1. Cement Outlook: 2007 Longbow Research Boston, Massachusetts Ed Sullivan Staff Vice President and PCA Chief Economist For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve

2. Economic Comfort Index * 1996=100 Combines Real GDP With the Levels Interest Rates, Inflation and Unemployment Most Favorable Economic Conditions Since the 1960’s

3. Bottom Line: Baseline Economic Growth Slows to 2.4% (Real GDP) Economic Growth Slows to 2.4% (Real GDP) Construction Declines = – 3% Construction Declines = – 3% Housing Starts Decline = -18% Housing Starts Decline = -18% Cement Consumption Declines = -1.5% Cement Consumption Declines = -1.5% May be optimistic May be optimistic Downside Risks Increased Downside Risks Increased 1.3% GDP Growth 1.3% GDP Growth Housing & Sub-Prime Worse than Expected Housing & Sub-Prime Worse than Expected Risk Regarding Intensity Gains Risk Regarding Intensity Gains

4. Bottom Line: Risks/Adjustments Even Slower Growth Even Slower Growth Sub-Prime leakage Sub-Prime leakage Energy Prices Energy Prices Weak 1 st Quarter Weak 1 st Quarter Construction Declines in Excess of – 4% Construction Declines in Excess of – 4% Sub-Prime Default Rate….Larger inventory problems Sub-Prime Default Rate….Larger inventory problems Housing Starts decline even deeper and more prolonged Housing Starts decline even deeper and more prolonged Slower economy = Slower Nonresidential Slower economy = Slower Nonresidential Cement Consumption Declines Larger Cement Consumption Declines Larger Larger decline in construction spending Larger decline in construction spending Intensity Gains may not be as strong Intensity Gains may not be as strong

5. Portland Cement Outlook Thousand Metric Tons 2006 – 2007: A Pause Before A Resumption in Growth You Can Argue Depth of Housing Decline, Timing of Recovery…Not Fundamentals of Longer Term Growth Growth Slows When One of Three Sectors (Residential, Nonresidential & Public Declines)

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

7. Economic Outlook

8. Economic Fundamentals Sound Economic Fundamentals Sound Unemployment, Inflation, Interest Rates Low Unemployment, Inflation, Interest Rates Low Current Strength Cushions Against Downside Risks Current Strength Cushions Against Downside Risks Past Growth of 3.3% is Unsustainable Past Growth of 3.3% is Unsustainable

9. Economic Outlook Consensus 2007 GDP Forecast: 2.7% Consensus 2007 GDP Forecast: 2.7% 2006 Real GDP Growth: 3.3% 2006 Real GDP Growth: 3.3% 1 st Quarter: 5.5% 1 st Quarter: 5.5% 2 nd Quarter: 2.6% 2 nd Quarter: 2.6% 3 rd Quarter: 2.0% 3 rd Quarter: 2.0% 4 th Quarter: 2.2% 4 th Quarter: 2.2% 1 st Quarter 2007: 1.3% 1 st Quarter 2007: 1.3% Past Four Quarter Average: 2.0% Past Four Quarter Average: 2.0% What is going to Propel Growth Beyond the Past Four Quarter Average? What is going to Propel Growth Beyond the Past Four Quarter Average?

10. Economic Outlook What is going to Propel Growth Beyond the Past Four Quarter Average? What is going to Propel Growth Beyond the Past Four Quarter Average? Budget Deficits Prevents Government Spending from Being the Growth Driver. Budget Deficits Prevents Government Spending from Being the Growth Driver. Housing Contraction Prevents Investment Spending from Being a Growth Driver. Housing Contraction Prevents Investment Spending from Being a Growth Driver. Net Exports are Improving. Sector So Small In Context of Overall Economy Prevents this from Being a Growth Driver. Net Exports are Improving. Sector So Small In Context of Overall Economy Prevents this from Being a Growth Driver. That Leaves Only Consumer Spending. That Leaves Only Consumer Spending.

11. Snap Shot of Economic Activity Consumption acts as the anchor for US economic activity. Any retrenchment in consumer spending will lead to slower economy-wide growth rates

12. Economic Outlook That Leaves Only Consumer Spending. That Leaves Only Consumer Spending. To Reach 2.7% Consensus Real GDP Growth…. To Reach 2.7% Consensus Real GDP Growth…. Consumer Spending Must Grow at a Rate of More than 3.5%. Consumer Spending Must Grow at a Rate of More than 3.5%. During Past Three Quarters, Consumer Spending Averaged 3.2% Growth. During Past Three Quarters, Consumer Spending Averaged 3.2% Growth. And… And…

13. Economic Outlook Consumer Spending has Relied On Debt. Consumer Spending has Relied On Debt. Net savings rate has been negative for years. Net savings rate has been negative for years. Consumer Debt Burdens Near Historical Highs Consumer Debt Burdens Near Historical Highs Often a precursor to reduction in consumption growth. Often a precursor to reduction in consumption growth. Sub-Prime Defaults Force a Tightening in Lending Standards Sub-Prime Defaults Force a Tightening in Lending Standards Reflects a new assessment of risk-return philosophy – beyond mortgages and perhaps globally. Reflects a new assessment of risk-return philosophy – beyond mortgages and perhaps globally. Tapping Home Equity Not as Viable As In the Past Tapping Home Equity Not as Viable As In the Past Can Debt Based Consumer Spending Thrive In This Environment? Can Debt Based Consumer Spending Thrive In This Environment? If not, growth in consumer spending slows. If not, growth in consumer spending slows. Income Growth is Improving – but perhaps not fast enough. Income Growth is Improving – but perhaps not fast enough.

14. Consumer Worksheet Pay Increase Averages 3.5%. Pay Increase Averages 3.5%. Health Insurance Premiums Rise 7%-11%. Health Insurance Premiums Rise 7%-11%. State and Local Property Taxes Rise. State and Local Property Taxes Rise. Reassessments based on high home appreciation Reassessments based on high home appreciation Energy Prices Take a Large Bite. Energy Prices Take a Large Bite. Even in context of recent improvement. Even in context of recent improvement. Inflation Running near 2.5% Inflation Running near 2.5% Slowdown in Job Creation – 180K Per Month is Not Sustainable. Slowdown in Job Creation – 180K Per Month is Not Sustainable. If Job Creation Drops Below 100K on Sustained Basis – Expect a Significant Downward Revision in Forecast. If Job Creation Drops Below 100K on Sustained Basis – Expect a Significant Downward Revision in Forecast.

15. Economic Outlook : Real GDP Growth ----------2005-----------------2006--------------2007------ 2005: 3.5% Real GDP Annual Growth Rate -------2008------- 2006: 3.3% 2007: 2.4% 2008: 2.4% NABE Consensus 2007: 2.7% Fed Eases

16. Risks: Sub-Prime Mortgages

17. Housing Threat Real threat to economic growth not the decline in housing….. But….. The way we financed the past boom… And… Its impact on consumer spending….. Potentially more profound in history

18. Growing Home Price & Income Gap Annual Growth Rate Comparison Home Prices Household Income

19. Emergence of Exotic Mortgages Interest Only Loan Share of Sub-Prime Market Share by Principle Balance: Solid Green Share by Loan Count: Striped Yellow Note: Sub-Prime accounts for 36% total mortgage market

20. Sub-Prime Mortgage Resets Total Loans Scheduled for Reset Period of Emerging Trouble

21. Impact on Economic Growth Monthly Payments Increase 50% or More. Monthly Payments Increase 50% or More. Credit Card Debt Increases As Consumers Try To Preserve Standard of Living. Credit Card Debt Increases As Consumers Try To Preserve Standard of Living. Delinquencies Increase. Delinquencies Increase. Defaults Increase. Defaults Increase. Adverse Impact on Consumer Spending. Adverse Impact on Consumer Spending.

22. Impact on Economic Growth Adverse Impact on Consumer Spending can be Contained. Adverse Impact on Consumer Spending can be Contained. As Long As…. As Long As…. Relatively Strong Job Growth Persists. Relatively Strong Job Growth Persists. And… And… Interest Rates Remain Stable. Interest Rates Remain Stable.

23. Worst Case ScenarioPCA Scenario Exotic Market1,782,000,000,000 Default Rate30.00%6.00% Homes Into Default2,227,500445,500 GDP Growth0.3%2.4% Risk to Baseline Construction Government Intervention Will Materialize Well Before 30% Default Rate

24. Conclusion Economic Growth Slows Economic Growth Slows Extent of Slowdown Uncertain Extent of Slowdown Uncertain Sub Prime Sub Prime Energy Energy 2.4% Real GDP now seems strong 2.4% Real GDP now seems strong Risk Hinges Largely on Sub-Prime “Leakage” Risk Hinges Largely on Sub-Prime “Leakage” Threat not to be dismissed Threat not to be dismissed

25. Construction & Cement Outlook Overview

26. Total Construction Billion 1996 $ 2007: Decline projected …BUT.. based off record levels

27. 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

28. Cement Intensities

29. Composition Of Cement Growth: Construction Activity Vs Cement Intensity Growth Cement Intensity Growth Construction Activity Growth Annual Percent Change, Real Put-In-Place Construction & Cement Intensity

30. Reasons for 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 Green Construction & Promotion Green Construction & Promotion

31. Concrete: Improving Competitive Position Change Relative Price Vs Concrete Asphalt Steel Rapid Improvement in Concrete’s Relative Pricing Position

32. Oil Price Outlook $ Per Barrel, West Texas Intermediate Projected Oil Prices Oil Prices Retreat to 2002 levels not going to happen. Retreat to 2002 levels not going to happen. Strong International Demand Strong International Demand Japan’s Economic Recovery Japan’s Economic Recovery Stronger Asian Demand: China & India Stronger Asian Demand: China & India Supply Disruptions Continue Supply Disruptions Continue Middle East Uncertainties, Nigeria, Venezuela Middle East Uncertainties, Nigeria, Venezuela Iran & Uranium Enrichment Iran & Uranium Enrichment OPEC Actions OPEC Actions $60 per barrel target? $60 per barrel target? 2006: $65.85 per barrel WTI 2007: $60.30 2006: $65.85 per barrel WTI 2007: $60.30 -9 +60 -10 +50 -10 +30 -7 +20

33. Competitive Position Vs Asphalt Sustained high oil prices Plus….. More efficient refining processes Suggest….. New competitive position of Concrete is sustained… It is not a temporary phenomenon… But, other issues could reduce this advantage

34. Intensity Risk Growth in Intensity to Cushion Construction Decline Growth in Intensity to Cushion Construction Decline Cross Price Elasticities Difficult to Estimate Cross Price Elasticities Difficult to Estimate Number of factors & SCM Impacts Number of factors & SCM Impacts Data Issues Data Issues Timing Timing Lag Structure Lag Structure Less Cushion = Greater Decline Less Cushion = Greater Decline Gut, Error on Downside Gut, Error on Downside

35. Intensity Conclusion Intensity Grows Intensity Grows Cushions Construction Declines Cushions Construction Declines Extent this Materializes In Question Extent this Materializes In Question

36. Residential Construction

37. Past Strength in Starts More Than Low Rates… The Cyclical Upside: 2001 - 2005 Low mortgage rates key factor in single family starts over past few years. Low mortgage rates key factor in single family starts over past few years. Emergence of exotic mortgages also a key factor…particularly in strong home appreciation environment. Emergence of exotic mortgages also a key factor…particularly in strong home appreciation environment. Easy credit conditions contributed to strong home-buying environment. Easy credit conditions contributed to strong home-buying environment. Speculators add froth to market in light of strong appreciation rates. Speculators add froth to market in light of strong appreciation rates. Lean inventories supplement demand …add strength to starts. Lean inventories supplement demand …add strength to starts. Each Factor at Work on Cyclical Downside: 2006 - 2007

38. No Such Thing as a “National” Market… Structurally Changed Markets Hurricanes (Louisiana) Hurricanes (Louisiana) Economically Depressed (Michigan) Economically Depressed (Michigan) Boom/Bust Markets Dynamic Economies Dynamic Economies Strong Demographics Strong Demographics Robust Appreciation Rates Robust Appreciation Rates High Presence of Speculators High Presence of Speculators Large Inventory Overhang, Large Starts Decline, Slow Recovery Large Inventory Overhang, Large Starts Decline, Slow Recovery 2009 Surprising Strength 2009 Surprising Strength Arizona, Nevada, Florida & California = 28% Cement Consumption Arizona, Nevada, Florida & California = 28% Cement Consumption “Normal” Markets More Modest Appreciation More Modest Appreciation Relatively Low Speculator Presence Relatively Low Speculator Presence Smaller Inventory Overhang Smaller Inventory Overhang More shallow decline, Quicker Recovery More shallow decline, Quicker Recovery

39. Home Prices: Will Play a Role in Correction Annual Growth Rate, Median Home Price Price Will Play Strong Role In Recovery But… In Context of Tighter Lending Standards

40. Inventory of Single Family Homes Number of Homes for Sale, Thousands: Bar Months Supply: Line Projected 6.3 Months

41. Worst Case ScenarioPCA Scenario Exotic Market1,782,000,000,000 Default Rate30.00%6.00% Homes Into Default2,227,500445,500 GDP Growth0.3%2.4% Risk to Baseline Construction Government Intervention Will Materialize Well Before 30% Default Rate

42. Single Family Starts Outlook Percent Change Projected

43. Nonresidential & Public Construction

44. Construction Spending: NonResidential Billions $1996 Annual Growth 2005: +2.9% 2006: +12.3% 2007: +8.6% Source: Department of Commerce, PCA

45. Public Construction Outlook 93% of public construction performed at state/local level. 93% of public construction performed at state/local level. State/Local fiscal problems fading. State/Local fiscal problems fading. Revenue growth improves with economy and job growth. Revenue growth improves with economy and job growth. Surpluses will re-emerge. Surpluses will re-emerge. Pent-up demand released. Pent-up demand released. Highway Bill adds strength. Highway Bill adds strength. Billion $ State Surplus/Deficit, NIPA

46. Construction Spending: Public Billions $1996 Annual Growth 2005: 0.0% 2006: +5.6% 2007: +5.5% Source: Department of Commerce, PCA

47. Construction Conclusion Nonresidential & Public Strong Growth Nonresidential & Public Strong Growth Low Risk Low Risk Residential Correction Residential Correction Baseline May understate Decline Baseline May understate Decline Inventory & Price Correction Key Inventory & Price Correction Key Baseline Inventory Probably Understated Baseline Inventory Probably Understated Total Construction Downside Risk Total Construction Downside Risk Risk: Largely Residential Inventory Risk: Largely Residential Inventory Aside from General Economic Risks Aside from General Economic Risks

48. Market Conditions

49. Portland Cement Outlook Thousand Metric Tons 2006 – 2007: A Pause Before A Resumption in Growth Growth Slows When One of Three Sectors (Residential, Nonresidential & Public Declines)

50. Performance So Far…. Really That Bad? Percent Change, Year Ago Raw Tons, MMT Average, MMT Winter Weather 2004January-4.36.2 February14.86.16.2Mild 2005January6.96.7 February15.57.16.9Mild 2006January27.68.5 February12.88.18.3Very Mild 2007January-19.46.9 February-20.26.26.6Very Harsh Off 5% from 2005 Record Year…With Harsh Winter Back Ended Growth

51. Market Conditions Import Volumes: 2007

52. No ShortageTight Supplies Cement Supply Survey Summer 2005 Spot Tight Supplies

53. Import Volume & Freight Rates Import Volume, Million Metric TonsFreight $ Per Ton, Handymax, Asia-Gulf Imports 1 st Half 2006: 40 MMT Rate Imports 2005: 33.6 MMT Net Increase (SAAR): 8.4 MMT Consumption Growth Rate: 1 MMT 7 MMT (SAAR) Overhang

54. No ShortageTight Supplies Cement Supply Survey Summer 2006 Spot Tight Supplies

55. Market Balances: Trend Inventory Adjustment Adjusted Supply Vs Consumption Green: Domestic Yellow: Imports Green: Inventory Red: Day Supply

56. Import Outlook 2007 Worksheet Consumption = 1.5% Decline Consumption = 1.5% Decline Domestic Utilization = Same as 2006 (94%) Domestic Utilization = Same as 2006 (94%) Inventory = 19 Days Supply Inventory = 19 Days Supply 770K Draw 770K Draw Note: Added 1.1 Million MT in 2006 Note: Added 1.1 Million MT in 2006 Imports 2007 = 33.1 MMT (-7.8 %) Imports 2007 = 33.1 MMT (-7.8 %) Downside Risks Downside Risks

57. Imports: SAAR Million Metric Tons, Seasonally Adjusted Annual Rate 1 st Q: 42 MMT Rate 2 nd Q: 38 MMT Rate 3 rd Q: 34 MMT Rate 4th Q: 31 MMT Rate 2 nd Half 2006: Import Rate Contracts Some Re-Tightening of Market January: 28.1 MMT SAAR

58. Freight Rates $ Per Ton to Gulf 200120022003200420052006 From Europe From Asia Source: Intercem

59. Import Conclusion Import Volume Declines Import Volume Declines Freight Rate Risk on Volume Freight Rate Risk on Volume Larger declines than anticipated very likely Larger declines than anticipated very likely January Data (latest) = -30.9% (28 MMT SAAR) January Data (latest) = -30.9% (28 MMT SAAR) Potential Exists for Market Tightening…Even in Face of Declining Volume Potential Exists for Market Tightening…Even in Face of Declining Volume Single digit declines in volume Single digit declines in volume Double digit decline in imports Double digit decline in imports

60. Freight Rates: Note

61. Dry-Bulk Ship Retirement Thousand, Deadweight Tons

62. Dry-Bulk Ship Retirement to Increase Thousand, Deadweight Tons Actual, Retirement 2% Of Fleet Retirement Potential Additional Retirement: 22 mdwt

63. HandySize Fleet Changes Thousand, Deadweight Tons New Deliveries Retirements Source: Simpson, Spence & Young

64. Long Term

65. US Population Thousands of Persons US Population Adds Roughly 65 Million People by 2030 …. a 22% Increase.

66. Demographics: 2005-2030 Population Adds 65 Million Persons Population Adds 65 Million Persons Adds 9.1 Million School Age Persons Adds 9.1 Million School Age Persons Education Construction Education Construction Adds 34 Million Retirement Age Persons Adds 34 Million Retirement Age Persons Medical Medical Adds 31 Million Households Adds 31 Million Households Housing, Retail & Infrastructure. Housing, Retail & Infrastructure.

67. Highway Lane Miles Thousands of Miles Just to Maintain Current Highway Congestion Levels, Federally Aided Highways Must Expand Nearly 25% by 2030.. Given 49 Million Additional Licensed Drivers.

68. 10% + 0% to 1% Share Total U.S. Population Growth: 65 Million Persons Share of U.S. Population Growth 2006-2030 (Percent Share of Total) 1% to 3%3% to 10% Note: 47% of Total Population Growth Occurs in California, Texas and Florida Source: U.S. Bureau of Census

69. Cement Consumption Per Capita Tons Per Persons Per Capita Consumption Expected to Grow 32% 2005- 2030…Compared to Nearly 39% in Previous 25 Year Period

70. Cement Consumption: Long Term Million Metric Tons

71. U.S. Capacity Growth Thousand Metric Tons 2006-2010: Industry Expands by More Than 20% - Adds 24 MMT of Capacity

72. U.S. Capacity Growth: Financial Investment History Estimated, Thousands 2005 Dollars 2006-2010: Industry Invests $5.4 Billion in Plant Expansion

73. 10% + 0% to 1% Share Total U.S. Capacity Expansion: 24.2 Million Metric Tons Share of U.S. Plant Expansion 2007-2010 (Percent Share of Total) 1% to 3%3% to 5% Source: PCA 5% to 10%

74. Capacity Utilization Vs Import Share “Swing Supply Strategy” Capacity Utilization Import Share Market Digests New Capacity Consumption will Grow Utilization Rate Reductions Import Reductions Rationalization

75. Conclusions

76. Bottom Line Economic Growth Slows Economic Growth Slows Temporary: Stronger Growth 2 nd Half 2008 Temporary: Stronger Growth 2 nd Half 2008 Construction Declines Construction Declines Temporary: Stronger Growth 2 nd Half 2008 Temporary: Stronger Growth 2 nd Half 2008 Sector Importance Shifts Away From Residential Sector Importance Shifts Away From Residential Global Conditions Face Shipping: Supply Pressures Global Conditions Face Shipping: Supply Pressures Concrete Relative Price Competitiveness Sustained Concrete Relative Price Competitiveness Sustained Advantage Could Be Reduced With Market Tightening Advantage Could Be Reduced With Market Tightening Could Be Reduced Due to Global Import Conditions Could Be Reduced Due to Global Import Conditions Cement Consumption: Rough Months Ahead Cement Consumption: Rough Months Ahead Temporary Phenomenon Temporary Phenomenon Even Then….Market Balances Could Tighten Even Then….Market Balances Could Tighten

77. Cement Outlook: 2007 Longbow Research Boston, Massachusetts Ed Sullivan Staff Vice President and PCA Chief Economist For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve