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009