Connect With Concrete Cement Outlook: Ed Sullivan, Chief Economist PCA American Concrete Pipe Association

Connect With Concrete Introduction: Overview  Economic fundamentals are deteriorating quickly.  Private Sector no longer drives demand  Residential & Nonresidential recoveries are not expected to materialize anytime soon.  Outlook shaped by policy actions.

Connect With Concrete Introduction: Stimulus Stimulus Size Stimulus Effectiveness Stimulus Details Stimulus Timing Cement/Concrete Volume Estimates Underlying Economic Fundamentals And…they are deteriorating at an alarming rate!

Connect With Concrete Underlying Economic Fundamentals

Connect With Concrete ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK July2007July2007 ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK HI January2008January2008 ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK HI May2008May2008 ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK HI October 2008 ME AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC PA NY AK HI December 2008 States in Recession Recession At Risk Growing Source: PCA/BLS RI MA VT NH MD DE CT NJ

Connect With Concrete Underlying Fundamentals  Lacking stimulus, the economy enters a deep and long contraction  GDP declines 3.5% in 2009 and another 1.5% in 2010  An additional 6 million more jobs lost and unemployment reaches 11% during  State deficits reach $79 billion in 2009, $102 billion in  Conservative estimates  Cement consumption declines 19% in 2009 followed by another 9% in  May serve as an indication for steel shipments

Connect With Concrete Economic Outlook: Five Factors Sub-Prime Defaults Write-Downs Risk Aversion Tight Lending Standards Commercial, Consumer, homeowner capital access reduced Global Financial Crisis Mortgage Payments Credit Cards Defaults Tight Lending Standards Home Price Declines Reliance on Home Equity Gone Structural Global Realities Gasoline Prices Heating Prices Fertilizer/Biofuels hit Ag Prices Supply Side Costs Ingrained Cost of Business Adds Weakness to Dollar Energy/ Inflation State Deficits Labor Markets Slower Economic Growth One Million Job Loss in 2008 Housing Recovery Delayed Nonresidential Declines State Fiscal Crisis Looming Public Declines Slower Job Revenues Slow Entitlement Programs Continue Deficits Drag on Recovery Offsets Possible Federal Stimulus Package

Connect With Concrete Sub-Prime Financial Crisis Energy Inflation Labor Markets State Deficits Economic Adversity

Connect With Concrete Net Job Creation (Loss) - Annual Change, Thousand Net Jobs Job Loss 2009 = 4.1 Million Job Loss 2010 = 1.8 Million Unemployment Peaks at +11% Early-2010

Connect With Concrete Annual Percent Change Consumers feel the crunch…

Connect With Concrete Portland Cement Consumption Thousand Metric Tons 50 MMT

Connect With Concrete Capacity Utilization Rates Clinker Production/Clinker Capacity

Connect With Concrete No Stimulus Job Loss Estimates Million Jobs Obama Economists PCA

Connect With Concrete Point One Regardless of Stimulus’ Effectiveness, Laid Atop Weaker Fundamentals

Connect With Concrete Point One  Regardless of Stimulus’ Effectiveness…it will be laid atop dramatically weaker fundamentals……  …Impacting volume estimates for

Connect With Concrete Stimulus Size: Expectations for Growth Stimulus Not a Silver Bullet…and..the untold Story on Expectations

Connect With Concrete “Stimulus Timeline Tax Cuts, Entitlement Spending, State Aid Phase I Stabilize Economy, halt adverse momentum Phase II Phase III Shovel Ready Projects Long Term Investments Policy Tool Objective Job Saving Job Creating Job Creation Job Creation, Address Structural Economic Issues

Connect With Concrete Stimulus: GDP Impacts Change in GDP From No Stimulus Scenario Obama Economists PCA GDP 4 th Q 2010: $12.2 Trillion GDP 4 th Q 2010: $11.6 Trillion Note: Stimulus in PCA Outlook Overlaid upon weaker Fundamentals.

Connect With Concrete Stimulus: Job Creation Estimates Million Jobs Obama Economists PCA Unemployment: 7.0% Unemployment: 8.8% Job Estimates have large impacts on Cement/Concrete recovery assessments.

Connect With Concrete Economic Growth Outlook Percent Change, GDP Growth Rate Recession Scenario: No Stimulus Recession Scenario: With Stimulus

Connect With Concrete Point Two Expectations Vs Reality: More Stimulus May be Needed

Connect With Concrete Point Two  Obama’s $789 billion plan may not be enough.  Obama economists expect an additional 2.8 million jobs lost. And plan aimed at creating /saving 3.7 million jobs.  PCA estimates that 8.5 million jobs may need to be created/saved. Stimulus plan required = $1.5 trillion (conservative)  And….Obama Economists implied it…..  Taxpayer pushback, politics prevented full initiation for now…  Don’t be surprised if a second stimulus plan materializes.

