1. Ed Sullivan Chief Economist, Group VP PCA
PCA Spring Meetings
Cement Outlook:
Ed Sullivan
Chief Economist, Group VP
PCA

2. Portland Cement Consumption Thousand Metric Tons
Step Progression =

3. Portland Cement Consumption Thousand Metric Tons=

4. Composition of Changes in Cement Consumption Share of Total Growth
2014:
+7.0 MMT
2015:
+6.3 MMT

5. Capacity Utilization Annual Production Divided by Capacity

6. Re-Opening Strategies
As capacity utilization nears 80% to 85% temporarily idled plants may be reviewed for re-opening.
This review will occur in the context of:
A sustained strong dollar.
Modest growth among many non-US economies.
Low freight rates.
Emission control expenditures to comply with new regulations.
This may tend to at least temporarily to favor an import strategy.

7. Economic Outlook Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

8. Economic Growth Gross State Product (GDP), Annual Percent Change=
Source: BEA, PCA

9. Economic Growth Gross State Product (GDP), Annual Percent Change=
Source: BEA, PCA

10. Putting Things Into Context: Economic Outlook
Job creation approximates 3.0 million net new jobs
Stronger household formation
Strong job growth in context of sub-6% unemployment suggests pressure on wages.
Consumer confidence/sentiment has improved significantly and is expected to continue.
Low oil prices add basis points to economic growth.
Regional disruptions among energy producing states.

11. Putting Things Into Context: Economic Outlook
Inflation remains low, interest rates expected to only gradually increase, slower increases in home prices and stronger increases in rents.
New home affordability remains favorable in absolute terms and against rents.
Lending risks subside and lending standards ease.
Economic recovery moving into higher growth phase in the years ahead.
Roughly 3% growth on a sustained basis.
Healing of excesses, and huge pent-up demand.

12. Consumers Are Ready to Propel Growth
Debt-to-Income ratio at 18 year best,
Job creation continues at a monthly rate of 225K to 250K.
Job creation occurs in the context sub-6% unemployment. Pressure on wages begin to of emerge.
Oil price declines, if sustained, add 0.3% to 0.4% consumer spending growth.
While pressure gradually mounts, inflation and interest rates remain low.
Consumer Wealth remains strong via home price increases and stock performances.
Unprecedented levels of pent-up demand exist.
Consumer sentiment rapidly improving.

13. Strong Dollar Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

14. Hinders Interest Rate Pressures
Weighted Average Exchange Value of U.S. Dollar Major Currencies Index (Index Mar-1973=100, NSA)
Lowers Inflation
Hinders Interest Rate Pressures
Reduces US Exports
19%

15. Dollar Vs Purchasing Manager Index: New Orders
Dollar Index
IPM New Order Index
Dollar Vs Major Currencies
IPM New Orders Declines 6% in Past 12 Months.
Implies continued expansion but at less robust Rate than Previously Expected
IPM New Orders

16. Manufacturing Wages as Share to Total WagesME 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
15%+
11% to 14%
5% to 10%
< 5%

17. Oil Impact Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

18. Oil Prices & Baker Hughes Rig Count
WTI Oil Prices
Rig Count
Baker Hughes Rig Count
WTI Oil Prices

20. West Texas Intermediate Oil Prices Per Barrel=

21. Category One
Category Two
Category Three

22. Summary of Adjustments
Presentation
Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

23. Key Forecast Adjustments
Macroeconomic projections on-track but GDP Adjusted Down.
Harsh weather is expected to depress Real GDP growth to 1% to 1.5% in 1st Q.
Regional oil disruption could covert into larger economic slowdown.
Time lag for conversion of gas pump savings into additional consumption.
Strong dollar impairs growth in US exports (manufacturing/Agriculture).
Low inflation, slightly less robust net job creation implies bigger window for Federal Reserve to increase rates. And, rate increases expected to be smaller than previously expected.

24. Federal Reserve Interest Rate Assumptions
Strong dollar, weak global conditions, low oil prices, spot slack conditions and low wage rate gains suggest slow inflation increases.
Past recession worst since post-WWII and recovery has been slow. Fed (Yellen) likely to err on over stimulate.
Suggests a somewhat bigger window for raising rates (3rd Q).
Rate increases probably smaller and longer time lapses between increases.

25. Housing Outlook Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

26. Housing Assessments Perspective:
SF Sales: 7.46 million (2005) million (2014). 36% below past peak.
Total Starts: 2.07 million (2005). 1.0 million (2014). 52% below past peak.
SF Starts: 1.72 million (2005) million (2014). 62% below past peak.
MF Starts: 0.36 million (2005) million (2014). At pre-recession levels.
Large housing starts percentage increases expected by PCA must take into consideration the current low levels of activity.

