U.S. Construction

1
U.S. Construction Cement Outlook 2006

• PCA Board Meeting
• November 15, 2005
• Washington, D.C.
• Edward J. Sullivan
• Staff Vice President and PCA Chief Economist

2
US Anatomy of Growth
2001 Total 108.1 MMT Residential 25.9 MMT
(24) Nonresidential 24.8 MMT
(23) Public 51.4 MMT (48)
2005 Total 120.7 MMT (5.2,2005) Residential 38.
4 MMT (32) Nonresidential 19.2 MMT
(16) Public 54.8 MMT (45)
2009 Total 134.9 MMT Residential 31.5 MMT
(23) Nonresidential 27.1 MMT
(20) Public 67.2 MMT (50)
12.6 MMT 12.5 MMT -5.6 MMT 3.3 MMT 2.3
MMT
14.2 MMT -6.9 MMT 7.9 MMT 12.5 MMT
3
Key Points of Analysis
U.S. Economic Outlook 2005-2006
U.S. Economic Outlook 2007-2009
Residential Nonresidential Public
Construction Outlook
Demand Operating Conditions
Cement Outlook
4
U.S. Economic Outlook 2005-2006
5
Pre-Hurricane Economic Growth Conclusions

• Foundations for Growth Firm
• Sustained job growth.
• Moderate growth, below 2004 level of 4.4 RGDP
• Growth Rate Slows 2005-2006
• Consumer and Investment sector slowdown.
• Less stimulative Fiscal policy.
• Tightening of Monetary Policy.
• Net Exports sustained drag.
• Threats to Scenario are Distant
• Twin Deficits

6
Hurricane Impact Economic Growth
Positives
X
- - - X -
X X X X X X
X X X X X X
Easing Energy Prices Lower Inflation Recovery In
Consumer Spending Rebuilding Period Stronger Job
Gains
IV 2005
I
II
III
IV
2006
Negatives
Higher Energy Prices Higher Inflation Erosion in
Consumer Spending Weak Job Gains Regional
Economic Disruption
X X X X X
X X X X X
- - - - X

7
Post Hurricane Oil Price Scenario
West Texas Intermediate
Rita Revision
Katrina Revision
Summer Forecast
8
Post Hurricane Inflation
Percent Change, CPIU
Hurricane Revision
Summer Forecast
9
Post Hurricane Consumer Sentiment
Conference Board Survey
Summer Forecast
Hurricane Revision
10
Post Hurricane Job Creation
Average Thousand Net Jobs Created Per Month
Summer Forecast
Hurricane Revision
11
Timing Extent of Slowdown Unclear Winter
Weather

• Hurricanes Boost Energy Prices
• Key Mechanism for GDP Slowdown
• Gasoline, Home Heating Fuels
• Home Heating Impact
• 30 to 50 Increase Expected
• Increase from a high 2004 base
• Will Curb Consumer Spending
• Weathers Second Punch Severity of Winters Cold
  
• Colder .larger adverse impact of higher energy
  prices
• Implies adverse impact last through 1st Quarter
  and into 2nd

12
Dispersion of Home Heating Usage
Monthly Share of Heating Degree Days, 1970-2000
13
Clean-up Recovery Periods
14
Post Hurricane RGDP Scenario
Annual Growth Rate,
Summer Forecast
Hurricane Revisions
15
Economic Outlook 2007-2009
16
Rising Inflation
17
Inflation Rate
Percent Change Consumer Price Index
Source U.S. Bureau of Labor Statistics
18
Average Hourly Earnings
Percent Change in Per Hour
Source U.S. Bureau of Labor Statistics
19
Inflation Conclusions 2007-2009

• Higher Energy Prices Structure
• Still Cyclicalbut
• Stronger Asian Demand China India
• Labor Costs Rising
• Since 2000 Soft Labor Market Conditions
  Translate Into Employer Market
• Job Creation Continues
• Participation Rates Rising
• Unemployment Rates Decline below 5
• Rapid Switch from an Employer to an Employee
  Market
• Structurally Weaker Dollar
• Higher Energy Prices
• Slow Movement in Floating Chinese Wan
• Trade Deficit Widens
• Structurally Higher Transportation Costs
• Transportation Sectors Historically Depressed ROI

20
Fall 2005 Forecast Inflation Rate
Percent Change Consumer Price Index
21
Inflation Conclusions 2007-2009
Higher Inflation
Higher Interest Rates

• Lower
• Consumer Spending

Slower Economic Growth Reduced Cement
Consumption
22
Rising Interest Rates
23
Interest Rate Conclusions 2007-2009

• Higher Inflation Premiums
• Add to Real Rates
• Federal Reserve Pursues Tighter Monetary Policy
• New Fed Chairman demonstrates resolve
• Favors Inflation Targeting (2)
• Larger Public Demand for Funds
• Middle East
• New Orleans
• Private Demand for Funds Increase
• Foreign Supply Slows
• Weak Dollar lower foreign returns
• Competing Investment Instruments

