1. Ed Sullivan, Chief Economist PCA
Cement Outlook:
World of Concrete
January 2011
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

2. Portland Cement Consumption: Fall Thousand Metric Tons
Growth Rates
2007: - 9.6
2008:
2009:
2010:
2011: + 1.3
2012: + 3.7
2013:
2014: =
Early 2011 Characterized by Large Y-O-Y Percentage Gains
PCA believes this will be a false read for 2011 Performance

3. Capacity Utilization Percent Capacity Utilized=
NESHAP Closures

4. Economic Outlook

5. Economic Adversity Abates 2011/12
2006
2007
2008
2009
2010
2011
Sub-Prime/Exotics
Energy
The abatement of the conditions that put us in recession…are receding…but remain in place.
Lending Standards
Labor Markets
State Deficits

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

7. Housing Recovery

8. Residential Contribution to Recovery Muted Thousand Metric Tons
19 MMT Gain or
68% Recapture =

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

10. Foreclosures Accelerate
Foreclosure Impacts
Add to Inventory
Depressed HomebuilderROI
Depress Prices
2.8 Foreclosures in 2009.
871K Bank possessions.
Equates to one out of every 4 homes on the market.
Adds supply.
Bank owned properties discounted.
Pressures new home prices.
Longer carry costs.
Lower revenues.
Erodes expected ROI.
Delays recovery in starts.

11. Residential: Re-Set Scenario $ Billion
Alt-A
Subprime Resets
Option Adjustable =

12. Months’ Supply: Single Family Number of months required to burn off existing inventory at current selling rates
Projected =
Source: PCA Projections

13. Single Family Starts Projections Thousand Homes=

14. Single Family Starts Projections Thousand Homes=

15. Single Family Starts Projections Thousand Homes=

16. Nonresidential Drag

17. Commercial Nonresidential Drag Lessens Thousand Metric Tons
8.4 MMT Gain or
64% Recapture =

18. Nonresidential Conclusions
No longer a significant drag on cement consumption growth.
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 until 2013

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

20. Since 1 in 5 Jobs Are In The Office
Office Buildings Recovery Timing
32.0 Million Office Jobs Equates to Full Occupancy
27.5 Million Office Jobs Equates to Stable Leasing Rates
27.0 Million Office Jobs Today
Implying…..
500,000 Office Jobs must be created before leasing rates stabilize
Since 1 in 5 Jobs Are In The Office
This equates to a total job creation number of roughly 2.5 million Jobs
This condition may not materialize until 2012

21. Public Recovery

22. ARRA Spending Composition Assumptions Billion $
ARRA Spending Composition Assumptions Billion $
Cement Consumption
2,951,000 MT
Cement Consumption
2,310,000 MT
Cement Consumption
583,000 MT
Cement Consumption
214,000 MT =
Resurfacing
Widening & New Route
Bridge
Chart Excludes “Other” Spending

23. State Fiscal Conditions
FY 2011 Budget Gaps 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
Source: PCA/CBPP
Oct. 2010
No Shortfall
Under 11%
11%-20%
Over 20%

24. State Deficits $ Real Slow Job Creation Leads to Slow Deficit Heal=
National Estimates: States Do Not Heal in a Synchronized Fashion

25. Discretionary State Highway Cement Consumption Thousand Metric Tons=

26. SAFETEA-LU Math 2010 2011 PCA Washington: 50/50 Lame Duck Passage
SAFETEA-LU
- Delay in Extension -1 to -2 MMT MMT
- Recapture to +2 MMT
Volume Impact to -2 MMT +1 to +2 MMT
Net Change 2011 (No Delay) to +4 MMT
PCA Washington: 50/50 Lame Duck Passage

27. Portland Cement Consumption: Highway Thousand Metric Tons=
State
Discretionary
Highway Bill
Stimulus

28. “New Normal” or “New Headaches”
Beyond the Crisis
“New Normal” or “New Headaches”

29. Portland Cement Consumption Thousand Metric Tons
Recovery Occurs in Context of “New Normal” =

30. After the Crisis: “New Normal”: Economics
American consumer, the engine of US economic growth
May distance from debt spending patterns (lowering GDP).
Baby boomers may not re-capture wealth
Higher inflation erodes spending.
Impacts
Slower growth – Is 50 basis point enough?

31. After the Crisis: “New Normal”: Policy
Fiscal Policy
Stimulus spending must be paid for…resulting in higher interest rates, higher taxes, and potentially higher inflation.
Monetary policy easing (U.S. & global) & QE2
Could add to inflationary pressures.
QE2 compounds the inflationary risks.
Raises prospects of Federal Reserve tightening.
Weakens dollar in context of large public debt.
Heightens debt costs.
Opens door for fiscal austerity.
Key economic consequences
American consumer, the engine of US economic growth, may distance from debt spending patterns (lowering GDP).
Dollar may show a structural weakening.
…combining for the potential of slower longer term economic growth (50 basis points).

32. After the Crisis: “New Normal”: Construction
Not a typical recession recovery.
Amplified by structural corrections.
Amplified by possible policy errors.
Long impacts
Pent-Up Demand
Being generated across all sectors.
Longer period of distress, more pent-up demand
Timing and magnitude of release impacted by economy.
Regional impacts from resulting growth.
Residential, nonresidential & public synchronized – 2013 & Beyond.
Typically suggests strong cement consumption growth rates.

33. After the Crisis: “New Normal”: Global
Emerging economies, led by China/India, account for key growth drivers.
Accounts for larger share of world GDP than OECD by 2014 (IMF).
Exerts “new” potent demand on world markets
“Synchronized” world growth returns
Commodity prices (oil), freight rates, trading patterns subject to change.
Impacts concrete competitiveness (oil prices = paving position, residential ICF)
Impacts sourcing decisions – high freight rates raising import costs.
New challenges could lead to potentially new economic/political tensions.

34. Announced New Coker Installations Cumulative: Thousands of Barrels Per Day

35. After the Crisis: “New Normal”: MIT
Researchers at the MIT Concrete Sustainability Hub are working to quantify the full cradle-to-grave life-cycle environmental and economic costs of paving and building materials.
Residential Buildings – More than 90% of the life-cycle carbon emissions are due to the use phase, with construction and end-of-life disposal accounting for less than 10% of the total emissions.
Residential Buildings – Concrete structures built with insulated concrete forms (ICF) enjoy long-term operational energy savings of 20% or more over wood-framed buildings.
In the context of synchronized world growth, higher oil prices, homebuyers may increasingly emphasize energy saving aspects of concrete homes.

36. Per Home, Lifetime C02 Savings ICF Home Over Frame
Co2 Metric Tons, Per Home
Total Heating & Cooling C02 Saving: 92 Tons per Home
Additional C02 Emitted by Cement Production
Conservatively Assumes 50 Year Life of Home

37. After the Crisis: “New Normal”: Regulation
Activist EPA
Plant shut downs
High compliance costs.
New Source regulations!
Resumption of demand growth
Import Dependence Grows
In context of weak dollar
In context of emerging economy demand growth
Higher freight rates.
Sourcing strategies
Near term, import dependence – longer term?

38. Cement Consumption: Long Term
Million Metric Tons
Growth in Context of Population Changes, Slower US Economic Growth, Strong Global Growth, Climate Change Legislation and the “Green” Revolution.

39. Ed Sullivan, Chief Economist PCA
Cement Outlook:
World of Concrete
January 2011
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009