1. Ed Sullivan, Chief Economist PCA
Cement Outlook:
CEA 2010 Annual Meeting
May 13, 2010
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

2. Overview

3. Portland Cement Consumption Thousand Metric Tons
- 54 MMT
Growth Rates
2007: - 9.6
2008:
2009: =

4. Market May have reached a Trough Point – Earlier Than Expected
Point One
Market May have reached a Trough Point – Earlier Than Expected

5. Portland Cement Consumption SAAR, Thousand Metric Tons=
2010
2008

6. Portland Cement Consumption: No Snow, No ARRA SAAR, Thousand Metric Tons=
No Snow, No ARRA
2010
2008

7. Portland Cement Consumption: Trough Point SAAR, Thousand Metric Tons=
2010
2008

8. Trough Point May Have Materialized – Earlier Than Expected
Trough point for market may have materialized during Oct 2009 – Feb 2010
PRELIMINARY ESTIMATE
Two months – Early estimate
Snow effects
Depressed Jan-Feb
Inflated March-April
March up 1.5%, Snow Adjusted down 6%
Core market conditions have improved
SAAR less snow, less ARRA
Growing at a 7% annual rate during past two months.
Residential, Oil, Farm and possibly a flattening in state discretionary spending

9. First Quarter Weakness In Context of Full Year Results
Point Two
First Quarter Weakness In Context of Full Year Results

10. Portland Cement Consumption 2010 First Quarter Performance: 2 MMT in the Hole
SAAR =
-2,067
Volume Change Versus 2009
-943
-2,104

11. Portland Cement Consumption 2010 Performance: Fourth Quarter
SAAR
2009 Total =
+1,422
Volume Change Versus 2009
+ 642
+909

12. First Quarter Losses Are Offset by Fourth Quarter Gains
Down 15% from 2009 levels
- 2,067,000 metric tons from 2009 levels
Fourth Quarter;
Weak 2009 performance = 62,500,000 SAAR
+ 1, 422,000 from 68,400,000 SAAR (2009 total)
14% Gain over 2009 levels
Net: -645,000 from flat performance
Note: April = +300,000 to +600,000 based on anecdotal information

13. First Quarter Losses Are Offset by Fourth Quarter Gains
Weak 2009 performance = 62,500,000 SAAR
+ 3,000,000 from 75,000,000 SAAR (PCA Forecast)
20% + Gain over 2009 levels
Net: +1,000,000 from 2009 levels
+1.5% Year total growth if flat conditions persist in 2nd/3rd quarters

14. Tepid Expected National Gains – Vary Significantly by Region/State
Point Three
Tepid Expected National Gains – Vary Significantly by Region/State

15. Portland Cement Consumption Thousand Metric Tons
Growth Rates
2007: - 9.6
2008:
2009:
2010:
2011:
2012:
2013:
2014:
- 54 MMT =

16. National Outlook
National outlook relatively unchanged at +5%, or, MMT.
Growth is dependent on:
Tepid single family housing recovery: +815,000 MT
Oil gains: +375,000 MT
Farm gains: +280,000 MT
Increased ARRA highway spending and intensities: +3,600,000 MT
Increased ARRA non-highway spending including; airports, water, conservation : +300,000 MT to +500,000 MT
This growth more than offsets nonresidential, multifamily & state discretionary drags

17. National versus Regional Outlook
States with:
High foreclosure exposure will not fully participate in the modest housing recovery.
High ARRA resurfacing priorities will see less stimulatory impact.
Little exposure to oil or farm sectors will bare brunt of nonresidential declines.

18. ARRA Highway Intensities
Top States
Lowest States
1. ARIZONA
IDAHO
FLORIDA
ARKANSAS
TEXAS
MISSOURI
HAWAII
DELAWARE
OHIO
LOUISIANA
KANSAS
NORTH CAROLINA
50. OREGON
49. NORTH DAKOTA
48. MASSACHUSETTS
47. SOUTH DAKOTA
46. WYOMING
45. RHODE ISLAND
44. MARYLAND
43. MAINE
42. CALIFORNIA
41. ILLINOIS
40. ALASKA
39. VERMONT

19. Operating Conditions Remain Adverse
Point Four
Operating Conditions Remain Adverse

20. Cumulative Market Imbalances Million Metric Tons=

21. Portland Cement : Utilization Rates Percent Utilization Based on Clinker Capacity=
Slow Demand Improvement, Digestion of New Capacity & Inventory Reductions Will Delay Utilization Recovery

22. The Economic Recovery Process: How & When
There is light at the end of the tunnel….it’s just a really long tunnel

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

24. Economic Growth & Job Creation Percent Change & Thousand Jobs%
Jobs
Net Other GDP Growth =
Net Other = All, excluding inventory changes and ARRA impacts

25. Cement recovery will occur in the context of slow economic growth
Point Five
Cement recovery will occur in the context of slow economic growth