24
Fall 2005 Forecast Mortgage Rate
30 Year Fixed ()
25
Federal Deficit Percent of Total GDP
Percent, Federal Deficit/GDP
Balanced Budget
2004 Deficit 400.7 Billion
Deficit Projections Federal Rebuilding Programs
Slower Job Growth Worsen the Deficit
26
Value of U.S. Sustained Weakness
Percent Change, Broad Index
Adds weakness to the Dollar
27
Net Exports Rising Trade Deficit
Real Chained
Higher Price of Oil Imports Worsens Trade Deficit
28
Economic Outlook 2007-2009
29
Fall 2005 Forecast Real GDP
Annual Growth ()
30
Katrina Impacts Demand Impacts
31
Clean-up Recovery Periods
32
Katrina Damage Type
33
New Orleans Complete Rebuild Demand Impacts
34
Hurricanes Destroyed Many Gulf Coast Homes
Thousands of Homes
Source American Red Cross
35
New Orleans Residential Cement Requirements
Based on Red Cross Estimates of 200,000 Homes
Destroyed
36
Nonresidential Requirements

• High Estimate 1.9 Million Metric Tons
• 36 Billion in Damage
• High Intensity Assumption
• High Rebuild/Repair Ratio
• Low Estimate 450,000 Metric Tons
• 12 Billion in Damage
• Low Intensity Assumption
• Low Rebuild/Repair Ratio

37
Infrastructure Requirements

• High Estimate 3.4 Million Metric Tons
• 15 Billion in Damage
• High Intensity Assumption
• High Rebuild/Repair Ratio
• Low Estimate 2.1 Metric Tons
• 10 Billion in Damage
• Low Intensity Assumption
• Low Rebuild/Repair Ratio

38
Total Requirements Total Rebuild
Rebuilding takes place over five year period
Implies roughly 1million to 2 million additional
tons per year
39
New Orleans Will A Complete Rebuild Materialize?

40
Impact of Potential Population Loss
41
Total Requirements Partial Rebuild
Rebuilding takes place over five year period
Implies roughly 650,000 to 1.6 million additional
tons per year
42
Construction Cement Outlook

• Overview

43
Changing Composition of Construction Spending
Growth
2005 1/2-2009
2001-2005 1/2
Low Interest Rates, Weak Economy
Rising Interest Rates, Strong Economy

• Growth Leader Residential
• Low Interest Rates
• Public
• State Tax Revenues Hurt by Anemic Economic Growth
• Growth Laggard Nonresidential
• Weak Economy

• Growth Leader Nonresidential
• Strong Economy
• Public
• State Tax Revenues Recovery Due to Strong
  Economic Growth
• Growth Laggard Residential
• Rising Interest Rates

US Construction Markets Do Not Lose Momentum With
Rising Mortgage Rates and Slowdown in Housing
44
Cement Growth 2004 Composition
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Reasons for Cement Intensity Gains

• Competitive Price Position Vs Other Building
  Materials
• Compare from 2000
• Large advantage Even with recent declines in
  steels and increases in concrete.
• Composition of Construction
• Gains associated with strengthening of higher
  intensity construction sectors
• Nonresidential Intensities are Cyclical
• Type of construction differs on downside and
  upside of business cycle.
• Construction Stronger in Southern States
• Generally higher intensities in Southern states
• Green Construction Promotion

46
Residential Construction Single Family
47
Fall 2005 Forecast Mortgage Rate
30 Year Fixed ()
48
Fall 2005 Forecast Average Monthly Payment
per month
49
Fall 2005 Forecast Single Family Housing Starts
(000) Units
50
Fall 2005 Forecast Multi Family Housing Starts
(000) Units
51
Fall 2005 Forecast Total Housing Starts
(000) Units
52
Nonresidential Construction
53
Key Nonresidential Assessments

• Underlying Nonresidential Drivers Improving
• Turning Point Already Achieved In Several Key
  Sectors
• Despite Large Percentage Gains for 2005, Most
  Markets Weak From Historical Perspective.
• Concrete Price Competitiveness Against Steel
  Remains In Place
• Increasing Cement Intensities Reinforce
  Construction Activity Gains.

54
Fall 2005 Forecast Nonresidential Cement
Consumption
(000) metric tons
55
Fall 2005 Forecast Capacity Utilization Rate
56
Fall 2005 Forecast Office Vacancy Rate
Vacant Office Space
57
Fall 2005 Forecast Office Cement Consumption
(000) metric tons
58
Fall 2005 Forecast Retail Cement Consumption
(000) metric tons
59
Public Construction
60
Fall 2005 Forecast Oil Gas Well Cement
Consumption
(000) metric tons
61
Fall 2005 Forecast Public Cement Consumption
(000) metric tons
62
Fall 2005 Forecast Public Building Cement
Consumption
(000) metric tons
63
Fall 2005 Forecast Highway Cement Consumption
(000) metric tons
64
U.S. Construction Cement Outlook 2006

• PCA Board Meeting
• November 15, 2005
• Washington, D.C.
• Edward J. Sullivan
• Staff Vice President and PCA Chief Economist