National & Regional Construction & Cement Outlook David E. Czechowski - Manager, Sr. Economist Economic Research Portland Cement Association March 3, 2006 La Crosse, WI

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

U.S. Economic Outlook

Consumer Confidence Index 1985= Consumer 70% of Overall Economy

(Change from prior month) Nonfarm Employment Thousands Job Growth 2004: +2.2 Million 2005: +2.0 Million 2006: +2.2 Million

Construction Employment Thousands (Change from Prior Month)

Consumer Spending Outlook Job Creation Affordability Income Gains Consumer Confidence Inflation Moderate Favorable Factors No Tax Stimulus Less Home Refinancing Activity High Energy Prices Rising Interest Rates Growth in ARM’s Slower Automotive Spending Unfavorable Factors Strong, But Slower Consumer Spending Growth

Corporate Profit Recovery $ Billion

Real Investment Nonresidential Structures & Equipment Qtr/Qtr % Change Shaking off Skittishness! Pent Up Demand

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

Federal Funds Rate Outlook Percent Fed Gradualism Restrictive Stance Accommodative Stance 06

GDP Growth Qtr-Qtr % Change %1.6%4.2% Inflationary Pressures Auto/Housing/Consumer survived 2006: 3.3% 2007: 2.9% 3.5%

Economic Outlook: Summary Economic Growth Will Be Sustained Economic Growth Will Be Sustained and Prevents Recession Consumers Maintain Spending at Slower Pace Consumers Maintain Spending at Slower Pace Investment Spending Contributes Investment Spending Contributes Labor Markets Keep Pace Labor Markets Keep Pace Risks are Distant Risks are Distant High Energy Costs Lower Spending Activity High Energy Costs Lower Spending Activity Rapid Rise in Interest Rates Rapid Rise in Interest Rates

U.S. Construction Outlook

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 US Construction Markets Do Not Lose Momentum With Rising Mortgage Rates and Slowdown in Housing

Residential Construction

New Home Sales Million Units Existing Home Sales + 4.2% (2005)

Single-Family Housing Starts 3 Month Moving Average Million Units Multi-Family has benefited from condo activity! Seeking a Peak!

Percent Mortgage Rate Tripping Rate = 6.5% Year % % Gradual & Modest Increases in Mortgage Rates Prevent a Bubble Burst

Inventory Draw Required Homes on Market/Monthly Selling Rate Ten Year Average Inventory Build Required Ten Year Average Inventory Build Required New Home Order Cancellations on the Rise!

Million Units Single Family Starts Year

Nonresidential Construction

Billions 1996$ Nonresidential Construction Year % % % %

Nonresidential Construction Lodging-10% 8%-4%6%13% Health Care-2%-3% 5%9%4% Religious-3%-12%-11%-1%3% Educational-3%-12%-4%4%9%

Public Construction

$Billion State & Local Government Surplus

Public Construction Buildings-3%-4%-2%4%5% Highway-5%-5% 5%5%5% Sewer 1% -1% 8%6%4% Water-1%-8% 6%8%7%

Public Construction Billions 1996$ Year % % % % Maybe Recession Proof but Not Budget Proof

Billions 1996$ U.S. Construction Outlook Year % % % % Overall construction Activity will not recede even in the face of rising interest rates and declining residential even in the face of rising interest rates and declining residential

Construction: Conclusions Residential Easement Modest Residential Easement Modest Mortgage Rate Increases Subdued Mortgage Rate Increases Subdued 6.5% Threshold Does Not Materialize Until % Threshold Does Not Materialize Until 2006 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 Amplified by Intensity Gains Amplified by Intensity Gains Recovery within Sectors Differ Recovery within Sectors Differ Retail/Hotel/Industrial Lead Retail/Hotel/Industrial Lead Institutional/Office Lag Institutional/Office Lag By End of All segments in Growth By End of All segments in Growth Public Waiting In Wings Public Waiting In Wings State Fiscal Recovery State Fiscal Recovery Pent-up Demand Pent-up Demand SAFETEA SAFETEA