26. Point Five: Cement Market Recovery Will Take Place in the Context of Slow Economic Growth
Recent strong GDP growth distorts the underlying fundamentals of the economy…..
While fundamentals are improving, many of the factors that gave rise to the collapse are still operating…..
Sluggish gains in GDP growth are expected…
Yet….
GDP Growth = 2.7%
Nearly one million jobs created (170K in first quarter)
Tightening of credit winds down, outright easing materializes in some sectors
Vacancy rates marginally improve from current levels – beginning the process of nonresidential recovery.
Deterioration in state deficits may be better than expected

27. Ingredients for a “Recovery” in Cement

28. Ingredients for a “Recovery”
This Implies continued weak consumption levels during first half of 2010
Cement Consumption: + 5.2% 2010
PCA’s 5.2% growth in 2010 translates into 4 MMT.
This “recovery” must be considered in the context of a 54 MMT peak-trough decline.
Residential
Public
Late 2010 Recovery in Starts.
ARRA continues to accelerate. Cement projects materialize 2nd half 2010

29. First Half weakness, Second half Strength
Point Six
First Half weakness, Second half Strength

30. Point Six First half of 2010 characterized by year-over-year declines.
Turning point may have materialized sooner than expected.
Second half gains reflecting a backend recovery.
Very large percentage gains characterize fourth quarter.

31. Criteria For Housing Recovery

32. Residential Cement Consumption Thousand Metric Tons
MMT
Residential sector’s adverse impact on cement consumption has run its course. =
55% of Total Cement Consumption decline is attributed to residential

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

34. 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 5 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.

35. Point Seven

36. Upside Risk?
PCA’s projections lie below consensus estimates by a significant margin.
May imply upside risks to cement consumption …
Roughly 1.5 million metric tons in 2010 and 2011
Pricing recovery for new homes.
Foreclosure assessments.

37. Ingredients for a Public Recovery

38. Ingredients for a Public Cement Recovery
Highway/Street Cement Consumption
2009: 0.6 MMT
Aaa A
Aaa A
2009: -5.4 MMT
ARRA Stimulus
State Fiscal Sterilization
2010: 4.1 MMT
2010:-0.5 MMT
Outlays accelerating. Design & concrete intensive projects roll out last.
Decline in discretionary state cement consumption have been massive during past three years.

39. Sterilization by State Fiscal Conditions
State Sterilization
Sterilization by State Fiscal Conditions

40. State Fiscal Conditions Real 1996$=
State Deficits Worsen in 2010.

41. PCA ‘s Assumptions Extremely Conservative.
Highway Construction as Percent of Total Budget Real highway/Real State Expenditures =
PCA ‘s Assumptions Extremely Conservative.

42. Decline in State Discretionary Construction Spending Percentage Change Real $=

43. Discretionary State Highway Cement Consumption Thousand Metric Tons=

44. Despite a worsening in state deficits, cement drags will lessen
Point Eight
Despite a worsening in state deficits, cement drags will lessen

45. Point Eight State fiscal conditions are expected to worsen.
Cutbacks in discretionary state construction spending will continue.
State construction spending strategies aimed at resurfacing and stretching scarce dollars will continue.
State cement consumption will decline ….but less so that 2009.
Some suggest state cement consumption bottomed in 2009…
Suggesting upside risk to PCA projections of 500,000 metric tons

46. ARRA-Led Recovery

47. ARRA Spending Assumptions Billion $=

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

49. Point Nine

50. Point Nine ARRA spending will more than double in 2010.
Even at same intensities, implies a 700,000 to 800,000 metric ton increase in 2010.
Composition of obligated ARRA spending is disappointing.
Nevertheless, more cement intensive projects will materialize in 2010 – raising cement intensities.
ARRA will be a much more potent contributor to consumption in second half of 2010.

51. Nonresidential Drag

52. Commercial Nonresidential Drag Thousand Metric Tons=

53. Oil & Farm Cement Consumption Thousand Metric Tons
Oil & Farm Conditions are Favorable. Gains in these sectors partially offset nonresidential weakness. =

54. Nonresidential Drag
Commercial nonresidential cement consumption is expected to decline 29% in 2010, following 50% decline in 2009.
Drag on 2010 cement consumption is less due to extremely low 2009 base.
2009 = -6.1 MMT
2010 = MMT
Assumes intensity constant. They should increase.
Starts versus continuing construction intensities
Nonresidential Farm & Oil cement consumption are expected to increase.
2009 = -3.0 MMT, 2010 = +600,000 MT

55. Ten Year Peak-to-Peak Recovery
Beyond the Crisis
Ten Year Peak-to-Peak Recovery

56. Ed Sullivan, Chief Economist PCA
Cement Outlook:
CEA 2010 Annual Meeting
May 13, 2010
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009