1. Cement/Concrete Outlook: 2011-2015
CEA
March 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. Cement Capacity Utilization Percent Capacity Utilized
Excess Capacity, Depressed Earnings =

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. 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.

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

10. Nonresidential Drag

11. Nonresidential Conclusions
No longer a significant drag on construction activity.
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

12. 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

13. 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

14. Nonresidential Construction Projections Billion Real $1996=

15. Public Recovery

16. ARRA Spending Composition Assumptions Billion $
ARRA Spending Composition Assumptions Billion $ =
Resurfacing
Widening & New Route
Bridge
Chart Excludes “Other” Spending

17. 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%

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

19. Discretionary State Highway Cement Consumption Thousand Metric Tons=

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

21. 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.

22. Real Construction Spending Billion Real $1996=

23. 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.

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

26. 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

27. After the Crisis: “New Normal ”: Material Selection Process
Focus on federal & state deficit reduction.
Restructure of entitlement programs politically toxic. Focus shifts on spending efficiency.
State Spending on transportation accounts for $120 billion annually.
Structural factors in state DOT material selection process inhibit free market decisions regarding the lowest cost (initial bid and life cycle) from being realized.
Escalators, Alternative Bid
Inhibitors cost states billions annually – to the detriment of other spending priorities.

28. 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?

29. 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.

30. Cement/Concrete Outlook: 2011-2015
CEA
March 2011
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009