Cement Outlook: Ed Sullivan, Chief Economist PCA PCA Spring Board Meeting April 2010 Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

Overview

Portland Cement Consumption Thousand Metric Tons - 54 MMT Growth Rates 2007: : :

Point One Market May have reached a Trough Point – Earlier Than Expected

Portland Cement Consumption SAAR, Thousand Metric Tons

Portland Cement Consumption: No Snow, No ARRA SAAR, Thousand Metric Tons No Snow, No ARRA

Portland Cement Consumption: Trough Point SAAR, Thousand Metric Tons

Trough Point May Have Materialized – Earlier Than Expected Trough point for market may have materialized during Oct 2009 – Feb 2010 PRELIMINARY ESTIMATE  Two months – Early estimate Snow effects Depressed Jan-Feb Inflated March-April  March up 1.5%, Snow Adjusted down 6% Core market conditions have improved SAAR less snow, less ARRA Growing at a 7% annual rate during past two months.  Residential, Oil, Farm and possibly a flattening in state discretionary spending

Point Two First Quarter Weakness In Context of Full Year Results

Portland Cement Consumption 2010 First Quarter Performance: 2 MMT in the Hole SAAR Volume Change Versus ,104 -2,067

Portland Cement Consumption 2010 Performance: Fourth Quarter SAAR Volume Change Versus , Total

First Quarter Losses Are Offset by Fourth Quarter Gains First Quarter: Down 15% from 2009 levels - 2,067,000 metric tons from 2009 levels Fourth Quarter; Weak 2009 performance = 62,500,000 SAAR + 1, 422,000 from 68,400,000 SAAR (2009 total) 14% Gain over 2009 levels Net: -645,000 from flat performance Note: April = +300,000 to +600,000 based on anecdotal information

First Quarter Losses Are Offset by Fourth Quarter Gains Fourth Quarter; Weak 2009 performance = 62,500,000 SAAR + 3,000,000 from 75,000,000 SAAR (PCA Forecast) 20% + Gain over 2009 levels Net: +1,000,000 from 2009 levels +1.5% Year total growth if flat conditions persist in 2 nd /3 rd quarters

Point Three Tepid Expected National Gains – Vary Significantly by Region/State

Portland Cement Consumption Thousand Metric Tons - 54 MMT Growth Rates 2007: : : : : : : : + 8.2

National Outlook National outlook relatively unchanged at +5%, or, +3.5 MMT. Growth is dependent on: Tepid single family housing recovery: +815,000 MT Oil gains: +375,000 MT Farm gains: +280,000 MT Increased ARRA highway spending and intensities: +3,600,000 MT Increased ARRA non-highway spending including; airports, water, conservation : +300,000 MT to +500,000 MT This growth more than offsets nonresidential, multifamily & state discretionary drags

National versus Regional Outlook States with: High foreclosure exposure will not fully participate in the modest housing recovery. High ARRA resurfacing priorities will see less stimulatory impact. Little exposure to oil or farm sectors will bare brunt of nonresidential declines.

ARRA Highway Intensities 1. ARIZONA IDAHO FLORIDA ARKANSAS TEXAS MISSOURI HAWAII DELAWARE OHIO LOUISIANA KANSAS NORTH CAROLINA OREGON NORTH DAKOTA MASSACHUSETTS SOUTH DAKOTA WYOMING RHODE ISLAND MARYLAND MAINE CALIFORNIA ILLINOIS ALASKA VERMONT Top States Lowest States

Point Four Operating Conditions Remain Adverse

Cumulative Market Imbalances Million Metric Tons

Portland Cement : Utilization Rates Percent Utilization Based on Clinker Capacity Slow Demand Improvement, Digestion of New Capacity & Inventory Reductions Will Delay Utilization Recovery

The Economic Recovery Process: How & When There is light at the end of the tunnel….it’s just a really long tunnel

Sub-Prime Financial Crisis Energy Labor Markets State Deficits Economic Adversity Abates Mid-2010

Economic Growth & Job Creation Percent Change & Thousand Jobs Net Other GDP Growth Net Other = All, excluding inventory changes and ARRA impacts % Jobs

Point Five Cement recovery will occur in the context of slow economic growth

Point Five: Cement Market Recovery Will Take Place in the Context of Slow Economic Growth  Recent strong GDP growth distorts the underlying fundamentals of the economy…..  While fundamentals are improving, many of the factors that gave rise to the collapse are still operating…..  Sluggish gains in GDP growth are expected…  Yet….  GDP Growth = 2.7%  Nearly one million jobs created (170K in first quarter)  Tightening of credit winds down, outright easing materializes in some sectors  Vacancy rates marginally improve from current levels – beginning the process of nonresidential recovery.  Deterioration in state deficits may be better than expected

Ingredients for a “Recovery” in Cement

Ingredients for a “Recovery” Residential Public Late 2010 Recovery in Starts. ARRA continues to accelerate. Cement projects materialize 2 nd half 2010 Cement Consumption: + 5.2% 2010 This Implies continued weak consumption levels during first half of 2010 PCA’s 5.2% growth in 2010 translates into 4 MMT. This “recovery” must be considered in the context of a 54 MMT peak-trough decline.

Point Six First Half weakness, Second half Strength

Point Six  First half of 2010 characterized by year-over-year declines.  Turning point may have materialized sooner than expected.  Second half gains reflecting a backend recovery.  Very large percentage gains characterize fourth quarter.

Criteria For Housing Recovery

Residential Cement Consumption Thousand Metric Tons MMT 55% of Total Cement Consumption decline is attributed to residential Residential sector’s adverse impact on cement consumption has run its course.

Ingredients for a Starts Recovery Inventory no higher than 5 months supply Price stability Carry costs erode expected ROI. Weaker the price increases…lower the months supply trigger point. Homebuilders Expected ROI

Foreclosures Accelerate Foreclosure Impacts Add to Inventory Depress Prices 2.8 Foreclosures in K Bank possessions. Equates to one out of every 5 homes on the market. Depressed Homebuilder ROI Adds supply. Bank owned properties discounted. Pressures new home prices. Longer carry costs. Lower revenues. Erodes expected ROI. Delays recovery in starts.

Point Seven

Upside Risk?  PCA’s projections lie below consensus estimates by a significant margin.  May imply upside risks to cement consumption …  Roughly 1.5 million metric tons in 2010 and 2011  Pricing recovery for new homes.  Foreclosure assessments.

Ingredients for a Public Recovery

Aaa A Ingredients for a Public Cement Recovery Highway/Street Cement Consumption ARRA Stimulus State Fiscal Sterilization Outlays accelerating. Design & concrete intensive projects roll out last. Decline in discretionary state cement consumption have been massive during past three years. 2009: 0.6 MMT 2009: -5.4 MMT Aaa A 2010: 4.1 MMT 2010:-0.5 MMT

State Sterilization Sterilization by State Fiscal Conditions

State Fiscal Conditions Real 1996$ State Deficits Worsen in 2010.

Highway Construction as Percent of Total Budget Real highway/Real State Expenditures PCA ‘s Assumptions Extremely Conservative.

Decline in State Discretionary Construction Spending Percentage Change Real $

Discretionary State Highway Cement Consumption Thousand Metric Tons

Point Eight Despite a worsening in state deficits, cement drags will lessen

Point Eight  State fiscal conditions are expected to worsen.  Cutbacks in discretionary state construction spending will continue.  State construction spending strategies aimed at resurfacing and stretching scarce dollars will continue.  State cement consumption will decline ….but less so that  Some suggest state cement consumption bottomed in 2009…  Suggesting upside risk to PCA projections of 500,000 metric tons

ARRA-Led Recovery

ARRA Spending Assumptions Billion $

ARRA Spending Composition Assumptions Billion $ Resurfacing Widening & New Route Bridge Chart Excludes “Other” Spending

Point Nine

 ARRA spending will more than double in  Even at same 2009 intensities, implies a 700,000 to 800,000 metric ton increase in  Composition of obligated ARRA spending is disappointing.  Nevertheless, more cement intensive projects will materialize in 2010 – raising cement intensities.  ARRA will be a much more potent contributor to consumption in second half of 2010.

Nonresidential Drag

Commercial Nonresidential Drag Thousand Metric Tons

Oil & Farm Cement Consumption Thousand Metric Tons Oil & Farm Conditions are Favorable. Gains in these sectors partially offset nonresidential weakness.

Nonresidential Drag  Commercial nonresidential cement consumption is expected to decline 29% in 2010, following 50% decline in  Drag on 2010 cement consumption is less due to extremely low 2009 base.  2009 = -6.1 MMT  2010 = MMT  Assumes intensity constant. They should increase.  Starts versus continuing construction intensities  Nonresidential Farm & Oil cement consumption are expected to increase.  2009 = -3.0 MMT, 2010 = +600,000 MT

Beyond the Crisis Ten Year Peak-to-Peak Recovery

Cement Outlook: Ed Sullivan, Chief Economist PCA PCA Spring Board Meeting April 2010 Named Most Accurate Forecaster By Chicago Federal Reserve, 2009