Cement Outlook Ed Sullivan, Chief Economist PCA PCA’s Fall Board Meeting November 2011 Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

Portland Cement Consumption Thousand Metric Tons Summer Forecast

Economic Outlook

Synchronized Recovery Theory Incremental Demand Gains Job Gains Sentiment Gains Lending Standards Ease & Hiring Accelerates Heals Structural Restraints In the context of moderating productivity Gains Leads to: Sentiment includes Consumer, Business & Banks: Defaults & perceived lending risks decline Job creation determines how quickly the recovery cycle spins.

False Hopes: Net Job Creation Annualized Net Job Creation 2.7 Million Annualized 3 month Moving Average

Real GDP Outlook Annualized Growth

Employment Outlook Annual Change, Thousands Employed Source: BLS Recession Recoveries: 3 Years Following, Annual Average 1991: 3.08 Million, 2001: 2.22 Million, Current: 1.35 Million

Housing Recovery

The Residential Recovery Process Mortgage Resets Working Through Structural Repair of Housing Market Will Take Time Before Impacting Housing Starts. Foreclosures Bank Possessions Shadow Inventories Heightened Inventories Inventory Burn Off Price Stability Starts Recovery

Single Family Sales Outlook Thousands of Units

Single Family Months Supply Thousands of Units

Single Family Home Price Outlook Y-O-Y Percent Change

Single Family Upside Risk? Single Family Starts Projections Comparison Thousand Starts PCA Mortgage Bankers Association NAHB National Association of Realtors Other Associations’ Average Tons Per Start19.2 Upside Risk (000 Tons) ,997

Portland Cement Consumption Thousand Metric Tons Summer Forecast

Nonresidential Drag

Nonresidential Construction Real 1996 PIP $ -50% Source: Dept of Commerce, PCA

Nonresidential Conclusions No longer a significant drag on construction activity. Large imbalances exist in before a positive NOI materializes  Slow job growth implies slow healing process Credit environment hostile. Conditions for positive ROI years off. Not a significant contributor to cement consumption growth near term.

Office Buildings: Recovery Process New Office Hiring Vacancy Rates Decline Leasing Rates Stabilize Credit Troubles Ease Asset Prices Firm 1/5 of all jobs in the office. After reaching threshold of roughly 14% vacancy rate Defaults & perceived lending risks decline Leads to a recovery in office construction.

Office Employment Thousands Employed Vacancy Rate: 12.7% Vacancy Rate: 18.3% Vacancy Rate: 11.3% Source: BLS

Office Building Valuation Property Value Index, 2000=100 Source: Moody’s -36%

REIT Office Dow Jones REIT Index, Total Return, 1990=100 Source: Dow Jones REIT Index Recaptured 70%

Public Recovery

State Deficits $ Real National Estimates: States Do Not Heal in a Synchronized Fashion

ARRA Sterilization: State Spending Change in Spending, Real Million 1996$ ARRA $ State $ 76% Sterilization 43% Sterilization

ARRA Sterilization: State Spending Change in Spending, Real Million 1996$ ARRA $ State $ Increase In State Spending Reduces Adverse Impact ARRA $ State $

Discretionary State Highway Cement Consumption Thousand Metric Tons

Highway Bill Cement Consumption Projections Spring Versus Summer Assumptions Spring Forecast Summer Forecast

Obama Initiatives: Impact Infrastructure spending = ARRA Infrastructure Bank No/limited direct impact Modest impact Proposals do not change near term outlook

Beyond the Crisis

Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban Source: PCA estimates using Wispave (Wisconsin DOT paving cost software) Concrete Asphalt

Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban Source: PCA estimates using Wispave (Wisconsin DOT paving cost software) Concrete Asphalt Oman Data US Average: 15.3%

Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban Source: PCA estimates using Wispave (Wisconsin DOT paving cost software) Concrete Asphalt Oman Data US Average: 15.3% 15% Advantage 18% Disadvantage 42% Advantage

New Paving Realities: Impact Cost Advantages will Increase “Free Market, Lowest Cost Material” Doesn’t Always Win. Escalators, LCCA Discount Rates, ADAB, MEPDG State/Local Advocacy Focus Upside Forecast Risks?

Cement Outlook Ed Sullivan, Chief Economist PCA PCA’s Fall Board Meeting November 2011 Named Most Accurate Forecaster By Chicago Federal Reserve, 2009