1. Ed Sullivan, Chief Economist PCA
Cement Outlook
Fall Committee Meetings
August 2011
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

2. Introduction: Overview: 2011-2012
Economic growth has slowed – Again
Faltering confidence
GDP & Jobs Outlook has been reduced
Recession risks have increased
From one in four to one in three chance
Slower growth translates into slower job creation
Current scenario expects 150,000 net job creation monthly .
August = +75K
Slower global growth diminishes concrete’s competitive position

3. Introduction: Overview: 2011-2012
Slower job growth translates into a slower construction recovery
Stretches out timing for the turn.
Has little impact on 2011 cement consumption
Residential recovery stretched and slowed
Re-sets ease in 2012, but foreclosure burn-off will take time
Slower job creation diminishes household formation
Nonresidential recovery stretched and slowed
Major change regarding highway bill
State & Local recovery stretched and slowed
No sector drives growth in near term

4. Portland Cement Consumption: Summer Thousand Metric Tons=

5. Cement Capacity Utilization Percent Capacity Utilized=

6. Introduction: Overview: 2013-2016
Structural Imbalances created during last boom diminish
Banks ease lending standards
Sovereign debt crisis softens
Foreclosures dramatically decline
State deficits replaced by surpluses
Economic environment characterized by:
Higher interest rates, higher taxes, higher inflation & slower economic growth
Construction environment characterized by release of pent-up demand.
Concrete competitive environment characterized by:
NESHAP costs
Improved competitive price advantages versus other building materials.

7. Portland Cement Consumption: Summer Thousand Metric Tons=

8. Cement Capacity Utilization Percent Capacity Utilized=

9. Economic Outlook

10. 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:

11. Housing Recovery

12. 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.

13. Foreclosures Accelerate
Foreclosure Impacts
Add to Inventory
Depressed Home Builder ROI
Depress Prices
3.2 Million Foreclosures in 2010.
1.1 Million Bank possessions.
Adds supply.
Bank owned properties discounted.
Pressures new home prices.
Longer carry costs.
Lower revenues.
Erodes expected ROI.
Delays recovery in starts.

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

15. Residential Cement Consumption: Summer Thousand Metric Tons=

17. Nonresidential Drag

18. 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

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 late 2011

21. Nonresidential Cement Consumption: Summer Thousand Metric Tons=

23. Public Recovery

24. National Estimates: States Do Not Heal in a Synchronized Fashion
State Deficits $ Real =
National Estimates: States Do Not Heal in a Synchronized Fashion

25. Discretionary State Highway Cement Consumption Thousand Metric Tons=

26. 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

27. Highway Bill Cement Consumption Projections Spring Versus Summer Assumptions
Spring Forecast
Summer Forecast

28. Highway Bill Cement Consumption Projections Spring Versus Summer Assumptions
Spring Forecast
Summer Forecast
Mica Proposal

30. Ed Sullivan, Chief Economist PCA
Cement Outlook
Fall Committee Meetings
August 2011
Ed Sullivan, Chief Economist PCA
Named Most Accurate Forecaster By Chicago Federal Reserve, 2009