Cement Outlook: 2007 Annual Concrete Pavement Workshop January 2007 Salt Lake City, UT Steven Ko PCA Senior Regional Economist

Key Points of Analysis U.S. Economic Outlook Construction Outlook Cement Outlook Residential Nonresidential Public Demand Operating Conditions Residential Nonresidential Public Regional Perspective

Economic Outlook : Real GDP Growth 2004: 4.2% Real GDP Annual Growth Rate : 3.5% 2006: 3.1% 2007: 2.6%

Economic Growth Conclusions Consumption Growth Slows Consumption Growth Slows Interest Rates Gradually Rise Interest Rates Gradually Rise

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 Spending Consumer Spending Outlook Job & income growth Job & income growth Oil prices, inflation and interest rates Oil prices, inflation and interest rates Affordability erosion Affordability erosion Housing & refinancing

Oil Price Outlook $ Per Barrel, West Texas Intermediate Oil Prices are declining as projected Oil Prices are declining as projected Strong International Demand Strong International Demand Supply Disruptions Continue Supply Disruptions Continue OPEC Actions OPEC Actions 2006: $65.85 per barrel WTI 2007: $ : $65.85 per barrel WTI 2007: $60.30

Federal Reserve Policy Actions Federal Funds Interest Rate, Annual Percentage Rate Overall Economy & Job Growth Slowing Overall Economy & Job Growth Slowing Inflation a growing concern Inflation a growing concern Dilemma: Inflation or Growth? Dilemma: Inflation or Growth? Do not count out further Fed Tightening Do not count out further Fed Tightening Risk of Fed over- reaction Risk of Fed over- reaction

Inflation Outlook Annual Percent Change, CPI Urban Higher Energy Prices Structure Higher Energy Prices Structure Labor Costs Rising Labor Costs Rising Structurally Weaker Dollar Structurally Weaker Dollar Structurally Higher Transportation Costs Structurally Higher Transportation Costs 2006: 3.4% 2007: 2.7% 2006: 3.4% 2007: 2.7% Supply Side Inflation Supply Side Inflation

Single Family Housing Starts (000) Units Growing Downside Risks

Inventory Draw Required Homes on Market/Monthly Selling Rate Ten Year Average Inventory Build Required Inventory Draw Required Highest Level Since 1997

Mortgage Rate History: 30 Year Conventional Annual Growth Rate, 30 Year Conventional Peak to Trough 294 Basis Point Decline Last 12 Months Reflect a 100 Basis Point Increase

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

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

Single Family Permits - Utah # of units

Multi-Family Permits - Utah # of units

Residential Cement Consumption Utah Metric Tons

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

Economic Growth Conclusions Consumption Growth Slows Consumption Growth Slows Interest Rates Gradually Rise Interest Rates Gradually Rise Investment Sector Strength Continues Investment Sector Strength Continues

Investment Spending Nonresidential Fixed Investment, Annual Percent Change Near term outlook remains positive Near term outlook remains positive Fixed, Non-residential investment has recorded strong growth during last two years Fixed, Non-residential investment has recorded strong growth during last two years

Nonresidential Construction Annual Growth Rate +9.2% 2006 First Half 6.8% Projected 2006

Nonresidential Outlook Lodging Outlook Lodging Outlook Retail Outlook Retail Outlook Health Construction Outlook Health Construction Outlook Office Building Outlook Office Building Outlook Industrial Outlook Industrial Outlook

Labor Market Outlook Monthly Net Job Creation, Payroll Survey Job growth slowing Job growth slowing Unemployment rises Unemployment rises Slow down in trend of accelerating wages Slow down in trend of accelerating wages

Nonresidential Cement Consumption Utah Metric Tons

Economic Growth Conclusions Consumption Growth Slows Consumption Growth Slows Interest Rates Gradually Rise Interest Rates Gradually Rise Investment Sector Strength Continues Investment Sector Strength Continues Large Trade Deficit and Federal Deficit Act as Drag on Growth Large Trade Deficit and Federal Deficit Act as Drag on Growth Foundations for Growth remain Foundations for Growth remain

Public Construction Outlook: State & Local Share of Public Construction Percent of Total Public Construction Spending

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. 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

