1. Ed Sullivan, Chief Economist PCA
Cement Outlook:
Ed Sullivan, Chief Economist PCA
TRACES Workshop 2009

2. Introduction: Overview
Economic fundamentals are weak.
Private Sector no longer drives demand
Residential & Nonresidential recoveries are not expected to materialize anytime soon.
Outlook shaped by policy actions.

3. Portland Cement Consumption Thousand Metric Tons
- 45MMT =

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

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

6. Introduction: Conclusions
Stimulus will provide some relief….
…but hardship facing the industry will not be avoided…
Further plant actions may materialize in the context of market imbalances…
And this hardship will endure through 2010

7. Introduction: Conclusions
PCA near-term scenario suggests:
Near term excess supply conditions
Relatively low utilization rates, higher than desired inventory positions
Favorable availability & cost conditions
These conditions will likely persist for several more years
Past peak consumption not reached until 2015.
New capacity absorbsion
The caveat…harsh new regulatory environment
Domestic capacity adjustments
Synchronized world demand returns

8. Economic Outlook
Introduction

9. Economic Adversity Abates Mid-2010
2006
2007
2008
2009
2010
Sub-Prime
Energy
Financial
Crisis
Labor Markets
State Deficits

10. Lending Conditions
Easing Begins Mid-2010

11. Lending Conditions
Access to credit markets is the grease that makes the economic system work….
Hindrances to credit access …obstruct a meaningful economic recovery
Home Sales hindered
Commercial expansion hindered
Consumer spending hindered
Conditions are improving…but degree and timing may be exaggerated…
Accounts for PCA’s slightly more pessimistic outlook compared to consensus of economists

12. Bankers Reporting Tighter Lending Standards: Commercial
Percent
Source: Federal Reserve Board

13. Bankers Reporting Tighter Lending Standards: Consumer
Percent
Consumer Loans: Yellow
Source: Federal Reserve Board

14. Bank Charge-Offs versus Unemployment Rate - % Loans Charged-Off, % Unemployed10

15. Sub-Prime Replaced By More Toxic Resets
Hope Now Actions, Fannie, Freddie, Private All Soften Impacts

16. Lending Standards: Assessments
PCA has moved back the timing on an significant easing in lending standards..until second half 2010.
Modest improvement may materialize earlier.
Foreclosures and bank write-offs probably higher than reflected in consensus forecasts..
This assessment plays a critical role in formulating the timing of the economic recovery…
Depresses GDP growth projections, job creation, housing starts recovery, nonresidential recovery and darkens states’ deficit picture.

17. Labor

18. Initial Unemployment Insurance Claims
Newly Jobless, Number of New Claims
Estimated Range Consistent With Zero Job Losses

19. Job Recovery: Past Recessions - Change, Thousands of Jobs
Current Recession

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

21. “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

22. 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.

23. Stimulus Overview 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.
New Highway Bill may fit requirement ($400 Billion = PCA)
Delayed passage dovetails with 10% unemployment and may fly under radar and taxpayer pushback

24. Economic Outlook

25. Economic Growth Outlook
Percent Change, GDP Growth Rate

26. Single Family Recovery 2011
Residential
Single Family Recovery 2011

27. Single Family Home Sales (New) - Thousands of Homes
Weak Labor Markets, Tight Lending Standards, Competition From Distressed Properties Prevent A Meaningful New Home Sales Recovery From Materializing Until Mid 2010

28. Single Family Home Inventory - Number of Homes for Sales, Months Supply

29. Nonresidential
The Crash of 2009

30. Source: PCA

31. Stimulus Good, Reauthorization May be Even Better
Streets & Highway
Stimulus Good, Reauthorization May be Even Better

32. Job Losses Generate Deficits –Pushing Discretionary Spending Down
Discretionary State & Local Highway/Street Spending - Millions of Real $ (estimated)
Job Losses Generate Deficits –Pushing Discretionary Spending Down
State Discretionary Highway Spending Will Act as a Powerful Drag on Total Highway Construction Activity in

33. “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

34. Shovel Ready: Late in Coming, Low Cement Intensities
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

35. Streets & Highways
Economic distress will lead to a drag in discretionary state highway spending initiatives
Stimulus spending will help some in 2009…more in
Low cement intensities through first half of 2010….resurfacings and system preservation dominate…
Backlog of projects related to systems preservation reduced…..

36. 2004-2009 SAFETEA-LU: Composition of Work

37. 2011-12 New Highway Bill: Composition of Work

38. Oil Price Scenario - $ Per Barrel, WTI (estimated)
Synchronized World Growth: Characterized by Emerging Middle Class in Developing Economies

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

40. 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

41. Stimulus Payback in context of Global Recovery
Beyond the Crisis
Stimulus Payback in context of Global Recovery

42. Introduction: Overview
Cyclical correction is temporary.

43. Point Six
Stimulus 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.

44. 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

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

46. Long-Term Outlook

47. US Population Thousands of Persons
US Population Adds Roughly 65 Million People by …. a 22% Increase.

48. 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.

49. U.S. Supply Balance: No New Capacity Expansion Plans
Million Metric Tons
Cement Consumption
Supply Gap: 67 MMT
Cement Production

50. Closing the Supply Gap 67 MMT = 2030 Two Options:
Foreign Source: MMT Import Capacity
Domestic Source: 30 Plants (2 MMT per Plant)

51. U.S. Supply Balance: EPA Mercury Impacts
Million Metric Tons
Cement Consumption
Imports: 41.8 MMT
Cement Production
EPA: Hg Impact

52. Climate Change: Accelerated Decline of Wet Kilns
Million Metric Tons

53. U.S. Supply Balance: Mercury & Climate Change
Million Metric Tons
Cement Consumption
Imports:59 MMT
Cement Production

54. Before Settling On Import Sourcing Strategy…
Before Settling On Import Sourcing Strategy…. - $ Per Barrel, WTI (estimated), Dry Bulk Freight Rates
Synchronized World Growth: Characterized by Emerging Middle Class in Developing Economies

55. Closing the Supply Gap Consumption: 180 MMT = 2035
Demographics and Solutions to Energy/Climate Change
Domestic Capacity: 112 MMT
(No additional plans after current round)
Potential Supply Gap: 68 MMT
Regulation:
Hg: Gap = -20 MMT of domestic capacity
Climate Change = ??
Foreign Source:
Terminal Capacity MMT Capacity
Build more terminals
Freight Rates and Instability
Domestic Source:
40 Plants!
In context of harsh regulatory environment.

56. Ed Sullivan, Chief Economist PCA
Cement Outlook:
Ed Sullivan, Chief Economist PCA
TRACES Workshop 2009