1. Ed Sullivan Group VP, Chief Economist
U.S Cement Outlook
PCA Board Meeting
Ed Sullivan
Group VP, Chief Economist

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

3. Portland Cement Consumption Thousand Metric Tons=

4. Composition in Cement Consumption Growth=
Construction

5. Imports Are More Attractive
Dollar Exchange Against Composite
Baltic Dry Index

6. Cement Imports Thousand Metric Tons
2020: 20.2%
2017: 12.7% =
Percentages are Imports Market Share

7. Cement SCM Usage at Plant Thousand Metric Tons
2020: 9.0%
2017: 8.5%
2002: 5.0%
2007: 5.3%
Equates to One 2MMT Plant =
Percentages are SCM share of cement mix.

8. Capacity Utilization Rate Percent of Effective Capacity
2020: 82% =
2011: 61%

9. 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

10. Net Job Creation Thousands Monthly Net New Jobs
State Fiscal Conditions
Vacancy & Occupancy Rates
ROI
Lending Risks
2015 Average: 205K
Net New Jobs
2015: 2.4 million
2016: 2.6 million

11. Unemployment Rate Index: 2000 = 100
Natural Rate of Unemployment 5% 4%

12. Inflation Rate CPIU Percent Change
% Change, CPIU
2015: 0.4 %
2016: 2.0 %
Fed Target Rate
- Strong $
- Modest Domestic Utilization Rates
- Weak Oil Prices
- Slow Global Growth

13. Interest Rates Annual Percentage Rate
Dual Mandate:
Fed Actions to Raise Rates Are Expected to be Modest and from Low Prevailing Levels
BAA Bonds
Fixed Mortgage

14. Home Prices Total: Existing & New
Most of Middle-Class Wealth is tied to Home Value
Estimated Wealth Effect Impacts For Every $ of Wealth, Consumer Spending Increases:
Equity: Adds 2-3 cents
Home: 9-10 cents
Newer Research Indicates Equity adds up to 15 cents and Home 7-8 cents

15. Consumer Sentiment Index: 2000 = 100
Past Cyclical Peak:
2006 at 88.5
Despite recent weakening, 2015 is up 10.7% over 2014 levels.

16. Consumer Propels Growth
Solid job creation.
Potentially stronger wage gains in context of 5% unemployment.
Record low debt burdens.
Lower energy/gasoline prices.
Impacts price at pump & Oil heat (Northeast).
Credit is cheap and becoming more available.
Wealth is increasing – home and equity.
Pent-up demand is real & eventually released
Record light vehicle sales level.
3.3% to 3.5% growth in consumption.

17. Real GDP Growth Annual Rate
2014 = 2.4%
2015 = 2.4%
2016 = 2.6%

18. Portland Cement Consumption Metric Tons Per Million Real $=

19. Portland Cement Consumption Metric Tons Per Million Real $=

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

21. Recent Construction Data Trends
Index (2004=100) =
Dodge
- 29% Decline During Past 6 Months.
Largest Decline Since December 2008. 21

22. Dodge Contract Awards - Current
Index (January 2014=100)
Private = 22

23. Dodge Contract Awards – Past Cycle
Index (January 2015=100)
Private =
Public 23

24. Recent Construction Data Trends
Index (2004=100) =
Dodge
- 29% Decline During Past 6 Months.
Largest Decline Since December 2008. 24

25. The Market Problem Shift: Can’t Sell Them….to….Can’t Build Them
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. Total Construction Employment
000 Workers
-1,248,000 Workers, or
-16.2%

27. Construction’s Skilled Labor Shortage

28. Anatomy of a Skilled Labor Shortage
Recession hits construction employment hard.
2.9 million workers laid off, or almost 30% of construction employment.
Older skilled, retire
Some re-train leave industry.
500,000 Mexican born workers return to Mexico
Long, slow recovery creates skills gap
6th year of economic recovery and only 4th year of construction recovery – leaving real construction activity 20% below 2005 past cyclical peak
Technology improves during downturn years yet unemployed have no access
State/local fiscal austerity measures cut high school shop and trade school funding
Dim career prospects in construction force Millenials to snub trade
Opportunities in Mexico improve
Regionally, as construction demand improves to expose skills deficit.

29. Employment Declines % Change from Peak (2005)

30. Employment Declines % Change from Peak (2005)

31. 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

32. Single Family: Structural

33. Housing Assumptions: Millennials Aged 18-34
Form the basis of first time home buyers – the foundation for home construction growth.
Millennials formed opinions on housing growing up during the crash, high foreclosures and home price declines.
Millennials are saddled with huge student loan debt.
Forming households later (3.3 million unformed)
Millennials marrying later.
Millennials forming families later.
Structural issue. Not a cyclical issue.

34. Single Family Construction Employment
000 Workers
-357,700 Workers, or
-56.3%

35. New Home Inventory
Month’s Supply

36. New Home Starts Labor Shortage Adjustments
5 Months Supply
5.5 Months Supply
Reduces 2015 Growth by 1.8% to 3.0%
6 Months Supply

37. Housing Starts Thousand Starts=

38. 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

39. Nonresidential Construction Million Real $=

40. Oil Adjustments EIA Projections

41. Oil Prices & New Rig Count Total
Rigs
Oil
Rig Count

42. Oil Adjustments Cement Consumption, MMT
2015:
Reduces Total Cement Consumption Growth by 2.2%

43. 1 Metric Ton Oil Cement = 2.9 Metric Tons Other Construction Cement
Oil Price Impacts
1 Metric Ton Oil Cement = 2.9 Metric Tons Other Construction Cement

45. Public 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

46. Public Construction Million Real $
Six Years Decline =

47. Federal Highway Spending Million Real 2009 Dollars=
Baseline

48. Federal Highway Spending Million Real 2009 Dollars
Senate Proposal
House Proposal
Baseline =

49. Federal Highway Spending Million Real 2009 Dollars
Average House/Senate =

50. Cement Consumption Impact of New Federal Highway Spending Thousand Metric Tons=

51. S&L Sterilization Changes in Spending, Mil $
88%

52. Direct Implied Baseline
Cement Consumption Impact of New Federal Highway Spending Thousand Metric Tons
Direct Implied Baseline =
50% Sterilized

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

54. Cement Intensity Trends Cement Tons Per Million Real $

55. Cement Intensity Trends Cement Tons Per Million Real

56. Cement Intensities: Nonresidential Cement Tons Per Million Real 2009 $
2015 = 72, or 65% of Past Peak
2020 = 85, or 77% of Past Peak =
2010 = 55 (-52%) or 49% of Past Peak

57. Composition in Cement Consumption Growth=
Construction

58. Portland Cement Consumption Thousand Metric Tons=

59. Risks Downside: Upside:
Economic Growth Slows to 2%: Basis Points (BP)
Oil to $40: BP
Housing starts growth cut in half: BP
Intensity remains stalled BP
Upside:
Highway Bill Passage: BP
Pent-up demand release: BP
Intensity remains accelerates BP

60. Ed Sullivan Group VP, Chief Economist
U.S Cement Outlook
PCA Board Meeting
Ed Sullivan
Group VP, Chief Economist