1. Ed Sullivan, Chief Economist PCA
Cement Outlook: 2009
Ed Sullivan, Chief Economist PCA
240K jobs lost in three months, consumer sentiment already at 2001 recession lows, retail sales are weak, credit card debt has balloned, business confidence has crashed, foreclosures and defaults are accelerating, tighter lending standards have spread beyond mortgages and now include general consumer loans and commercial credit, write downs are threatening some banks solvency,, oil prices are above $120 per barrell, $4 gas is coming….and yet….

2. Key Questions How deep will retrenchment go ? How long will it last ?
What recovery to expect?
Key Questions

3. The Bottom Line Economic outlook remains dim….and will get darker.
Adverse momentum will characterize economy through the first half of Tepid growth thereafter.
No recovery in housing until 2010
Nonresidential faces steep retrenchment…recovery in 2011.
Potential of fiscal crisis at State level brewing…public declines with no recovery until 2011.
Sharp Recovery may materialize beginning in 2011

4. Portland Cement Consumption Thousand Metric Tons
Declines Continue Through 2010.
One Year Later than Previously Expected =

5. Portland Cement Consumption - Annual Change, Thousand Tons=
Peak (2005)-to-Trough (2010) Decline:
41 MMT (Worst in History)

6. Near Term Conclusions
Double-digit decline in consumption with trough in 2010.
Large capacity increases magnify potential market imbalances.
Accelerated shutdown in wet & old long dry kilns reduces some imbalances.
Longer maintenance shutdown periods.
Imports record large, sustained declines.
Global conditions suggest freight rates continue slide.
May contribute to market imbalances.
Utilization Rates decline.
Materializes to a greater extent in
Days Supply Inventory remains above historical average.
Most pressure materialize in

7. It is a Recession, and going to last longer than previously expected
Economic Outlook
It is a Recession, and going to last longer than previously expected

8. Economic Outlook: Five Factors
Financial
Crisis
Energy/
Inflation
Labor Markets
State Deficits
Sub-Prime
Mortgage Payments
Credit Cards
Defaults
Tight Lending Standards
Home Price Declines
Reliance on Home Equity Gone
Defaults
Write-Downs
Risk Aversion
Tight Lending Standards
Commercial, Consumer, homeowner capital access reduced
Global
Structural Global Realities
Gasoline Prices
Heating Prices
Fertilizer/Biofuels hit Ag Prices
Supply Side Costs Ingrained
Cost of Business
Adds Weakness to Dollar
Slower Economic Growth
One Million Job Loss in 2008
Housing Recovery Delayed
Nonresidential Declines
State Fiscal Crisis Looming
Public Declines
Slower Job
Revenues Slow
Entitlement Programs Continue
Deficits
Drag on Recovery
Offsets Possible Federal Stimulus Package

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

10. Consumer Confidence - Annual Change, Thousand Net Jobs=
Sentiment Is Already at 30 Year Lows

11. Net Job Creation (Loss) - Annual Change, Thousand Net Jobs=
Job Loss 2008 = 1.2 Million
Job Loss 2009 = 1.8 Million
Unemployment Peaks at 7.5% Mid-2009

12. Economic Growth Outlook
Percent Change, GDP Growth Rate
Tax Rebate Bump

13. Economic Policy Impacts

14. Transmission Mechanism: Simple/Effective
Stronger Economy
Increased Liquidity
$700 Billion
Banks Stronger
Averts Economic Meltdown: But May have Muted Impact in Stimulating Economy

15. Transmission Mechanism: Longer/Weaker
Reduced Risk Aversion
$700 Billion
Increased Liquidity
Banks Stronger
Stronger Economy
Lending Risk Increases
Compromises Liquidity
Further Write downs
Economy Weakens
Longer Financial Adjustment Period Than Many Expect

16. Policy Assessments Rebate impact of spring has dissipated.
Stimulatory impact of rate cuts waning and not as effective as historical measures.
Issue not level of interest rates
Financial bailout is a stop gap measure not a true stimulus policy.
Economic adversity gains momentum in absence of a major fiscal policy initiative.
First half 2009 action.
$150 Billion.
Infrastructure – Higher “Multipiers”
Will increased Federal spending work in the face of large cuts in state and local spending?
Aid to States

17. Oil Price Changes - Annual Change, Dollars Per Barrel
Declining Oil Prices Help 2009.
Adds $100 - $150 Billion. =

18. Residential Outlook
Recovery Delayed

19. Single Family Housing– United States
000 Starts
= Housing Peaked January 2006
2007: -29% : -37% : 0.0% :+34%

20. Residential Cement Consumption - Annual Change, Thousand Tons=
Peak (2005)-to-Trough (2010) Decline:
19 MMT = 63% of Total Decline

21. Future Weakness Residential Weakness is largely over.
Most of Future Weakness Tied to Nonresidential & Public Cement Consumption.

