Cement Outlook: 2007 World of Concrete Las Vegas, Nevada Edward J. Sullivan Staff Vice President and PCA Chief Economist For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve

Economic Comfort Index * 1996=100 Combines Real GDP Against the Levels Interest Rates, Inflation and Unemployment Most Favorable Economic Conditions Since the 1960’s

Economic Outlook

Snap Shot of Economic Activity Consumption acts as the anchor for US economic activity. Any retrenchment in consumer spending will lead to slower economy-wide growth rates

Consumer Worksheet Pay Increase Averages 3.5%. Pay Increase Averages 3.5%. Health Insurance Premiums Rise 7%-11%. Health Insurance Premiums Rise 7%-11%. State and Local Property Taxes Rise. State and Local Property Taxes Rise. Reassessments based on high home appreciation Reassessments based on high home appreciation Energy Prices Take a Large Bite. Energy Prices Take a Large Bite. Even in context of recent improvement. Even in context of recent improvement. Inflation Running near 3% Inflation Running near 3% Interest Rates Rising in Context of Record Consumer Debt Interest Rates Rising in Context of Record Consumer Debt Tapping Home Equity Not as Viable As In the Past Tapping Home Equity Not as Viable As In the Past Slowdown in Job Creation Slowdown in Job Creation Consumer Growth Rate Under Pressure Consumer Growth Rate Under Pressure

Economic Outlook No “Bleeding” from Housing

Housing Threat Real threat to economic growth not the decline in housing….. But….. The way we financed the past boom… And… Its impact on consumer spending….. Potentially more profound in history

Growing Home Price & Income Gap Annual Growth Rate Comparison Home Prices Household Income

Emergence of Exotic Mortgages Interest Only Loan Share of Sub-Prime Market Share by Principle Balance: Solid Green Share by Loan Count: Striped Yellow Note: Sub-Prime accounts for 36% total mortgage market

Sub-Prime Mortgage Resets Total Loans Scheduled for Reset Period of Emerging Trouble

Economic Outlook : Real GDP Growth : 3.5% Real GDP Annual Growth Rate : 3.1% 2007: 2.6% 2008: 2.4% Risks On Downside: 2008

Construction & Cement Outlook Overview

Total Construction Billion 1996 $ 2007: -1.8% decline projected …BUT.. based off record levels

Cement Intensities

Composition Of Cement Growth: Construction Activity Vs Cement Intensity Growth Cement Intensity Growth Construction Activity Growth Annual Percent Change, Real Put-In-Place Construction & Cement Intensity

Concrete: Run-up in Competing Material Prices Annual Percent Change, PPI, Bureau of Labor Statistics Concrete Asphalt Steel

Concrete: Improving Competitive Position Change Relative Price Vs Concrete Asphalt Steel Rapid Improvement in Concrete’s Relative Pricing Position

Residential Construction Single Family

Strength in Starts More Than Low Rates… The Cyclical Upside: Low mortgage rates key factor in single family starts over past few years. Low mortgage rates key factor in single family starts over past few years. Emergence of exotic mortgages also a key factor…particularly in strong home appreciation environment. Emergence of exotic mortgages also a key factor…particularly in strong home appreciation environment. Easy credit conditions contributed to strong home-buying environment. Easy credit conditions contributed to strong home-buying environment. Speculators add froth to market in light of strong appreciation rates. Speculators add froth to market in light of strong appreciation rates. The Cyclical Downside: Mortgage rates rising. Mortgage rates rising. Exotic mortgages losing favor. Exotic mortgages losing favor. Defaults and delinquencies cause a deterioration in credit quality and a tightening of credit conditions Defaults and delinquencies cause a deterioration in credit quality and a tightening of credit conditions Speculators reduced/disappear in lower appreciation rate environment Speculators reduced/disappear in lower appreciation rate environment

Affordability Index Most Affordable Pacific Mountain West North Central East North Central South Atlantic East South Central West South Central New England Middle Atlantic Affordability Ratio 2 nd Tier3 rd Tier4 th TierLeast Affordable

