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Ed Sullivan, Chief Economist PCA

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

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

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

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

7 Import Volume Thousand Metric Tons

8 Capacity Adjustments *
Thousand Metric Tons Capacity Adjustments Due to Delayed Expansions and Plant Closures * Adjustments Include Five Delays in Plant Commissioning and Eleven Plant Closures

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

10 Capacity Utilization Rates
Clinker Production/Clinker Capacity

11 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

12 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

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

14 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

15 Economic Growth Outlook
Percent Change, GDP Growth Rate Tax Rebate Bump

16 Economic Policy Impacts

17 Left to Itself…Adverse Economic Momentum will Accelerate…
Left to Itself…Adverse Economic Momentum will Accelerate….Leading to Potentially the Worst economic Downturn in Post-War Era… The Effectiveness of Policy Will Determine the Character of the Economy during the Two Years

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

19 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: Begins late 2009

20 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

21 Residential Outlook Recovery Delayed

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

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

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

25 Nonresidential Construction

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

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

28 Public Construction

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

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

31 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….

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

33 The “V” Economic Recovery:
2008 2009 2010 2011 Sub-Prime Drag Abates Bank Lending Aversion Improves Stimulus Gains Employment Traction Lending Risk Declines: Credit Easing Energy Stimulus State Deficits Improve Pent-Up Demand Released

34 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

35 Nonresidential Long Term Trend Million Real $, 1996
=

36 Current: Gasoline Prices Vs Asphalt Prices Per Barrel Price Per Barrel

37 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

38 Announced New Coker Installations Cumulative: Thousands of Barrels Per Day

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

40 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

41 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

42 Portland Cement Consumption Thousand Metric Tons
=

43 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….

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