U.S. Construction & Cement Outlook Construction & Building Materials Conference Societe Generale, Paris March 9, 2007 David E. Czechowski Manager, Sr. Economist Economic Research Portland Cement Association

Key Points of Analysis The Economy Construction Spending Cement Industry Outlook Residential Nonresidential Public Demand & Supply

U.S. Economic Outlook

Key Near Term Issues  Job Growth  Length & Magnitude of Housing Decline  Hard or Soft landing – Timing of Recovery  Risk - Mortgage Resets Impact on Consumer  Oil Prices  International Demand/Disruptions/OPEC  Cement Import Volumes  Some Retightening of Market Balances  Inventory Draw

(Change from prior month) Nonfarm Employment Job Growth 2005: Million 2006: Million 2007: Million Thousands

Consumer Confidence Index 1985=

Consumer Under Pressure Confidence Relatively Good But…. Pay Increase Averages 3.5%. Pay Increase Averages 3.5%.  Health Insurance Premiums Rise 7%-11%.  Property Taxes Rise.  Reassessments based on home appreciation Energy Prices Continue to Take a Bite Energy Prices Continue to Take a Bite Record Consumer Debt Record Consumer Debt Less Willing to Tap into Home Equity Less Willing to Tap into Home Equity Slowdown in Job Creation Slowdown in Job Creation

Real Investment Nonresidential Structures & Equipment Qtr/Qtr % Change

Real GDP Growth Qtr-Qtr % Change I 05 IIIIIIVI 06 IIIIIIVI 07 IIIIIIVI 08 IIIIIIV 3.2%3.3%2.6%2.4% DOWNSIDE RISK

U.S. Construction Markets “The real threat to economic growth is not the decline in housing but the way we financed the past boom and its impact on consumer spending”

Changing Composition of Construction Spending Growth Leader: Residential Growth Leader: Residential Low Interest Rates Low Interest Rates Public Public State Tax Revenues Hurt by Anemic Economic Growth State Tax Revenues Hurt by Anemic Economic Growth Growth Laggard: Nonresidential Growth Laggard: Nonresidential Weak Economy Weak Economy Growth Leader : Nonresidential Steady Economy Public State Tax Revenues Recovery Due to Economic Growth Growth Laggard : Residential Correction Lags Affordability Improves slowly Credit Tightening Low Interest Rates Weak Economy Rising Interest Rates Steady Economy

Starts Activity More Than Low Rates… The Cyclical Upside: Low mortgage rates – Lean Inventories Low mortgage rates – Lean Inventories Emergence of exotic mortgages Emergence of exotic mortgages Easy credit conditions Easy credit conditions Speculators add froth to the market Speculators add froth to the market The Cyclical Downside: Mortgage rates rising Mortgage rates rising Inventory Draw Inventory Draw Exotic mortgages losing favor Exotic mortgages losing favor Defaults/delinquencies deteriorate credit quality and tighten credit conditions Defaults/delinquencies deteriorate credit quality and tighten credit conditions Speculators fade in lower appreciation rate environment Speculators fade in lower appreciation rate environment

Sub-Prime Mortgage Resets Total Loans Scheduled for Reset 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50, Period of Emerging Trouble

Inventory Draw Required Homes on Market/Monthly Selling Rate Ten Year Average Inventory Build Required Inventory Draw Required Highest Level Since Years of Inventory Build Conditions Disappear

Annual Growth Rate, Median Home Price Improves Affordability: Stronger 2009/2010 Outlook Speculators Leave 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% Home Prices Will Play a Role in Correction

Million Units Single Family Starts Year Relatively Low Mortgage Rates, Home Price Correction, Builder Incentives

Nonresidential Construction Turning Points Achieved Turning Points Achieved Despite large percentage gains for 2006, most markets weak from historical perspective Despite large percentage gains for 2006, most markets weak from historical perspective Slower growth outlook depresses expected ROI and tempers recovery Slower growth outlook depresses expected ROI and tempers recovery High material costs add downside pressure High material costs add downside pressure Aids Cement intensity gains Aids Cement intensity gains Billions 1996$ Year % % % 20084%

Nonresidential Investment Trends

Nonresidential Construction Industrial2%23%16%12%8% Office2%4%9%9%5% Lodging11% 1%46%11%5% Health Care-5%2% 20%5%1% Religious-12%-10%0%4%6% Educational-13%-5%3%2%4% Retail1%2%7%6%2%

Public Construction Billions 1996$ Year % % % % Improving State Fiscal Picture Improving State Fiscal Picture Release of Pent-Up, Postponed Projects Release of Pent-Up, Postponed Projects Infusion of SAFETEA ($286Billion) Infusion of SAFETEA ($286Billion)

Public Construction 93% of public construction performed at state/local level 93% of public construction performed at state/local level Surpluses will re-emerge Surpluses will re-emerge State/Local fiscal problems fading State/Local fiscal problems fading Revenue growth improves with economy and job growth Revenue growth improves with economy and job growth Highway Bill adds strength Highway Bill adds strength $Billion State & Local Government Surplus