Connect With Concrete Phase One: Tax Cuts, Entitlements, State Aid Expectations Vs Reality: More Stimulus May be Needed

Connect With Concrete “Stimulus Timeline Tax Cuts, Entitlement Spending, State Aid Phase I Stabilize Economy, halt adverse momentum Phase II Phase III Shovel Ready Projects Long Term Investments Policy Tool Objective Job Saving Job Creating Job Creation Job Creation, Address Structural Economic Issues

Connect With Concrete Phase One: Impacts on Construction  Tax cuts, Entitlement spending and State Aid are not going to boost construction from 2008 levels…..  …..they are going to improve conditions that would have transpired without stimulus during  Job saving…Concrete Volume Saving

Connect With Concrete Phase One: Tax Impacts on Construction  Tax cuts improve extremely adverse economic conditions.  Accent on Job Savings  Lags suggest roughly half of tax cuts impacts materialize in second half of 2009 and first half of  Impacts dissipate quickly.  Impacts on construction activity are modest.  Cement SAARs increase roughly 1% late 2009/early 2010, compared to a no stimulus scenario.

Connect With Concrete Phase One: State Aid Impacts on Construction  State Aid reduced fiscal hardship facing states.  94% of all public construction performed by state and local governments.  Current state fiscal crisis estimated to be 5 times worse that “crisis” – measured by potential deficits.

Connect With Concrete Deficit % Share of Total Expenditures 2009 Fiscal Deficits Source: PCA/Census ME RI MA VT NH AL GA SC TN FL MS LA TX OK NM KS MN IA MO AR WY CO ND SD NE WA ID MT OR NV UT AZ CA WI IL IN MI OH KY WV VA NC MD DE PA NY CT NJ HI No Deficit 0-10% 11%-15% 16% +

Connect With Concrete Surplus/Deficit Index, 2005=100 Fiscal Health – Sum of States Surplus Deficit

Connect With Concrete Phase One: State Aid Impacts on Construction  Fiscal hardship facing states: No stimulus scenario suggests:  500,000 state /local employee layoffs in 2009, 650,000 layoffs in 2010  Tax increases  Deep cuts in spending  Priorities to fund entitlements: Medicaid  Construction spending faces dramatic cuts.  50% of cement consumption – hard infrastructure.

Connect With Concrete Phase One: State Aid Impacts on Construction  State reaction to Federal Funds  Reduce or forego layoffs  Fund entitlement programs  Reduce or forego tax increases These state reactions reduce potential money directed to construction. Nevertheless, state aid is largest contributor to construction activity during “Phase I”

Connect With Concrete Phase Two: Shovel Ready Expectations Vs Reality: More Stimulus May be Needed

Connect With Concrete “Stimulus Timeline Tax Cuts, Entitlement Spending, State Aid Phase I Stabilize Economy, halt adverse momentum Phase II Phase III Shovel Ready Projects Long Term Investments Policy Tool Objective Job Saving Job Creating Job Creation Job Creation, Address Structural Economic Issues

Connect With Concrete “Shovel Ready” Timeline House Bill Senate Passes & Bill Signed Obama Inaugurated Federal Paperwork State Paperwork Jan March Feb April May Bid Letting June JulyAugust Bid Review Contractor Paperwork Construction Begins Job Creation May Come Later Than Many Expect

Connect With Concrete Phase Two: Ready to Go  Projects that can be undertaken within 120 days.  Paint a bridge Versus new ramp for a bridge.  Resurface a road Versus Expand a road  Low cement intensities per $ spent. These programs will create jobs and cement volume increases...but not as many as “Hard” infrastructure investment.  Panic to spend Versus Patience and Payoff

Connect With Concrete Stimulus: Infrastructure Job Creation Estimates Percent Job Premium Compared to A Resurfacing Reconstruction, Capacity Major Widening Concrete Intensive Projects Create More Jobs Than Resurfacing New Route Bridge Replacement New Bridge

Connect With Concrete Point Three Significant Relief for Construction does not Materialize in 2009

Connect With Concrete Point Three  Due to administration lags.. potential construction impacts begin to materialize late third quarter/early fourth quarter…  …and…”shovel ready” projects carry very low cement intensities….  …leaving 2009 volume impacts muted.

Connect With Concrete Phase Three: “Hard” Infrastructure Expectations Vs Reality: More Stimulus May be Needed

Connect With Concrete “Stimulus Timeline Tax Cuts, Entitlement Spending, State Aid Phase I Stabilize Economy, halt adverse momentum Phase II Phase III Shovel Ready Projects Long Term Investments Policy Tool Objective Job Saving Job Creating Job Creation Job Creation, Address Structural Economic Issues

Connect With Concrete Economic Growth Outlook Percent Change, GDP Growth Rate Recession Scenario: No Stimulus Recession Scenario: With Stimulus

Connect With Concrete Adding it Up

Connect With Concrete Spending Details Millions of $

Connect With Concrete Stimulus Scenario – Cement Demand Fall Forecast85,48583,32791,507 Annual Change-11.6%-2.5%9.8% No Stimulus76,95070,02576,327 Annual Change-19.0%-9.0%+9.0% Direct Tons5,00416,9726,641 Indirect Tons5003,39413,281 Total Added Demand5,50420,36619,922 Total Market (With Stimulus)82,45490,39196,248 Annual Change-13.2%+9.6%+6.5%

Connect With Concrete Total Added Cement Consumption – U.S. 000 Metric Tons Source: PCA Infrastructure Investment Aid-to- States Indirect

Connect With Concrete Percent Increase In Consumption Compared to No Stimulus

Connect With Concrete Stimulus: State Impacts Added Cement Demand: Source: PCA Rank (000) MTShare of Total (%) 1California6, Texas4, Florida3, Ohio1, Illinois1, Pennsylvania1, Georgia1, New York1, Arizona1, Virginia1, North Carolina1, Indiana Missouri Wisconsin Louisiana8892.0

Connect With Concrete Portland Cement Consumption Thousand Metric Tons

Connect With Concrete Point Four

Connect With Concrete Point Four  Stimulus gains are substantial beginning in second half of  …But even with these gains…past cyclical peaks are not expected to materialize until 2015.

Connect With Concrete Implications Market Imbalances

Connect With Concrete Capacity Expansion Thousand Metric Tons Stated Capacity Expansions Potential Increases From Specification Changes

Connect With Concrete Market Imbalances - Changes in Cement Consumption Tons + Capacity Expansion Tons

Connect With Concrete Import Volume Thousand Metric Tons

Connect With Concrete Capacity Adjustments * Thousand Metric Tons Capacity Adjustments Due to Delayed Expansions and Plant Closures * Adjustments Include Five Delays in Plant Commissioning and Eleven Plant Closures

Connect With Concrete Capacity Utilization Rates Clinker Production/Clinker Capacity

Connect With Concrete Point Five Industry Hardship Eases, But Not Avoided with Stimulus

Connect With Concrete Point Five  Stimulus will provide some relief….  …but hardship facing the industry will not be avoided…  Further plant closures will materialize in the context of market imbalances.

Connect With Concrete Beyond the Crisis Stimulus Payback in context of Global Recovery

Connect With Concrete Introduction: Overview  Cyclical correction is temporary.

Connect With Concrete Point Six Spending Payback: Softer Economic Growth

Connect With Concrete Point Six  Spending must be paid for…resulting in higher interest rates, higher taxes and potentially higher inflation….  …and…American consumer..the engine of US economic growth may show significantly different spending patterns…  …combining for the potential of slower longer term economic growth (50 basis points).  …But even with these gains…past cyclical peaks are not expected to materialize until 2015.

Connect With Concrete The Economic Recovery Sub-Prime Drag Abates Stimulus Gains Employment Traction Bank Lending Aversion Improves Lending Risk Declines: Credit Easing Energy Stimulus State Deficits Improve Pent-Up Demand Released

Connect With Concrete 000 Starts Single Family Housing– United States Pent-Up Demand Interest Rates low, Decline in Home Price, Job Recovery Translate into Improved Affordability Excess Inventories Worked Off

Connect With Concrete Nonresidential Long Term Trend Million Real $, 1996

Connect With Concrete Current: Gasoline Prices Vs Asphalt Prices Per Barrel Price Per Barrel

Connect With Concrete Gasoline - Asphalt Margin Per Barrel Differential - Net Threshold of $14 Per Barrel Price Differential Per Barrel Threshold Differential = $14 per barrel Estimated on a Ten Year Payoff for Coker Investment

Connect With Concrete Announced New Coker Installations Cumulative: Thousands of Barrels Per Day

Connect With Concrete Liquid Asphalt Supply Thousands of Barrels 44 Million Barrel Decline by 2011

Connect With Concrete Projected: Initial Bid Concrete Vs Asphalt Paving Costs Per Two Lane Road Mile - Urban Concrete Asphalt Parity Achieved in Fiscal 2009

Connect With Concrete Projected: Life Cycle Concrete Vs Asphalt Paving Costs Per Two Lane Road Mile - Urban Concrete Asphalt Concrete Advantages Materialize in Fiscal 2009

Connect With Concrete Point Seven A “V” Shaped Construction Recovery?

Connect With Concrete Point Seven  Once recovery is in place….  And despite payback costs for stimulus…  Concrete construction could record large and sustained gains in growth.

Connect With Concrete Cement Outlook: Ed Sullivan, Chief Economist PCA American Concrete Pipe Association