27. SF Home Sales Thousand Units
Recession
23% Price Decay
Distressed Sales

28. Home Sales to Employment Ratio Home Sales/Employment

29. Mortgage-to-Rent Ratio Monthly Payment Own/Monthly Payment Rent

30. Housing Assessments: Credit Access
Credit Qualifications:
Stronger job market implies stronger FICO scores.
Equivax states 45% of all consumers have a FICO score below This compares to 47% in 2005.
FICO credit-score calculations have recently eliminated records of a consumer failing to pay a bill if the bill has been paid and less weight to unpaid medical bills that are with a collection agency.
For borrowers in the range, those who are close to a lender's typical credit score minimum, 45% of that population saw their scores improve enough to meet the credit score threshold.

31. Housing Assessments: Credit Access
Credit Qualifications:
Nations’ mortgage rules were recently made by the Consumer Financial Protection Burea (CFPB). Dodd-Frank
Protection remains in place, but opens up access to mortgage market via the Qualified Residential Mortgage rule.
Ability-to-repay guidelines adds clarity to lenders.
Eliminates the 20% down payment requirement if banks don’t hold 5% of mortgages on its own books.
Reduces FICA scores.
More favorable guidelines for packaging & selling mortgage securities.
Stronger job market implies stronger FICO scores.

32. Putting Things Into Context: Housing Outlook
Housing Starts Thousands of Units
Days supply is low and starts activity is targeted to roughly 5- month supply throughout the forecast.
New home prices rise at rates above inflation rate.
Constraint to construction - such a labor shortages & property availability - are assumed to be temporary and fixed by the market.
Starts mix remains trending toward multifamily.

33. Putting Things Into Context: Starts Composition
Multifamily Starts Share of Total
Elevated credit standards exclude many from SF market.
Damaged credit created during the recession forces many into rental market.
Student loans are overbearing for many, forcing into rental market.
Attitudes have changed, for now.
Graying of America and demographics favor multifamily market.

34. Putting Things Into Context: Regional Composition
Strength of SF Construction needed to return to pre-bubble levels 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
Strong Growth Potential
Moderate Growth Potential
Lower Growth Potential
(Nearly Recovered)
Naturally Growing
(Recovered)
Source: PCA

35. Nonresidential Outlook
Presentation
Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

36. Nonresidential Recovery: Construction Details
2013
2014
2015
2016
2017
2018
2019
Nonresidential Buildings
3.8%
8.2%
8.8%
8.3%
6.3%
4.7%
3.7%
Industrial
3.2%
9.3%
4.4%
3.3%
1.4%
0.7%
Office
7.6%
13.9%
12.3%
15.6%
9.6%
6.6%
3.9%
Hotels, Motels
23.0%
8.1%
5.5%
5.1%
5.2%
Hospitals, Institutions
-7.7%
-7.5%
2.5%
3.1%
4.3%
4.9%
Religious
-12.3%
-2.3%
-1.0%
0.3%
2.0%
Educational
-0.8%
-3.8%
5.0%
Other Commercial
6.8%
17.6%
11.8%
10.8%
8.6%
6.4%
5.3%

37. Nonresidential Construction Activity Million Real $=

38. Nonresidential Cement Intensities Tons per million real $

39. Nonresidential Cement Intensities Tons per million real $
Adds 5.7 MMT

40. Public Outlook Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
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41. Public Construction Million Real $
Seven Years Decline =

42. State Highway & Street Funding Model
Gross State Product
State Fiscal Assessment
Discretionary Highway Expenditures
Note:
Simplified Flow. Many steps required to reach each bubble.
Total Highway Funding
MAP-21 Allocation
GSP = Gross State Product (Real). Indicates economic activity at the state level.

43. State Deficit Outlook Net Balance (Revenues Less Expenditures)
$000

44. Share of State Expenditures On Transportation

45. Local Employment & Home Prices
Based on Three Year Lag Between Home Prices and Employment, the ongoing improvement in prices implies a significant upturn in local spending beginning in 2015
Home Prices Lagged Three Years

46. Summary Presentation Summary of Results
Comparative Life Cycle Analysis Research
Building Materials
Single Family, Multi Family, and Commercial Structures
Done By
MIT Concrete Sustainability HUB

47. Portland Cement Consumption Thousand Metric Tons=

48. Balanced to Upside Key Forecast Risks
Upside Risks:
Stronger housing starts outlook tied to easier qualifying standards and recognition of pent-up demand.
Stronger gains in nonresidential cement intensities.
Upside improvement in state fiscal conditions and priority of infrastructure.
New Federal Highway Bill
Downside Risks:
Greater adverse energy impact on GDP growth.
More important driver in recovery than estimated.
Energy related defaults accounting for 30% on $800 billion.
External contagion.
Greece contagion to other stressed European economies creates credit impact.
Russia
Chinese growth slowdown.
Intensity gains stunted.

49. Ed Sullivan Chief Economist, Group VP PCA
PCA Spring Meetings
Cement Outlook:
Ed Sullivan
Chief Economist, Group VP
PCA