Cement Outlook

PCA’s Fall Board Meeting November 2011

Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009

Portland Cement Consumption Thousand Metric Tons

140 450 120 450 100 450 80 450 60 450 40 450 20 450 450 1998 2000 2002 2004 2006 Summer Forecast Fall Forecast 2008 2010 2012 2014 2016

Economic Outlook

Synchronized Recovery Theory

Job creation determines how quickly the recovery cycle spins.

Heals Structural Restraints Incremental Demand Gains

In the context of moderating productivity Gains Leads to: Defaults & perceived lending risks decline

Lending Standards Ease & Hiring Accelerates Sentiment Gains Job Gains

Sentiment includes Consumer, Business & Banks:

False Hopes: Net Job Creation

Annualized Net Job Creation 8000 6000 4000 2000

3.7 Million Annualized 3 month Moving Average

0 -2000 -4000 -6000 -8000 -10000 -12000 Jan 2005 Jan 2007 Jan 2009

2.7 Million Annualized 3 month Moving Average

Jan 2011

Real GDP Outlook Annualized Growth 5,0% 4,5% 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3

Employment Outlook

Annual Change, Thousands Employed 3000 2000 1000 0 -1000 -2000 -3000 -4000 -5000 -6000

Source: BLS

2000 2002 2004 2006 2008 2010 2012 2014 2016

Recession Recoveries: 3 Years Following, Annual Average 1991: 3.08 Million, 2001: 2.22 Million, Current: 1.35 Million

Housing Recovery

The Residential Recovery Process

Mortgage Resets Foreclosures Bank Possessions Shadow Inventories Heightened Inventories Inventory Burn Off Price Stability Working Through Structural Repair of Housing Market Will Take Time Before Impacting Housing Starts. Starts Recovery

8000 7000 6000 5000 4000 3000 2000 2003

Single Family Sales Outlook

Thousands of Units 2004 2006 2008 2010 2012

12 10 8 6 4 2 0 2003

Single Family Months Supply

Thousands of Units 2004 2006 2008 2010

Desired Month’s  Supply

2012

20%

Single Family Home Price Outlook

Y-O-Y Percent Change 15% 10% 5% 0% -5% -10% -15% -20% 2003 2004 2006 2008 2010 2012

Single Family Upside Risk?

Single Family Starts Projections Comparison Thousand Starts 2011 2012 PCA Mortgage Bankers Association NAHB National Association of Realtors Other  Associations’ Average Tons Per Start Upside Risk (000 Tons) 421 420 424 416 420 19.2

-- 443 474 495 480 483 19.2

768 2013 567 619 723 --- 671 19.2

1,997

Portland Cement Consumption Thousand Metric Tons

135 000 125 000 115 000 105 000 95 000 85 000 75 000 65 000 55 000 45 000 1998 2000 2002 2004 2006 Summer Forecast Fall Forecast 2008 2010 2012 2014 2016

Nonresidential Drag

$200 000

Nonresidential Construction

Real 1996 PIP $ $180 000 $160 000 $140 000 $120 000 $100 000 $80 000 $60 000 $40 000 2003 2004 2005

Source: Dept of Commerce, PCA

2007

-50%

2008 2010 2011

Nonresidential Conclusions



No longer a significant drag on construction activity.



Large imbalances exist in before a positive NOI materializes



Slow job growth implies slow healing process



Credit environment hostile.



Conditions for positive ROI years off.



Not a significant contributor to cement consumption growth near term.

Office Buildings: Recovery Process

Leads to a recovery in office construction.

Asset Prices Firm New Office Hiring

1/5 of all jobs in the office. Defaults & perceived lending risks decline

Credit Troubles Ease Leasing Rates Stabilize Vacancy Rates Decline

After reaching threshold of roughly 14% vacancy rate

Office Employment

Thousands Employed 31 000 30 000 29 000 28 000

Vacancy Rate: 12.7% Vacancy Rate: 18.3% Vacancy Rate: 11.3%

27 000 26 000 25 000 2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: BLS

Office Building Valuation

Property Value Index, 2000=100 190 170 150 130 110 90 70

-36%

50 2003 2004

Source: Moody’s

2005 2006 2007 2008 2009 2010 2011

REIT Office

Dow Jones REIT Index, Total Return, 1990=100 1 200 1 000 800 600 400 200

-69.9%

0 2003 2004 2004 2005 2006 2007 2008 2009 2010

Source: Dow Jones REIT Index

Public Recovery

State Deficits $ Real

300 000 000 200 000 000 100 000 000 0 -100 000 000 -200 000 000 1999 2001 2003 2005 2007 2009 2011 2013 2015

Source: NIPI Data National Estimates: States Do Not Heal in a Synchronized Fashion

ARRA Sterilization: State Spending

Change in Spending, Real Million 1996$ 4000 3000 2000

ARRA $ ARRA $

1000 0 -1000 -2000 -3000 76% Sterilization

State $

43% Sterilization

State $

2009 2010

ARRA Sterilization: State Spending

Change in Spending, Real Million 1996$ 4000

Increase In State Spending

3000

Reduces Adverse Impact

2000

ARRA $ ARRA $

1000 0 -1000 -2000 -3000 -4000

State $ State $ ARRA $ State $

2009 2010 2011

Discretionary State Highway Cement Consumption Thousand Metric Tons

20 000 18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 1998 2000 2002 2004 2006 2008 2010 2012 2014

Highway Bill Cement Consumption Projections

Spring Versus Summer Assumptions 24 000 22 000 20 000 18 000 16 000 14 000 12 000 10 000 2002 2004 2006 2008

Spring Forecast

2010

Summer Forecast

2012 2014

Obama Initiatives: Impact



Infrastructure spending = ARRA



Infrastructure Bank



No/limited direct impact 2011-2012.



Modest impact 2013-2014

 

Proposals do not change near term outlook

Beyond the Crisis

Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban

$1 400 000 Asphalt $1 200 000 $1 000 000 $800 000 Oman Data US Average: 13.5% $600 000 $400 000 $200 000 2003 2007 2011 2015 Concrete 2019 Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)

Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban

$1 400 000 $1 200 000 Oman Data US Average: 15.3% Asphalt $1 000 000 $800 000 Oman Data US Average: 13.5% $600 000 $400 000 $200 000 2003 2007 2011 2015 Concrete 2019 Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)

Initial Bid Concrete Vs Asphalt Paving Costs Dollars Per Two Lane Road Mile - Urban

Oman Data $1 400 000 $1 200 000 Oman Data US Average: 13.5% US Average: 15.3% Asphalt $1 000 000 15% Advantage $800 000 18% Disadvantage $600 000 $400 000 $200 000 2003 2007 2011 2015 Concrete 42% Advantage 2019 Source: PCA estimates using Wispave (Wisconsin DOT paving cost software)

New Paving Realities: Impact



Cost Advantages will Increase



“Free Market, Lowest Cost Material” Doesn’t Always Win.



Escalators, LCCA Discount Rates, ADAB, MEPDG



State/Local Advocacy Focus



Upside Forecast Risks?

Cement Outlook

PCA’s Fall Board Meeting November 2011

Ed Sullivan, Chief Economist PCA Named Most Accurate Forecaster By Chicago Federal Reserve, 2009