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Count on Concrete Cement Outlook: 2009 Ed Sullivan, Chief Economist PCA.

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Presentation on theme: "Count on Concrete Cement Outlook: 2009 Ed Sullivan, Chief Economist PCA."— Presentation transcript:

1 Count on Concrete Cement Outlook: 2009 Ed Sullivan, Chief Economist PCA

2 CCoun Count on Concrete Key Questions  How deep will retrenchment go ?  How long will it last ?  What recovery to expect?

3 CCoun Count on Concrete Portland Cement Consumption Thousand Metric Tons Declines Continue Through One Year Later than Previously Expected

4 CCoun Count on Concrete Portland Cement Consumption - Annual Change, Thousand Tons Peak (2005)-to-Trough (2010) Decline: 41 MMT (Worst in History)

5 CCoun Count on Concrete Declines Continue Through One Year Later than Previously Expected 2008 = -9.0% 2009 = -9.2% 2010 = -4.9% Total Cement Consumption – Pennsylvania Thousand Metric Tons

6 Count on Concrete Economic Outlook It is a Recession, and going to last longer than previously expected

7 CCoun Count on Concrete Economic Outlook: Five Factors Sub-Prime Defaults Write-Downs Risk Aversion Tight Lending Standards Commercial, Consumer, homeowner capital access reduced Global Financial Crisis Mortgage Payments Credit Cards Defaults Tight Lending Standards Home Price Declines Reliance on Home Equity Gone Structural Global Realities Gasoline Prices Heating Prices Fertilizer/Biofuels hit Ag Prices Supply Side Costs Ingrained Cost of Business Adds Weakness to Dollar Energy/ Inflation State Deficits Labor Markets 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

8 CCoun Count on Concrete Economic Adversity Sub-Prime Financial Crisis Energy Inflation Labor Markets State Deficits

9 CCoun Count on Concrete Net Job Creation (Loss) - Annual Change, Thousand Net Jobs Job Loss 2008 = 1.4 Million Job Loss 2009 = 1.9 Million Unemployment Peaks at 7.5% Mid-2009

10 CCoun Count on Concrete Economic Growth Outlook Percent Change, GDP Growth Rate Tax Rebate Bump

11 Count on Concrete Economic Policy Impacts

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

13 CCoun Count on Concrete 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

14 Count on Concrete Residential Outlook Recovery Delayed

15 CCoun Count on Concrete 000 Starts Single Family Housing– United States

16 CCoun Count on Concrete Residential Cement Consumption - Annual Change, Thousand Tons Peak (2005)-to-Trough (2010) Decline: 19 MMT = 63% of Total Decline

17 CCoun Count on Concrete Single Family Housing– Pennsylvania

18 CCoun Count on Concrete Future Weakness  Residential Weakness is largely over.  Most of Future Weakness Tied to Nonresidential & Public Cement Consumption.

19 CCoun Count on Concrete Nonresidential Construction

20 CCoun Count on Concrete Nonresidential: Portland Cement Consumption Thousand Metric Tons Declines Continue Through Recovery Could be Strong

21 CCoun Count on Concrete Nonresidential Cement Consumption - Annual Change, Thousand Tons Peak (2005)-to-Trough (2010) Decline: 5 MMT

22 CCoun Count on Concrete Public Construction

23 CCoun Count on Concrete Public Residential Nonresidential Cement Composition - Pennsylvania

24 CCoun Count on Concrete District of Columbia Stable Pessimistic Fiscal 2009 Revenue Outlook Concerned Optimistic Source: National Conference of State Legislatures

25 CCoun Count on Concrete 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

26 CCoun Count on Concrete Public: Portland Cement Consumption Thousand Metric Tons Declines Continue Through 2010.

27 CCoun Count on Concrete Public Cement Consumption - Annual Change, Thousand Tons Peak (2005)-to-Trough (2010) Decline: 12 MMT

28 Count on Concrete Market Imbalances The Cyclical Correction

29 CCoun Count on Concrete Capacity Expansion Thousand Metric Tons Stated Capacity Expansions Potential Increases From Specification Changes

30 CCoun Count on Concrete Market Imbalances - Changes in Cement Consumption Tons + Capacity Expansion Tons

31 CCoun Count on Concrete Import Volume Thousand Metric Tons

32 CCoun Count on Concrete 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

33 CCoun Count on Concrete Average Days Supply Inventory Cement Inventory/ Daily Selling Rate 17 Days Supply = Historical Average

34 CCoun Count on Concrete Capacity Utilization Rates Clinker Production/Clinker Capacity

35 CCoun Count on Concrete Near Term Conclusions  Double-digit decline in consumption with trough in  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

36 Count on Concrete Mid-Term Recovery

37 CCoun Count on Concrete Mid-Term Conclusions:  Stimulus package.  Provides floor and generates modest job creation in  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

38 CCoun Count on Concrete 000 Starts Single Family Housing– United States Pent-Up Demand

39 CCoun Count on Concrete Nonresidential Long Term Trend Million Real $, 1996

40 CCoun Count on Concrete Current: Gasoline Prices Vs Asphalt Prices Per Barrel Price Per Barrel

41 CCoun Count on Concrete 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

42 CCoun Count on Concrete Announced New Coker Installations Cumulative: Thousands of Barrels Per Day

43 CCoun Count on Concrete Liquid Asphalt Supply Thousands of Barrels 44 Million Barrel Decline by 2011

44 CCoun Count on Concrete Projected: Initial Bid Concrete Vs Asphalt Paving Costs Per Two Lane Road Mile - Urban Concrete Asphalt Parity Achieved in Fiscal 2009

45 CCoun Count on Concrete Projected: Life Cycle Concrete Vs Asphalt Paving Costs Per Two Lane Road Mile - Urban Concrete Asphalt Concrete Advantages Materialize in Fiscal 2009

46 CCoun Count on Concrete Portland Cement Consumption Thousand Metric Tons

47 CCoun Count on Concrete Total Cement Consumption – Pennsylvania Thousand Metric Tons

48 Count on Concrete Conclusions Will We Miss the Upside?

49 CCoun Count on Concrete Portland Cement Consumption Thousand Metric Tons Ride the Cycle Diversification Survival Position for Next Cycle Ride the Cycle Positioning Set in Context of: Green - Climate Change State Deficits - Asphalt Prices Housing Recovery

50 Count on Concrete Cement Outlook: 2009 Ed Sullivan, Chief Economist PCA


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