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Ed Sullivan, Chief Economist PCA

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1 Ed Sullivan, Chief Economist PCA
Cement Outlook: 2009 Ed Sullivan, Chief Economist PCA

2 Introduction: Overview
Economic fundamentals are deteriorating quickly. Outlook shaped by policy actions. Details and size of the stimulus plan are fluid and still subject to considerable change….adds risk to PCA projections.

3 Introduction: The Need for Stimulus
Lacking stimulus, the economy enters a deep and long contraction GDP declines 2.7% in 2009 and another 1.5% in 2010 An additional 6 million more jobs lost and unemployment reaches 10.4% State deficits reach $79 billion in 2009, $102 billion in 2010. Cement consumption declines 15% in 2009 followed by another 8.5% in 2010. Single Family housing starts decline to 400,000 annually in 2009 and Significant recovery does not materialize until 2012.

4 Portland Cement Outlook: No Stimulus Thousand Metric Tons
Projections Without Stimulus = Note: 11 Plant Closures in 2008. Utilization Rates drop into low-mid 60% range in 2010

5 It is a Recession, and going to last longer than previously expected
Economic Outlook It is a Recession, and going to last longer than previously expected

6 Economic Outlook: Five Factors
Financial Crisis Energy/ Inflation Labor Markets State Deficits Sub-Prime Mortgage Payments Credit Cards Defaults Tight Lending Standards Home Price Declines Reliance on Home Equity Gone Defaults Write-Downs Risk Aversion Tight Lending Standards Commercial, Consumer, homeowner capital access reduced Global Structural Global Realities Gasoline Prices Heating Prices Fertilizer/Biofuels hit Ag Prices Supply Side Costs Ingrained Cost of Business Adds Weakness to Dollar 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

7 Economic Adversity 2006 2007 2008 2009 2010 Sub-Prime Energy Financial
Crisis Inflation Labor Markets State Deficits

8 Net Job Creation (Loss) - Annual Change, Thousand Net Jobs
= Job Loss 2009 = 4.1 Million Job Loss 2010 = 1.8 Million Unemployment Peaks at 10.5% Early-2010

9 No Stimulus Job Loss Estimates
Million Jobs 2008 Obama Economists PCA

10 Portland Cement Outlook: No Stimulus Thousand Metric Tons
Projections Without Stimulus = Note: 11 Plant Closures in 2008. Utilization Rates drop into low-mid 60% range in 2010

11 Introduction: The Need for Stimulus
Obama’s $775 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 = $1.2 trillion. House Appropriations = $825 billion – size of stimulus increasing in recognition of greater economic adversity. More increases required… but …taxpayer backlash may hinder size and hence economic outcomes.

12 Economic Policy Actions

13 Introduction: Stimulus Overview
Details and size of the stimulus plan are fluid and still subject to considerable change….adds risk to PCA projections. Based on what is on the table now, several assessments can be made: Tax cuts will only temporarily mask weak fundamentals – not a job creator or sustainable change in growth path. State Aid and “Hard Infrastructure” are largest job creators/savers. Shovel Ready projects may materialize later than many expect and with less stimulatory and job creation impact than “Hard Infrastructure” investment.

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

15 “Stimulus Timeline Phase I Phase II Phase III 2011 2009 2010
Policy Tool Objective 2009 2010 2011 Job Saving Job Creating Tax Cuts, Entitlement Spending, State Aid Stabilize Economy, halt adverse momentum Phase I Shovel Ready Projects Job Creation Phase II Job Creation, Address Structural Economic Issues Long Term Investments Phase III

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

17 Stimulus: GDP Impacts 2009-2010 2009-2010
Change in GDP From No Stimulus Scenario Obama Economists PCA GDP 4th Q 2010: $12.2 Trillion GDP 4th Q 2010: $11.6 Trillion Note: Stimulus in PCA Outlook Overlaid upon weaker Fundamentals.

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

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

20 Portland Cement Outlook Thousand Metric Tons
Projections With Stimulus Projections Without Stimulus =

21 Capacity Expansion Thousand Metric Tons Stated Capacity Expansions
Potential Increases From Specification Changes

22 Market Imbalances - Changes in Cement Consumption Tons + Capacity Expansion Tons
=

23 Import Volume Thousand Metric Tons

24 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

25 Capacity Utilization Rates
Clinker Production/Clinker Capacity

26 Stimulus Payback in context of Global Recovery
Beyond the Crisis Stimulus Payback in context of Global Recovery

27 Introduction: Overview
Cyclical correction is temporary.

28 The “V” Economic Recovery:
2008 2009 2010 2011 Sub-Prime Drag Abates Bank Lending Aversion Improves Stimulus Gains Employment Traction Lending Risk Declines: Credit Easing Energy Stimulus State Deficits Improve Pent-Up Demand Released

29 Single Family Housing– United States
000 Starts Pent-Up Demand = Housing Peaked January 2006 2007: -29% : -37% : 0.0% :+34% Interest Rates low, Decline in Home Price, Job Recovery Translate into Improved Affordability Excess Inventories Worked Off

30 Nonresidential Long Term Trend Million Real $, 1996
=

31 Current: Gasoline Prices Vs Asphalt Prices Per Barrel Price Per Barrel

32 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

33 Announced New Coker Installations Cumulative: Thousands of Barrels Per Day

34 Liquid Asphalt Supply Thousands of Barrels
44 Million Barrel Decline by 2011

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

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

37 Portland Cement Consumption Thousand Metric Tons
=

38 Ed Sullivan, Chief Economist PCA
Cement Outlook: 2009 Ed Sullivan, Chief Economist PCA

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