1. U.S. Construction & Cement Outlook: 2006 World of Concrete January 17, 2006 Las Vegas, Nevada Edward J. Sullivan Staff Vice President and PCA Chief Economist

2. Key Points of Analysis U.S. Economic Outlook Construction Outlook Cement Outlook Residential Nonresidential Public Demand Operating Conditions

3. U.S. Economic Outlook

4. Economic Growth: Stronger 2006? Consensus of Forecasters: Fast Recovery Consensus of Forecasters: Fast Recovery Rebuilding Activity 1 st Quarter and Beyond Rebuilding Activity 1 st Quarter and Beyond Elevated Energy Prices Dissipate Quickly Elevated Energy Prices Dissipate Quickly Stronger Growth for 2006 Stronger Growth for 2006 PCA: No Significant 1 st Quarter Rebuilding PCA: No Significant 1 st Quarter Rebuilding Long Clean-Up Period Long Clean-Up Period Begins 2 nd Half 2006 Begins 2 nd Half 2006 Distributed Over Five Years Distributed Over Five Years Weather’s Second Punch: Severity of Winter’s Cold Weather’s Second Punch: Severity of Winter’s Cold Colder ….larger adverse impact of higher energy prices Colder ….larger adverse impact of higher energy prices Implies adverse impact last through 1 st Quarter and into 2 nd Implies adverse impact last through 1 st Quarter and into 2 nd PCA: Weaker 2006 Growth PCA: Weaker 2006 Growth Particularly 1 st Half 2006 Particularly 1 st Half 2006 Weaker Nonresidential Construction Weaker Nonresidential Construction

5. Economic Growth Conclusions Foundations for Growth Firm Foundations for Growth Firm Sustained job growth. Sustained job growth. Moderate growth, below 2004 & 2005 Moderate growth, below 2004 & 2005 Consumption Growth Slows 2006-2007 Consumption Growth Slows 2006-2007 Energy Impact: Home heating Energy Impact: Home heating Greater pricing traction Greater pricing traction Credit Cards Credit Cards Adjustable/Exotic Mortgage Re-adjustment. Adjustable/Exotic Mortgage Re-adjustment. Hurricane Reconstruction: Mid-Year Hurricane Reconstruction: Mid-Year 2006 Boost to home construction muted 2006 Boost to home construction muted

6. Economic Outlook : Real GDP Growth ----------2003-----------------2004--------------2005------ 2003: 3.1% Real GDP Annual Growth Rate -------2006------- 2004: 4.4% 2005: 3.5% 2006: 3.3%

7. Inflation Will Ease…but… Higher Energy Prices Structure Higher Energy Prices Structure Still Cyclical…but… Still Cyclical…but… Stronger Asian Demand: China & India Stronger Asian Demand: China & India Labor Costs Rising Labor Costs Rising Since 2000: Soft Labor Market Conditions Translate Into Employer Market Since 2000: Soft Labor Market Conditions Translate Into Employer Market Job Creation Continues Job Creation Continues Participation Rates Rising Participation Rates Rising Unemployment Rates Decline below 5% Unemployment Rates Decline below 5% Rapid Switch from an Employer to an Employee Market Rapid Switch from an Employer to an Employee Market Structurally Weaker Dollar Structurally Weaker Dollar Higher Energy Prices Higher Energy Prices Slow Movement in “Floating” Chinese Wan Slow Movement in “Floating” Chinese Wan Trade Deficit Widens Trade Deficit Widens Structurally Higher Transportation Costs Structurally Higher Transportation Costs Transportation Sectors Historically Depressed ROI Transportation Sectors Historically Depressed ROI Investment in Rail, Shipping, Ports & Other Infrastructure Lags New Economic Demands Investment in Rail, Shipping, Ports & Other Infrastructure Lags New Economic Demands Higher Volume and Prices Lead to Higher Profits and ROI…but Takes Time Higher Volume and Prices Lead to Higher Profits and ROI…but Takes Time Hurricane Impact on Barges Hurricane Impact on Barges

8. Construction & Cement Outlook Overview

9. Changing Composition of Construction Spending Growth Growth Leader: Residential Growth Leader: Residential Low Interest Rates Low Interest Rates Public Public State Tax Revenues Hurt by Anemic Economic Growth State Tax Revenues Hurt by Anemic Economic Growth Growth Laggard: Nonresidential Growth Laggard: Nonresidential Weak Economy Weak Economy Growth Leader : Nonresidential Strong Economy Public State Tax Revenues Recovery Due to Strong Economic Growth Growth Laggard : Residential Rising Interest Rates 2001-2005 2006-2009 Low Interest Rates, Weak Economy Rising Interest Rates, Strong Economy US Construction Markets Do Not Lose Momentum With Rising Mortgage Rates and Slowdown in Housing

