National & Regional Construction & Cement Outlook Florida Independent Concrete and Associated Products Association January 30, 2007 David E. Czechowski - Manager, Sr. Economist Economic Research Portland Cement Association

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

U.S. Economic Outlook

Key Near Term Issues Oil Prices Oil Prices Is the recent rundown sustainable? International Demand/Disruptions/OPEC Inflation Inflation Will it subside enough to satisfy the Fed? Interest Rates Interest Rates Resumption in increases? Housing Decline Housing Decline Hard or Soft landing? Job Creation Job Creation

Federal Funds Rate Percent Fed Gradualism Restrictive Accommodative Overall Economy & Job Growth Slowing Overall Economy & Job Growth Slowing Dilemma: Dilemma: Inflation or Growth? Don’t discount further Fed Tightening Don’t discount further Fed Tightening Risk of Over-reaction Risk of Over-reaction

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

Consumer Confidence Index 1985=

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

Real Investment Nonresidential Structures & Equipment Qtr/Qtr % Change

Investment Spending Higher Expected ROI Pent Up Demand Corporate Profits = Internal Funds Low Interest Rates = External Funds Unfavorable Factors Favorable Factors Strong, But Slower Investment Spending Growth Construction Costs Energy Prices

Real GDP Growth % Real GDP Annual Growth Rate %2.6%2.4% Risks On Downside

Economic Outlook: Summary Economic Growth Will Be Sustained Economic Growth Will Be Sustained but Slowed Consumers Maintain Spending at Slower Pace Consumers Maintain Spending at Slower Pace Investment Spending Slow and Steady Investment Spending Slow and Steady Labor Market growth Slowing Labor Market growth Slowing Risks Risks Exotic Mortgage Resets Retrenches Consumers Exotic Mortgage Resets Retrenches Consumers

U.S. Construction Markets

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 Rising Interest Rates Low Interest Rates Weak Economy Rising Interest Rates Steady Economy

Starts Activity More Than Low Rates… The Cyclical Upside: Low mortgage rates Low mortgage rates 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 reduced/disappear in lower appreciation rate environment Speculators reduced/disappear in lower appreciation rate environment

Mortgage Rate Percent Peak to Trough 294 Basis Point Decline Tripping Rate = 6.5% Last 12 Months Reflect a 100 Basis Point Increase Year % % % %

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

Affordability Squeeze Annual Growth Home Prices Household Income -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

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

Million Units Single Family Starts Year

Nonresidential Construction 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 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 Billions 1996$ Year % % % 20084% 20095%

Nonresidential Construction Lodging9% 4%38%11%5% Health Care-5%2% 23%5%1% Religious-12%-10%1%4%6% Educational-12%-6%1%2%4%

Public Construction 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 $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 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 Buildings-6% 1%2%3%4% Highway-6%3% 10%6%5% Sewer-4%2%11%4%5% Water-8%-2%8%4%4%

U.S. Construction Outlook Billions 1996$ Year % % % % % YTD 1.0%

Construction: Conclusions Residential Easement Modest Residential Easement Modest Mortgage Rate Increases Subdued Mortgage Rate Increases Subdued Cement Intensity Gains Cement Intensity Gains Nonresidential Recovery Nonresidential Recovery Turning Points Already Achieved Turning Points Already Achieved Still Weak from a Historical Perspective Still Weak from a Historical Perspective Recovery within Sectors Differ Recovery within Sectors Differ Retail/Hotel/Industrial Lead Retail/Hotel/Industrial Lead Institutional/Office Lag Institutional/Office Lag Public Waiting In Wings Public Waiting In Wings State Fiscal Recovery State Fiscal Recovery Pent-up Demand Pent-up Demand SAFETEA SAFETEA

Portland Cement Consumption Million Metric Tons Year % % % % % %

Cement Supply Update

No ShortageTight Supplies Cement Supply Survey Summer 2005 Spot Tight Supplies

No ShortageTight Supplies Cement Supply Survey Summer 2006 Spot Tight Supplies

Ratio of Cement Consumption to Construction Thousand Tons per $Billion Demand Pressures

Cement Intensity 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 Fiscal Healing

Competitive Materials Producer Price Indexes

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%

Portland Cement Consumption Year-Year % Change Harsh Winter Mild Winter YTD 0.9%

$/Ton Asia-Gulf Imports Freight Rates Metric Tons SAAR Imports Flowed Despite Constraints

Import Mix Shift 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% 2006YTD 1.2%

U.S. Cement & Clinker Imports (Percent Change) October 2006 YTD Great Lakes South Atlantic District of Columbia New England Middle Atlantic -21 % 12 % 3%3% 20 % 18 % - 13 % - 38 % Florida California Northwest Canadian Border Gulf Coast Mexican Border 6%6% U.S % 10%

Cement and Clinker Imports Million Metric Tons Year

Blended Cement Consumption Million Metric Tons

Mexican Support Portland Cement Consumption120,693125,138128,512131,709 Market Growth %2.7%2.5% Total Mexican Imports-----3,2003,3103,394 Hurricane Relief Total Mexican Quota3,0003,1103,194 California Arizona-----1,2501,2961,331 New Mexico/El Paso Rest of Texas Louisiana Mississippi/Alabama Florida Rest of United States

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

Looking Forward Tight market conditions dramatically reduced Tight market conditions dramatically reduced Characterized by high operating rates Characterized by high operating rates Inventories lean and well managed Inventories lean and well managed Major expansion does not materialize until Major expansion does not materialize until 2008.