Cement Intensity Favorable Relative Price Conditions Favorable Relative Price Conditions Concrete prices relative to steel Concrete prices relative to steel 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

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

Cement Supply In Perspective

Cement Supply Dynamics Clinker Capacity 21.3%22.3%Import Share % Total Imports Cement Imports Clinker Imports Domestic Shipments Cement Consumption %

No ShortageTight Supplies Pre-Katrina Cement Supply Survey Spot Tight Supplies

No ShortageTight Supplies Current Cement Supply Survey Spot Tight Supplies

Demand Pressures

Ratio of Cement Consumption to Construction Thousand Tons per $Billion

Residential Exposure Residential Cement Consumption as % of Total State Cement Consumption 1DELAWARE43.0% 2MAINE42.4% 3FLORIDA42.1% 4GEORGIA40.8% 5NEW HAMPSHIRE35.6% 6MARYLAND35.1% 7VIRGINIA32.4% 8ARIZONA32.1% 9TENNESSEE30.3% 10KENTUCKY30.2% NATIONAL24.7%

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

Require Import Support

Cement and Clinker Imports (Thousand Metric Tons) Country of Origin 5,753 2,808 3,215 2,123 1,729 27, % +20% -16% +3% -1% +17% 5,601 3,344 2,228 1,766 1,745 23,241 -2% +12% -21% +8% +7% -4% Canada Columbia Korea U.S. Total China/Taiwan Thailand Mexico +62% (2004) +52% (2005) +104% -13% +3% -6% +55% +23% ,652

Import Composition 2005 Increasers Switzerland Thailand Indonesia Norway Middle East Yugoslavia Mexico Peru/Ecuador China/Taiwan Greece Korea 3, Tonnage Change (000)

Import Compositional Shift 5.3%3.8%Mexico 20.9%17.9%Latin America 19.7%20.6%Europe 21.1%24.1%Canada 29.5%33.3%Asia %0.3%Other 6.5% 17.6% 18.5% 16.1% 37.0% %

U.S. Cement & Clinker Imports (Percent Change) 2005 Great Lakes South Atlantic District of Columbia New England Middle Atlantic 13 % 25 % 17 % 43 % 25 % 2%2% - 5 % 3%3% Florida California Northwest Canadian Border Gulf Coast Mexican Border 41 % U.S % 48%

Cement and Clinker Imports New Orleans Thousand Metric Tons 0405 Katrina

Cement and Clinker Imports Million Metric Tons Year

And Flowed Despite Constraints

Dry Bulk Carrier Fleet Cement Carrier Fleet Worldwide: 2.4 MMT (DWT) Average Age: 23 Cement Carriers over 15,000 DWT: 40 Average Age: 28 Source: Belden Shipping Worldwide Fleet Size 5,800 Ships

Freight Rates Europe Asia Freight Rate $ Per Ton, to Gulf Slack Markets Easy Availability

Market Economics at Work

How Is The Industry Responding?

Cement Inventories Million Metric Tons Inventory Days Industry Average: e : 17 04

Blended Cement Consumption Million Metric Tons Nov 2005 YTD 2.24 MMT

Blended Cement Consumption Wisconsin MissouriWisconsin Thousand Metric Tons Nov 2005 YTD 60,000 MT

Announced Capacity Increases (Million Metric Tons) Net Expansion MMT $3.21 Billion Industry Investment ( ) $7.4 Billion

Mexican Cement - No Silver Bullet Portland Cement Consumption120,693125,138128,512131,709 Market Growth 3.7%2.7%2.5% Total Mexican Imports3,2003,3103,394 Hurricane Relief200 Total Mexican Quota3,0003,1103,194 California Arizona1,2501,2961,331 New Mexico/El Paso Rest of Texas Louisiana Mississippi/Alabama Florida Rest of United States