MA RI NH State Deficit Estimates FY %20-29% 30-39% Pacific Mountain West North Central East North Central South Atlantic East South Central District of Columbia West South Central New England Middle Atlantic 10-19% Deficit as percentage of budget $0 $.3 $1.1 $.17 $15 $0 $2 $.5 $.34 $.71 $.19 $.0 $.6 $.62 $.17 $.9 $0 $5.1 $5 $.14 $0 $1.5 $.19 $.74 NJ $.2CT MD $.93 $.8 Secondary Source: National Association of Budget Officers Dollar figures, in billions, indicate amount states had to save to balance 2005 budget. KEY No available data DE$0 $.9 $0 $.6 $.2 $.9 $0 $.21 $0 $.3 $0 $.5 $0 VT$0 $.12 $0 Primary Source: Center on Budget Policy and Priorities Feb / 04

Public Investment Trends

Public Construction Buildings-4% -2%3%3%4% Highway-5%2% 10%6%5% Sewer-4%2%12%4%5% Water-10%0%6%4%4%

U.S. Construction Outlook Billions 1996$ Year % % % % %

Construction Conclusions Residential Soft Landing Residential Soft Landing Mortgage Rate Increases Subdued Mortgage Rate Increases Subdued Affordability Improves Affordability Improves Nonresidential Recovery Underway Nonresidential Recovery Underway Turning Points Already Achieved Turning Points Already Achieved Recovery within Sectors Differ Recovery within Sectors Differ Still Weak from a Historical Perspective Still Weak from a Historical Perspective Public Spending Potential Strong Public Spending Potential Strong State Fiscal Recovery State Fiscal Recovery Pent-up Demand Pent-up Demand SAFETEA SAFETEA

U.S. Cement Demand

Portland Cement Consumption Year-Year % Change Harsh Winter Mild Winter

Cement Intensity Increases Favorable Relative Price Conditions Favorable Relative Price Conditions Concrete prices relative to steel/asphalt Concrete prices relative to steel/asphalt Material substitution in design Material substitution in design Cyclical Recovery Cyclical Recovery Larger, more cement intensive projects typically associated with economic recovery Larger, more cement intensive projects typically associated with economic recovery Construction Mix Construction Mix Outlook favors nonresidential and public construction with typically higher cement intensity Outlook favors nonresidential and public construction with typically higher cement intensity Code Changes/Green Building Code Changes/Green Building Fiscal Healing in Public Sector Fiscal Healing in Public Sector

Portland Cement Consumption Million Metric Tons Year % % % %

U.S. Cement Supply

Residential Exposure Residential Cement Consumption as % of Total State Cement Consumption 1DELAWARE68.0% 2MAINE67.7% 3FLORIDA64.0% 4NEW HAMPSHIRE63.3% 5IDAHO46.6% 6NORTH CAROLINA46.0% 7VERMONT45.9% 8NEW JERSEY45.8% 9N. CALIFORNIA45.3% 10HAWAII44.7% NATIONAL37.8%

No ShortageTight Supplies Cement Supply - Summer 2005 Spot Tight Supplies

No ShortageTight Supplies Cement Supply - Summer 2006 Spot Tight Supplies

Competitive Materials Indexes

Blended Cement Consumption Million Metric Tons

Cement Inventories Million Metric Tons Source: U.S.G.S. 05

$/Ton Asia-Gulf Imports Freight Rates Metric Tons SAAR Market Tightening

Import Mix Shifting 5.3%Mexico 20.9%Latin America 19.7%Europe 21.1%Canada 29.5%Asia %Other 6.5% 17.4% 18.5% 16.0% 36.0% % 6.3% 11.1% 13.0% 13.1% 55.3% %

U.S. Cement & Clinker Imports (Percent Change) November 2006 YTD Great Lakes South Atlantic District of Columbia New England Middle Atlantic -19 % 9%9% 1%1% 19 % 17 % 15 % - 11 % - 38 % Florida California Northwest Canadian Border Gulf Coast Mexican Border 5%5% U.S. 8 % 3%

Cement and Clinker Imports Million Metric Tons Year

Announced Capacity Increases (Million Metric Tons) Net Expansion MMT $5.0 Billion

Outlook Summary Slowing Economic Growth Slowing Economic Growth Labor Markets – Consumer – Investment Labor Markets – Consumer – Investment Construction Market Flattening Construction Market Flattening Residential Begins Recovery Moving Toward 2008 Residential Begins Recovery Moving Toward 2008 Continued Upside Contribution from Nonresidential & Public Continued Upside Contribution from Nonresidential & Public Cement Cement Demand Flat This Year Demand Flat This Year Utilization on Par with 2006 (94%) Utilization on Par with 2006 (94%) Inventories Return to Average (19 Days Supply) Inventories Return to Average (19 Days Supply) Imports Retightening Imports Retightening Significant Domestic Expansion Significant Domestic Expansion

U.S. Construction & Cement Outlook Construction & Building Materials Conference March 9, 2007 David E. Czechowski Manager, Sr. Economist Economic Research Portland Cement Association Merci