10. Cement Intensities

11. Cement Growth 2004: Composition

12. Reasons for Continued Cement Intensity Gains Competitive Price Position Vs Other Building Materials Competitive Price Position Vs Other Building Materials Compare from 2000 Compare from 2000 Large advantage – Even with recent declines in steels and increases in concrete. Large advantage – Even with recent declines in steels and increases in concrete. Composition of Construction Composition of Construction Gains associated with strengthening of higher intensity construction sectors Gains associated with strengthening of higher intensity construction sectors Nonresidential Intensities are Cyclical Nonresidential Intensities are Cyclical Type of construction differs on downside and upside of business cycle. Type of construction differs on downside and upside of business cycle. Construction Stronger in Southern States Construction Stronger in Southern States Generally higher intensities in Southern states Generally higher intensities in Southern states Code Changes Code Changes Code Changes in Aftermath of Hurricane Andrew Code Changes in Aftermath of Hurricane Andrew New Orleans: Elevation Codes (North Carolina) New Orleans: Elevation Codes (North Carolina) High Energy Prices: Mixed Positive High Energy Prices: Mixed Positive Concrete homes 44% more energy efficient Concrete homes 44% more energy efficient Green Environment Green Environment Promotion Promotion Strength, Design Flexibility, Durability, Technical Progress, Long Term Cost Advantages Strength, Design Flexibility, Durability, Technical Progress, Long Term Cost Advantages

13. Residential Construction Single Family

14. Mortgage Rate Outlook Annual Growth Rate Comparison Avoidance of Bubble Burst Based on Gradual & Modest Increases in Mortgage Rates

15. Mortgage Rate Conclusions Higher Inflation Premiums Higher Inflation Premiums Add to “Real” Rates Add to “Real” Rates Federal Reserve Pursues Tighter Monetary Policy Federal Reserve Pursues Tighter Monetary Policy New Fed Chairman demonstrates resolve New Fed Chairman demonstrates resolve Favors Inflation Targeting (2%) Favors Inflation Targeting (2%) Larger Public Demand for Funds Larger Public Demand for Funds Middle East Middle East New Orleans New Orleans Private Demand for Funds Increase Private Demand for Funds Increase Foreign Supply Slows Foreign Supply Slows Weak Dollar lower foreign returns Weak Dollar lower foreign returns Competing Investment Instruments Competing Investment Instruments

16. Mortgage Environment: Risks Strong Appreciation Rates Strong Appreciation Rates Monthly Mortgage Payment to Income Ratio Threatens Housing Expansion Monthly Mortgage Payment to Income Ratio Threatens Housing Expansion Fewer “Qualify”, Home Sales decline Fewer “Qualify”, Home Sales decline Increase in Alternative Financing Increase in Alternative Financing Sub-Prime, 75% Adjustable Sub-Prime, 75% Adjustable “Exotic” Mortgages “Exotic” Mortgages Amplified by Aggressive Appraisals Amplified by Aggressive Appraisals Higher Risk In Rising Interest Rate Environment Higher Risk In Rising Interest Rate Environment Alternatives Re-Adjusted to Prevailing Rates Alternatives Re-Adjusted to Prevailing Rates Shock, Consumer spending habits slow to change Shock, Consumer spending habits slow to change Increase in delinquencies, defaults, personal bankruptcy Increase in delinquencies, defaults, personal bankruptcy Credit Tightening On Horizon? Credit Tightening On Horizon? Ingredients in place Ingredients in place At Issue: Timing, Magnitude At Issue: Timing, Magnitude

17. Inventory Draw Required Homes on Market/Monthly Selling Rate Ten Year Average Inventory Build Required Inventory Draw Required

18. Single Family Housing Starts (000) Units Growing Downside Risks

19. Nonresidential Construction Overview

20. Nonresidential Construction Activity Percent Change, Real Put In Place 1996 $

21. Key Nonresidential Assessments Underlying Nonresidential Drivers Improving Underlying Nonresidential Drivers Improving Turning Point Already Achieved In Several Key Sectors Turning Point Already Achieved In Several Key Sectors Despite Large Percentage Gains for 2006, Most Markets Weak From Historical Perspective. Despite Large Percentage Gains for 2006, Most Markets Weak From Historical Perspective. Increasing Cement Intensities Reinforce Construction Activity Gains. Increasing Cement Intensities Reinforce Construction Activity Gains.

22. U.S. Nonresidential Construction Billion 1996 $

23. Fall 2005 Forecast: Nonresidential Cement Consumption (000) metric tons Recovery Remains In Place: New Economic Scenario Takes Some Steam Out of National Recovery Pace

24. Public Construction

25. Public Construction Outlook: State & Local Share of Public Construction Percent of Total Public Construction Spending

26. Public Construction Outlook: State Deficits Billion $ State Surplus/Deficit, NIPA

27. Public Construction Conclusion Improving state fiscal picture Improving state fiscal picture Outlook Dimmed Slightly With New Federal Budget Plans Outlook Dimmed Slightly With New Federal Budget Plans Release of pent-up public construction Release of pent-up public construction TEA TEA Public cement demand …strong. Public cement demand …strong.

28. Market Conditions

29. No ShortageTight Supplies Pre-Katrina Cement Supply Survey* Spot Tight Supplies

30. No ShortageTight Supplies Current Cement Supply Survey* Spot Tight Supplies

31. Supply

32. United States Cement Domestic Production Outlook (Thousand Metric Tons) Clinker CapacityExpansion Operating Rate Clinker Production Cement Potential (1) 200291,490089.1%81,51785,592 200392,24475088.6%81,88285,972 200493,6591,21592.4%86,57390,902 200594,47982092.9%87,80392,193 200695,9291,45093.9%90,11094,616 200798,3592,43093.9%92,39297,012 2008105,7597,40093.9%99,343104,311 Industry Committed to Expansion: 11.5 Million Metric Tons to be Added by 2010…$2.5 Billion Investment…More Likely

33. Inventory : Days Supply Inventory/Daily Selling Rate Average: 19

34. Domestic Supply Conclusions Domestic Supply Increases Face Limited Growth Domestic Supply Increases Face Limited Growth Characterized by high operating rates Characterized by high operating rates Persistently lean inventory position Persistently lean inventory position Murphy’s Law in Play Murphy’s Law in Play Major expansion does not materialize until 2008. Major expansion does not materialize until 2008. Domestic Increases not enough to meet potential demand growth. Domestic Increases not enough to meet potential demand growth. Supply growth must come elsewhere…. Supply growth must come elsewhere….

35. Imports

36. International Freight Rates $ Per Ton Slack Markets, Easy Availability

37. Fall 2005 Forecast: Import Volume (000) metric tons Improving Global Conditions Imply Upside Bias

38. Supply Conclusions Domestic Supply Increases Face Limited Growth Domestic Supply Increases Face Limited Growth Characterized by high operating rates Characterized by high operating rates Persistently lean inventory position Persistently lean inventory position Murphy’s Law in Play Murphy’s Law in Play Major expansion does not materialize until 2008. Major expansion does not materialize until 2008. Supplying Market Growth Dependent On Imports Supplying Market Growth Dependent On Imports Source Availability Source Availability Ship Availability Ship Availability Freight Rates Freight Rates Weak $ Weak $ Congested Ports Congested Ports Rail Congestion Rail Congestion Terminal Limitations Terminal Limitations Supply Constrained Market Until 2008 Supply Constrained Market Until 2008 Implies downside risks to consumption projections Implies downside risks to consumption projections No Near Term Relief from 2004/2005 Conditions No Near Term Relief from 2004/2005 Conditions

39. US: Anatomy of Growth 2001 Total 108.1 MMT Residential 25.9 MMT: (24%) Nonresidential 24.8 MMT: (23%) Public 51.4 MMT: (48%) 2005 Total 120.7 MMT (5.2%,2005) Residential 38.4 MMT : (32%) Nonresidential 19.2 MMT: (16%) Public 54.8 MMT: (45%) 2009 Total 134.9 MMT Residential 31.5 MMT : (23%) Nonresidential 27.1 MMT: (20%) Public 67.2 MMT: (50%) 12.6 MMT 12.5 MMT -5.6 MMT 3.3 MMT 2.3 MMT 14.2 MMT -6.9 MMT 7.9 MMT 12.5 MMT

40. U.S. Construction & Cement Outlook: 2006 World of Concrete January 17, 2006 Las Vegas, Nevada Edward J. Sullivan Staff Vice President and PCA Chief Economist