Supply Conclusions Domestic Supply Increases Face Limited Growth Domestic Supply Increases Face Limited Growth Characterized by high operating rates Characterized by high operating rates Equipment stretched to their limits Equipment stretched to their limits Persistently lean inventory position Persistently lean inventory position Major expansion does not materialize until 2008 Major expansion does not materialize until 2008 Murphy’s Law (Katrina!) Murphy’s Law (Katrina!) Market Growth Dependent On Imports Market Growth Dependent On Imports Source Availability Source Availability Ship Availability Ship Availability Freight Rates Freight Rates Truck/Rail/Waterway Disruptions Truck/Rail/Waterway Disruptions Congested Ports & Terminal Limitations Congested Ports & Terminal Limitations Cement not a favored commodity Cement not a favored commodity Supply Constrained Market Supply Constrained Market No Near Term Relief from Current Conditions No Near Term Relief from Current Conditions

The Bottom Line Economy’s Growth Rate Slows Economy’s Growth Rate Slows Foundations for Growth Firm Foundations for Growth Firm Employment Employment Consumer/Investment Slowdown Consumer/Investment Slowdown Threats to Scenario are Distant Threats to Scenario are Distant Construction Sector Sustained Growth Construction Sector Sustained Growth Housing Strong Housing Strong Nonresidential Recovery Already Underway Nonresidential Recovery Already Underway Public Turnaround Near Public Turnaround Near Cement Industry Conditions Sustained Cement Industry Conditions Sustained Construction Growth Amplified By “Intensity” Gains Construction Growth Amplified By “Intensity” Gains Plant Capacity Utilization Remains Stretched Plant Capacity Utilization Remains Stretched No Near Term Relief for Tight Inventory Conditions No Near Term Relief for Tight Inventory Conditions Imports Remain Key Supply Feed to Market Imports Remain Key Supply Feed to Market

Regional Perspective

Regional Portland Cement Consumption (Million Metric Tons) YTD Wisconsin % Change -11%9%4%2% Illinois % Change -1%-3%0%4% Indiana % Change -8%5%3%-3% Iowa % Change 2%-1%7%8% Michigan % Change -12%-3%4%-7% Minnesota % Change 1%4%0%-1% U.S.-4%4%7% 6% 6%

Real GSP - Wisconsin Annual % Change U.S.

Net Migration - Wisconsin (000) Persons

Population Growth - Wisconsin Annual Growth Rate U.S.

Single Family Permits - Wisconsin # of units

Multi-Family Permits - Wisconsin # of units

Key Markets Exposure - Wisconsin Cement Consumption as % of Total State Cement Consumption Residential: 29% National: 30% Residential: 29% National: 30% Nonresidential: 17% National: 16% Nonresidential: 17% National: 16% Commercial: 14% National: 13% Commercial: 14% National: 13% Industrial: 1% National: 1% Industrial: 1% National: 1% Office: 2% National: 2% Office: 2% National: 2% Public: 55% National: 46% Public: 55% National: 46% Highway: 40% National: 32% Highway: 40% National: 32% Cement per Capita U.S.:.368 Cement per Capita Wisconsin:.407

Clinker Capacity (000 Metric Tons) Wisconsin 0 0 Illinois 2,544 2,770 Iowa 2,409 2,672 Indiana 2,610 3,191 Michigan 4,877 4,243 Minnesota 0 0 Region12,440 12,876+ 4% MMT Year Regional Expansions Monarch – Humboldt, KS.330 ’06 Eagle Materials – LaSalle, IL.430‘07 Buzzi – Festus, MO.900 ’08 Continental – Hannibal, MO.600 ’08 Holcim – St. Gen, MO 4.4‘08

Residential Cement Consumption Wisconsin Metric Tons

Nonresidential Cement Consumption Wisconsin Metric Tons

Public Cement Consumption Wisconsin Metric Tons SAFETEA-LU $Bill (+30%)

Cement Outlook - Wisconsin Metric Tons

National & Regional Construction & Cement Outlook David E. Czechowski - Manager, Sr. Economist Economic Research Portland Cement Association March 3, 2006 La Crosse, WI