Regional Perspective

Real GSP - Florida Annual % Change U.S.

(Change from prior month) Nonfarm Employment Job Growth - Florida Thousands

Net Migration - Florida (000) Persons

Population Growth - Florida Growth Rate U.S.

Key Markets Exposure - Florida Cement Consumption as % of Total State Cement Consumption Residential - 64% National - 30% Residential - 64% National - 30% Nonresidential - 10% National - 16% Nonresidential - 10% National - 16% Commercial – 3% National - 13% Commercial – 3% National - 13% Industrial – 1% National - 1% Industrial – 1% National - 1% Office – 5% National - 2% Office – 5% National - 2% Public – 23% National - 46% Public – 23% National - 46% Highway – 16% National - 32% Highway – 16% National - 32% Cement per Capita U.S Cement per Capita Florida -.632

Construction Permits - Florida 0 5,000 10,000 15,000 20,000 25,000 Units (NSA) Single Family Multifamily 3 Month Moving Average

Single Family Permits - Florida Units

Multi-Family Permits - Florida Units

Contract Awards - Florida Buildings17%23%21%-15% Public 3% -3% 3% 30% Commercial-1%20% 4% -2% Public Works13%-10%13%10% Highway 9% 8% 9% 4% Water/Waste-22% 3%16%35% Utilities336%-78%140%-50% Other -6% 9% -8% 26% Total17%18%20%-12%

Ytd Florida %Change 9.7%12.9%15.8% 3.8% %Change 9.7%12.9%15.8% 3.8% Georgia % Change11.6%19.2%7.0%3.9% Alabama %Change 8.1%2.8%5.7%3.9% %Change 8.1%2.8%5.7%3.9% South Carolina %Change 9.6% 16.2%2.1%6.0% %Change 9.6% 16.2%2.1%6.0%U.S. %Change 3.6 % 6.8 % 5.6 % 0.9 % Regional Portland Cement Consumption (Million Metric Tons)

Ytd Florida %Change 12.5%14.6%19.7%2.0% %Change 12.5%14.6%19.7%2.0% Georgia % Change9.8%10.3%0.8%13.0% Alabama %Change 11.6%6.1%6.4%8.7% %Change 11.6%6.1%6.4%8.7% South Carolina %Change 2.0% 6.6%12.9%11.5% %Change 2.0% 6.6%12.9%11.5%U.S. %Change 7.0 % 9.0 % 6.1 % 1.6 % Regional Masonry Cement Consumption (Million Metric Tons) Region accounts for 32% of U.S. masonry consumption

Residential Cement Consumption Florida MMT

Nonresidential Cement Consumption Florida MMT

Public Cement Consumption Florida MMT

Cement Outlook - Florida Million Metric Tons Year % % % % % % YTD 3.8% Downside Risk For 2007

Blended Cement Consumption Florida Nebraska Florida Thousand Metric Tons (Est.)

Florida Cement & Clinker Imports Million Metric Tons Tampa Sources China/Thailand Brazil/Columbia Miami Sources China/Sweden Greece/Mexico

Regional Cement & Clinker Imports Million Metric Tons Mobile Sources Greece /China/Thailand Savannah Sources Columbia

Florida Cement & Clinker Imports Thousand Metric Tons Tampa Miami 3 Month Moving Average 06 Miami YTD 0.3% Tampa YTD 4.6%

Clinker Capacity – Southeast Region (000 Metric Tons) Florida 4,653 5,489 Georgia 1,316 1,020 Alabama 4,366 5,375 South Carolina 2,732 3,480 Region13,06715, % Regional Expansions Suwannee – Branford, FL.675 ’03 Giant – Harleysville, SC.113 ’04 Holcim – Holly Hill, SC.765 ’04 Titan – Medley, FL.675’04 American – Sumterville, FL.990‘08 Florida Rock – Newberry, FL.675‘08 Rinker – Brooksville, FL.900’08 Lafarge – Harleysville, SC.972’09 National – Ragland, AL1.17’09 Sumter – Center Hill, FL1.35’09 MMT Year

Outlook Summary Slowing Economic Growth Slowing Economic Growth Rising Inflation, Interest Rates, Energy Prices, Slower Job Creation Rising Inflation, Interest Rates, Energy Prices, Slower Job Creation Construction Market Flattening Construction Market Flattening Residential Weak Residential Weak Slower Nonresidential & Public Recoveries Slower Nonresidential & Public Recoveries Higher Material Costs Higher Material Costs Potential for Market Contraction in 2007 Potential for Market Contraction in 2007 Cement Supply Cement Supply Tight Market Conditions Dramatically Reduced Tight Market Conditions Dramatically Reduced Add Extra Dose of Conservatism to Forward Plans Add Extra Dose of Conservatism to Forward Plans Florida’s sensitivity to the Housing cycle Florida’s sensitivity to the Housing cycle Prepare Contingency Plans Incorporating Downside Risks. Prepare Contingency Plans Incorporating Downside Risks.

National & Regional Construction & Cement Outlook Florida Independent Concrete and Associated Products Association January 30, 2007 David E. Czechowski - Manager, Sr. Economist Economic Research Portland Cement Association Go Bears