Public Cement Consumption Utah Metric Tons

Changing Composition of Construction Spending Growth Leader: Residential Growth Leader: Residential Public: Weak Tax Revenues Public: Weak Tax Revenues Growth Laggard: Nonresidential Growth Laggard: Nonresidential Growth Leader : Nonresidential Public: Tax Revenues Recover Growth Laggard : Residential Low Interest Rates, Weak Economy Rising Interest Rates, Strong Economy

Growth Rate Yellow Line Volume, Green Bar Portland Cement Outlook Thousand Metric Tons Annual Percent Change

No ShortageTight Supplies Cement Supply Survey Summer 2006 Spot Tight Supplies

Market Balances: Trend Inventory Adjustment Adjusted Supply Vs Consumption Green: Domestic Yellow: Imports Green: Inventory Red: Day Supply

$5.0 Billion Committed to Expansion Thousand Metric Tons Clinker Cement Capacity Outlook

Domestic Supply Conclusions Tight market conditions dramatically reduced Tight market conditions dramatically reduced Characterized by high operating rates Characterized by high operating rates Persistently lean inventory position Persistently lean inventory position Major expansion does not materialize until Major expansion does not materialize until 2008.

Clinker Capacity (000 Metric Tons) Arizona1,8002,809 Colorado1,7142,117 Idaho Nevada New Mexico Utah1,0191,514 Wyoming Region6,4398, % Regional ExpansionsMMTYear Eagle Materials – Laramie, WY.400‘08 Eagle Materials – Fernley, NV.500’08 GCC America – Pueblo, CO 1.000’08 Ash Grove – Moapa, NV 1.750’09 Cali Portland – Rillito, AZ ’09

Arizona %Change 10%14%13%-1%2% Colorado % Change -12%7% 6%1%3% Idaho %Change 4%16%3%1%-1% %Change 4%16%3%1%-1% Nevada %Change 10%18%9%2%2% %Change 10%18%9%2%2% New Mexico %Change -1%16%-4%3%1% %Change -1%16%-4%3%1% Utah %Change 3%14%12%4% 4% %Change 3%14%12%4% 4% Wyoming %Change 3%9%4%1% 2% %Change 3%9%4%1% 2%U.S. %Change 4%7%6%1% 1% Regional Portland Cement Consumption (Million Metric Tons)

Key Markets Exposure - Utah Cement Consumption as % of Total State Cement Consumption Residential: 27 % National: 35% Residential: 27 % National: 35% Nonresidential: 16% National: 18% Nonresidential: 16% National: 18% Public: 56% National: 47% Public: 56% National: 47% Highway: 34% National: 30% Highway: 34% National: 30% Cement per Capita U.S.:.41 Cement per Capita Utah:.64

Residential Spending: Regional 1Idaho39.5% United States35.2% 2New Mexico32.1% 3Arizona31.2% 4Colorado28.6% 5Utah27.4% 6Nevada26.7% 7Wyoming13.0% Cement Consumption as % of Total State Cement Consumption

Nonresidential Spending: Regional 1Wyoming38.7% 2Colorado27.6% 3New Mexico26.6% 4Idaho25.7% 5Nevada21.2% 6Arizona19.7% United States18.1% 7Utah16.3% Cement Consumption as % of Total State Cement Consumption

Public Spending : Regional 1Utah56.0% 2Nevada52.0% 3Arizona48.9% 4Wyoming48.2% United States47.0% 5Colorado43.7% 6New Mexico41.1% 7Idaho34.3% Cement Consumption as % of Total State Cement Consumption

Street & Highway Spending: Regional 1Wyoming38.5% 2Utah33.6% 3Nevada32.5% United States29.9% 4Arizona26.4% 5Idaho23.5% 6Colorado23.3% 7New Mexico23.3% Cement Consumption as % of Total State Cement Consumption

Cement Outlook - Utah Metric Tons Year % % % %

Conclusions Slower Economic Growth Ahead Slower Economic Growth Ahead Construction Market Flattening Construction Market Flattening Cement Supply Slow to Adjust to Slower Growth Environment Cement Supply Slow to Adjust to Slower Growth Environment Slower Growth in Cement Consumption Slower Growth in Cement Consumption

Cement Outlook: 2007 Annual Concrete Pavement Workshop January 2007 Salt Lake City, UT Steven Ko PCA Senior Regional Economist