22. Nonresidential Construction

23. Nonresidential: Portland Cement Consumption Thousand Metric Tons
Declines Continue Through 2010. =
Recovery Could be Strong

24. Nonresidential Cement Consumption - Annual Change, Thousand Tons=
Peak (2005)-to-Trough (2010) Decline:
5 MMT

25. Public Construction

26. Source: National Conference of State Legislatures
Fiscal 2009 Revenue Outlook
District of Columbia
Pessimistic
Concerned
Stable
Optimistic
Source: National Conference of State Legislatures

27. Net Job Creation (Loss) - Annual Change, Thousand Net Jobs=
Job Loss 2008 = 1.2 Million
Job Loss 2009 = 1.8 Million
Unemployment Peaks at 7.5% Mid-2009

28. Public: Portland Cement Consumption Thousand Metric Tons
Declines Continue Through 2010. =

29. Public Cement Consumption - Annual Change, Thousand Tons=
Peak (2005)-to-Trough (2010) Decline:
12 MMT

30. The Cyclical Correction
Market Imbalances
The Cyclical Correction
240K jobs lost in three months, consumer sentiment already at 2001 recession lows, retail sales are weak, credit card debt has balloned, business confidence has crashed, foreclosures and defaults are accelerating, tighter lending standards have spread beyond mortgages and now include general consumer loans and commercial credit, write downs are threatening some banks solvency,, oil prices are above $120 per barrell, $4 gas is coming….and yet….

31. Portland Cement Consumption - Annual Change, Thousand Tons=
Peak (2005)-to-Trough (2010) Decline:
31 MMT (Worst in History)

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

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

34. Import Volume
Thousand Metric Tons

35. Declining Freight Rates Coincide With Capacity Expansion
Freight Rates: Handymax and Handysize
U.S. $/Metric Ton
Declining Freight Rates Coincide With Capacity Expansion
Handymax
Handysize =
Import Projections for Contain Upside Risk: Magnifying Potential Market Imbalances

36. Capacity Adjustments *
Thousand Metric Tons
Capacity Adjustments Due to Delayed Expansions and Plant Closures
* Adjustments Include Five Delays in Plant Commissioning and Seven Plant Closures

37. Average Days Supply Inventory
Cement Inventory/ Daily Selling Rate
17 Days Supply = Historical Average

38. Capacity Utilization Rates
Clinker Production/Clinker Capacity

39. Near Term Conclusions
Double-digit decline in consumption with trough in 2010.
Large capacity increases magnify potential market imbalances.
Accelerated shutdown in wet & old long dry kilns reduces some imbalances.
Longer maintenance shutdown periods.
Imports record large, sustained declines.
Global conditions suggest freight rates continue slide.
May contribute to market imbalances.
Utilization Rates decline.
Materializes to a greater extent in
Days Supply Inventory remains above historical average.
Most pressure materialize in

40. Mid-Term Recovery
240K jobs lost in three months, consumer sentiment already at 2001 recession lows, retail sales are weak, credit card debt has balloned, business confidence has crashed, foreclosures and defaults are accelerating, tighter lending standards have spread beyond mortgages and now include general consumer loans and commercial credit, write downs are threatening some banks solvency,, oil prices are above $120 per barrell, $4 gas is coming….and yet….

41. Mid-Term Conclusions: 2011-2013
Stimulus package.
Provides floor and generates modest job creation in 2010.
Easing in Tight Lending Standards.
Lower risks
A year recovery from sub-prime (mid-2010)
Oil prices low.
Interest rates low.
Inflation low.
Consumer debt re-balanced.
Inventory/sales ratio entering recession low.
Pent-up demand

42. Mid-Term Conclusions Economy: Recession re-sets imbalances.
Energy, Debt, Inflation
Financial conditions begin sustained improvement 2010.
Stimulus program likely by mid-2009.
Lean inventories entering recession.
V-Shaped Recovery – unlike last recession is expected to materialize.
Residential:
Home price declines improve affordability
Pent-up demand has been generated.
Easier lending conditions will eventually materialize.
Large percent gains are expected to materialize once stronger labor market returns.
Nonresidential:
Pent-up demand and unfinished business
Stronger ROI materialize with V-Economic Recovery
Easier lending conditions and lower risk premiums.
Government:
Strong job growth associated with V-Recovery implies a rapid improvement in state fiscal conditions.

43. Single Family Housing– United States
000 Starts
Pent-Up Demand
= Housing Peaked January 2006
2007: -29% : -37% : 0.0% :+34%

44. Housing: Pent-Up Demand is Being Generated !
000 Starts
= Housing Peaked January 2006
2007: -29% : -37% : 0.0% :+34%

45. Nonresidential Long Term Trend Million Real $, 1996=

46. Current: Gasoline Prices Vs Asphalt Prices Per Barrel Price Per Barrel

47. Gasoline - Asphalt Margin Per Barrel Differential - Net Threshold of $14 Per Barrel Price Differential Per Barrel
Threshold Differential = $14 per barrel Estimated on a Ten Year Payoff for Coker Investment

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

49. Liquid Asphalt Supply Thousands of Barrels
44 Million Barrel Decline by 2011

50. 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

51. Concrete Advantages Materialize in Fiscal 2009
Projected: Life Cycle Concrete Vs Asphalt Paving Costs Per Two Lane Road Mile - Urban
Asphalt
Concrete
Concrete Advantages Materialize in Fiscal 2009

52. Portland Cement Consumption Thousand Metric Tons=

53. Ed Sullivan, Chief Economist PCA
Cement Outlook: 2009
Ed Sullivan, Chief Economist PCA
240K jobs lost in three months, consumer sentiment already at 2001 recession lows, retail sales are weak, credit card debt has balloned, business confidence has crashed, foreclosures and defaults are accelerating, tighter lending standards have spread beyond mortgages and now include general consumer loans and commercial credit, write downs are threatening some banks solvency,, oil prices are above $120 per barrell, $4 gas is coming….and yet….