Profile: Single Family Buyer 2000Estimated 2006 Coastal and Resort Areas: Double the National Average For Speculators Note: Speculators Are 1 st to Leave the Market

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

Estimating the Size of Overhang and Speed of Burn Off What is the desired level of inventory? What is the desired level of inventory? Historical: 5 months….Overhang = 135K Historical: 5 months….Overhang = 135K Past cyclical low: 3.5 months….Overhang = 283K Past cyclical low: 3.5 months….Overhang = 283K PCA 4 months assumption…Overhang = 233K PCA 4 months assumption…Overhang = 233K When is excess burned off? When is excess burned off? 5 months desired supply = February months desired supply = February months desired supply = July 2007 (PCA) 4 months desired supply = July 2007 (PCA) 3.5 months desired supply = November months desired supply = November 2007 Slow gradual gains achieved after burn off. Slow gradual gains achieved after burn off.

SF Inventory Adjustment Outlook (000) Units Note: 70K Overhang burned off since mid-2006

Nonresidential Construction Overview

Nonresidential Outlook Billion Dollars, Real 1996 $ Projected Underlying nonresidential drivers improving. Underlying nonresidential drivers improving. Despite large percentage gains for 2006, most markets weak from historical perspective. Despite large percentage gains for 2006, most markets weak from historical perspective. Past cyclical peak not realized. Past cyclical peak not realized. Slower growth outlook depresses expected ROI and tempers recovery. Slower growth outlook depresses expected ROI and tempers recovery. High material costs reduce growth. High material costs reduce growth. Increasing cement intensities reinforce construction activity gains. Increasing cement intensities reinforce construction activity gains. Institutional nonresidential gaining momentum; less sensitive to slower growth environment Institutional nonresidential gaining momentum; less sensitive to slower growth environment

Public Construction

Public Construction Outlook 93% of public construction performed at state/local level. 93% of public construction performed at state/local level. 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. Surpluses will re-emerge. Surpluses will re-emerge. Pent-up demand released. Pent-up demand released. Highway Bill adds strength. Highway Bill adds strength. 2006: +4.8% 2007: +5.5% 2006: +4.8% 2007: +5.5% Note: 2005: +1.9% Note: 2005: +1.9% Billion $ State Surplus/Deficit, NIPA

MA RI NH 0-9%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 $.85 $.11 $1.0 $.16 $0 $.36 $.4$.98 $0 $1.5 $.05 $.38 $.3 $.12 $38 $3.7 $3.6 $.6 $.22 $.41 $1.0 $.09 $2.4 $0 $2.0 $.75 $.5 $.49 $1.3 $1.7 $.2 $2.4 $9.3 $2.0 $.74 $4.6 $.14 $.4 $.15 $3.0 $.17 $.85 $.2 NJ $1.9CT MD DE VT $.25 $1.1 $2.0 $.03 $.08 Primary Source: Newsweek July 28, 2003 Secondary Sources: Nat’l Conf. of State Leg., Center on Budget and Policy Priorities, Nat’l Assn. of State Budget Officers, Calif. Budget Project Dollar figures, in billions, indicate amount states had to save to balance 2004 budget. KEY Public Construction Outlook: State Deficit Estimates Fiscal Year 2004

MA RI NH Public Construction Outlook: State Deficit Estimates Fiscal Year %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

Market Conditions

No ShortageTight Supplies Cement Supply Survey Summer 2006 Spot Tight Supplies

Import Volume & Freight Rates Import Volume, Million Metric TonsFreight $ Per Ton, Handymax, Asia-Gulf Imports 1 st Half 2007: 42 MMT Rate Imports 2006: 33.6 MMT Net Increase (SAAR): 8.4 MMT Consumption Growth Rate: 1 MMT 7 MMT (SAAR) Overhang

Import Volume & Freight Rates Import Volume, Million Metric TonsFreight $ Per Ton, Handymax, Asia-Gulf 2 nd Half 2006: Import Rate Contracts Some Re-Tightening of Market

Conclusions

Cement Outlook: 2007 World of Concrete Las Vegas, Nevada Edward J. Sullivan Staff Vice President and PCA Chief Economist For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve