1. Ed Sullivan, Chief Economist PCA
Cement Outlook:
Ed Sullivan, Chief Economist PCA
Spring Board/Committee Meeting

2. Introduction: Overview
Economic fundamentals are weak.
Private Sector no longer drives demand
Residential & Nonresidential recoveries are not expected to materialize anytime soon.
Outlook shaped by policy actions.

3. Portland Cement Consumption Thousand Metric Tons
- 45MMT =

4. Introduction: Conclusions
Stimulus will provide some relief….
…but hardship facing the industry will not be avoided…
Further plant actions may materialize in the context of market imbalances.

5. Economic Outlook

6. Economic Adversity Abates Mid-2010
2006
2007
2008
2009
2010
Sub-Prime
Energy
Financial
Crisis
Labor Markets
State Deficits

7. Economic Growth Outlook
Percent Change, GDP Growth Rate

8. Lending Conditions
Easing Begins Mid-2010

9. Stress Tests Based on 8.4% Unemployment Rate
Bank Charge-Offs versus Unemployment Rate - % Loans Charged-Off, % Unemployed 10
Stress Tests Based on 8.4% Unemployment Rate

10. Sub-Prime Replaced By More Toxic Resets
Hope Now Actions, Fannie, Freddie, Private All Soften Impacts

11. Lending Standards: Assessments
PCA has moved back the timing on an significant easing in lending standards..until second half 2010.
Modest improvement may materialize earlier.
Foreclosures and bank write-offs probably higher than reflected in consensus forecasts..
This assessment plays a critical role in formulating the timing of the economic recovery…
Depresses GDP growth projections, job creation, housing starts recovery, nonresidential recovery and darkens states’ deficit picture.

12. Labor

13. Job Recovery: Past Recessions - Change, Thousands of Jobs
Current Recession

14. Stimulus Size: Expectations for Growth
Stimulus Not a Silver Bullet…and..the untold Story on Expectations

15. “Stimulus Timeline Phase I Phase II Phase III 2011 2009 2010
Policy Tool
Objective
2009
2010
2011
Job Saving
Job Creating
Tax Cuts, Entitlement Spending, State Aid
Stabilize Economy, halt adverse momentum
Phase I
Shovel Ready Projects
Job Creation
Phase II
Job Creation, Address Structural Economic Issues
Long Term Investments
Phase III

16. Stimulus: Job Creation Estimates
Million Jobs
Obama Economists
PCA
Unemployment: 8.8%
Unemployment: 7.0%
Job Estimates have large impacts on Cement/Concrete recovery assessments.

17. Stimulus Overview Obama’s $789 billion plan may not be enough.
Obama economists expect an additional 2.8 million jobs lost. And plan aimed at creating /saving 3.7 million jobs.
PCA estimates that 8.5 million jobs may need to be created/saved.
Stimulus plan required = $1.5 trillion (conservative)
And….Obama Economists implied it…..
Taxpayer pushback, politics prevented full initiation for now…
Don’t be surprised if a second stimulus plan materializes.
New Highway Bill may fit requirement ($400 Billion = PCA)
Delayed passage dovetails with 10% unemployment and may fly under radar and taxpayer pushback

18. Single Family Recovery 2011
Residential
Single Family Recovery 2011

19. Single Family Home Sales (New) - Thousands of Homes
Weak Labor Markets, Tight Lending Standards, Competition From Distressed Properties Prevent A Meaningful New Home Sales Recovery From Materializing Until Mid 2010

20. Single Family Home Inventory - Number of Homes for Sales, Months Supply

21. Nonresidential
The Crash of 2009

22. Source: PCA

23. Stimulus Good, Reauthorization May be Even Better
Streets & Highway
Stimulus Good, Reauthorization May be Even Better

24. Job Losses Generate Deficits –Pushing Discretionary Spending Down
Discretionary State & Local Highway/Street Spending - Millions of Real $ (estimated)
Job Losses Generate Deficits –Pushing Discretionary Spending Down
State Discretionary Highway Spending Will Act as a Powerful Drag on Total Highway Construction Activity in

25. “Shovel Ready” Timeline
Jan
Feb
March
April
May
June
July
August
House Bill
Obama Inaugurated
Job Creation May Come Later Than Many Expect
Senate Passes & Bill Signed
Federal Paperwork
State Paperwork
Bid Letting
Bid Review
Contractor Paperwork
Construction Begins

26. Shovel Ready: Late in Coming, Low Cement Intensities
Projects that can be undertaken within 120 days.
Paint a bridge Versus new ramp for a bridge.
Resurface a road Versus Expand a road
Low cement intensities per $ spent.
These programs will create jobs and cement volume increases...but not as many as “Hard” infrastructure investment.
Panic to spend Versus Patience and Payoff

27. Streets & Highways
Economic distress will lead to a drag in discretionary state highway spending initiatives
Stimulus spending will help some in 2009…more in
Low cement intensities through first half of 2010….resurfacings and system preservation dominate…
Backlog of projects related to systems preservation reduced…..

28. 2004-2009 SAFETEA-LU: Composition of Work

29. 2011-12 New Highway Bill: Composition of Work

30. 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

31. Implications
Market Imbalances

32. Portland Cement Consumption Thousand Metric Tons
- 45MMT =

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

34. Import Volume
Thousand Metric Tons

35. Capacity Expansion: Delays
Thousand Metric Tons
Stated Capacity Expansions: Spring 2009
Stated Capacity Expansions: Fall 2008

36. Capacity Adjustments: Plant Closures
Thousand Metric Tons
Further Capacity Adjustments Realized by Delayed Expansions
* Adjustments Include Sixteen Plant Closures

37. Capacity Utilization Rates
Clinker Production/Clinker Capacity
Includes Plant Shutdowns. All Shutdowns Assumed Permanent. Downside Risk in Out Years.

38. Stimulus Payback in context of Global Recovery
Beyond the Crisis
Stimulus Payback in context of Global Recovery

39. Introduction: Overview
Cyclical correction is temporary.

40. Point Six
Stimulus spending must be paid for…resulting in higher interest rates, higher taxes and potentially higher inflation….
…and…American consumer..the engine of US economic growth may show significantly different spending patterns…
…combining for the potential of slower longer term economic growth (50 basis points).
…But even with these gains…past cyclical peaks are not expected to materialize until 2015.

41. Single Family Housing– United States
000 Starts
Pent-Up Demand
= Housing Peaked January 2006
2007: -29% : -37% : 0.0% :+34%
Interest Rates low, Decline in Home Price, Job Recovery Translate into Improved Affordability
Excess Inventories Worked Off

42. Point Seven Once recovery is in place….
And despite payback costs for stimulus…
Concrete construction could record large and sustained gains in growth.

43. Ed Sullivan, Chief Economist PCA
Cement Outlook:
Ed Sullivan, Chief Economist PCA
Spring Board/Committee Meeting