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Cement & Construction Outlook
Concrete Reinforcing Steel Institute
Western Regional Meeting
September 11, 2008
Dave Zwicke, PCA Regional Economist
The Bottom Line
 Near Term Adversity
 Economic outlook remains dim.
 Adversity may continue longer than expected
 No recovery in housing until 2010
 Nonresidential decline slower to materialize…longer recovery
 Potential of fiscal crisis at State level brewing
Construction Spending
Millions 1996$
Declines Continue
Through 2009.
Peak (2006)-to-Trough (2009) Decline:
-20.8% -- $-154 billion
Cement Consumption
(000) Metric Tons
Declines Continue
Through 2009.
Peak (2005)-to-Trough (2009) Decline:
30 MMT (Worst in History)
(On a Percentage Basis: Equal to 1980-82 Recession)
Construction Turning Points
1996=100
180
Residential
2006
160
Public
2009
140
120
100
80
Nonresidential
2008
60
1996
1998
2000
2002
2004
2006
2008
2010
2012
Outlook
 Double-digit declines in consumption with trough in 2009
 Large capacity increases in the pipeline magnify potential
market imbalances
 Imports record large, sustained declines
 Global demand conditions suggest high freight rates
 2008 bears most of the burden of market imbalance
 Utilization Rates decline
 Materializes to a greater extent in 2009
 Inventory levels remain above historical averages

Past peak (2005) not realized until 2014
Economic Outlook
Economic Outlook: Five Factors
Sub-Prime
Mortgage
Payments
Financial
Crisis
Defaults
Write-Downs
Energy
Structural
Global
Realities
Credit Cards
Risk Aversion
Defaults
Tight Lending
Standards
Home Price
Declines
Reliance on
Home Equity
Gone
Tight Lending
Standards
Commercial,
Consumer,
homeowner
capital access
reduced
Global
Gasoline
Prices
Inflation
Energy Prices
Fertilizer/Biofuels
hit Ag Prices
Supply Side
Costs Ingrained
Heating Prices
Cost of
Business
Expected Inflation
Rises
Fed Tightens
Adds
Weakness to
Dollar
Short and Long
Term Interest
Rates Rise
Labor
Markets
Slower Economic
Growth
One Million Job
Loss in 2008
Housing Recovery
Delayed
Nonresidential
Declines
State Fiscal Crisis
Looming
Public Declines
Economic Adversity
2006
Sub-Prime
Energy
Financial
Crisis
Inflation
Labor
Markets
2007
2008
2009
2010
States in Recession
As of August, 2008
WA
NH
MT
ME
VT
ND
OR
MN
ID
NY
SD
MA
WI
RI
WY
MI
CT
IA
PA
NE
NV
UT
IL
IN
DE
CO
MD
WV
CA
KS
NJ
OH
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
Recession
GA
At Risk
LA
TX
AK
FL
HI
Source: PCA/Economy.com
Growing
The Stage is Set…
Unemployment Rate -- % Change Year Ago
Source: BLS
= Recession
Employment declines …
Change in payroll jobs (000)
400
300
Period of
slowed hiring
200
100
0
-100
2007: + 1,096,000
YTD: -605,000
-200
Jan-05
Source: BLS
Jan-06
Jan-07
Jan-08
5 year
Average
Employment Declines are Regional
July Year-to-date
WA
NH
MT
ME
VT
ND
OR
MN
ID
NY
SD
MA
WI
RI
WY
MI
CT
IA
PA
NE
NV
UT
IL
IN
DE
CO
MD
WV
CA
KS
NJ
OH
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
Loss
GA
Flat
LA
TX
AK
FL
HI
Source: BLS
Gain
Housing has been the catalyst…
Units (000)
Source: Census, S&P Case Shiller
Annual Growth
Consumers feel the crunch…
Annual Percent Change
Consumer Pessimism Growing
1985=100
Source: Conference Board
Monetary Policy
Federal Funds Rate
Recession
Risks Prompt
Fed Rate Cuts
Rising Inflation
Forces a Policy
Reversal
Long Recognition Lag By Fed…Forcing More Aggressive Policy Posture
Fiscal Stimulus
 Impacts 2nd half 2008 – 1st half of 2009
 $150 Billion Rebates
 Expected to reduce depth and duration of recession
 Fiscal policy may shorten economic downturn and accelerate
recovery…but it will NOT AVERT the recession
Energy Prices may offset fiscal stimulus…
Unleaded Gas, $ Per Gallon
Every 1 Cent Increase at the
Pump Takes $1 Billion Out
of Consumer’s Pockets on
an Annualized Basis
Since January 1st, Gasoline
Prices have increased $1.23
cents = Equating to a $120
Billion Annualized Draw on
Consumer Spending
Source: Department of Energy
Economic Growth
Percent Change, GDP Growth Rate
Tax Rebate
Bump
Hard to Sell Businessmen that Recession is “technically”
Avoided or Short Lived – Distress Continues well Into 2009.
Residential Construction
Cement Composition - West
2005
2009
20%
35%
47%
59%
22%
18%
Public
Residential
Nonresidential
Mortgage Rates
Composite contract rate %
Fed
began
cutting
rates
Easy Credit Period
Foreclosures on the rise…
% of loans 90 days past due, SA
Source: Mortgage Bankers Association
Foreclosures are concentrated…
Below U.S.
Near U.S.
Above U.S.
Source: Equifax, Economy.com
% of households defaulting on their 1st mortgage, 08Q1
US: 1.8%
Home Prices will stabilize in late 2009
Existing Single Family Homes
High Inventories Will Depress Prices
Throughout 2008
National Housing Starts
000 Units
States Most at Risk to Residential Weakness
Residential Share of Total Cement Consumption
Source: PCA
HAWAII
IDAHO
ARIZONA
OREGON
NEVADA
COLORADO
NATIONAL
NEW MEXICO
UTAH
CALIFORNIA
WASHINGTON
MONTANA
WYOMING
46.5%
41.9%
40.5%
35.7%
35.5%
35.4%
35.2%
34.6%
32.4%
32.2%
32.1%
22.9%
14.2%
Single Family Housing– West
Annual Percent Change
Nonresidential Construction
Nonresidential Construction

Nonresidential Strength in 2006-2007
 Favorable ROI supported by active investment
environment
 Pent-up Commercial Demand
 Easy Credit Conditions

Nonresidential Softening in 2008-2009
 ROI Softens With Overall Economic Weakness
 Credit Conditions Tightening
 Risks and Uncertainty Grow
Nonresidential Construction
Annual Percent Change
Dodge Data Has Already Signaled a Decline
Financial Liquidity
Sub Prime
TED Spread – Difference between 3m T-Bill & LIBOR
Lenders Reporting Tighter Lending Standards:
Commercial
Percent Reporting Tighter Lending Standards
40
Medium to Large
Firms
Easy
Credit
Period
30
20
10
0
Small Firms
-10
-20
-30 Sub-Prime Has Spilled into
Commercial Credit Markets
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008 Q1
Business Confidence Has Been Shaken
Percent of Firms Reporting a Positive Business Outlook, NAM Survey
120
Business Leaders
Confidence Index has
declined 23% during
past year.
100
80
Bullish
Business
Attitudes
60
40
20
0
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008 Q1
Nonresidential Construction

2007 Momentum is Burning Off
 Measured by PIP, Nonresidential Outperformed PCA
Expectations.

But, Cement Intensities Declining
 Evidence that a retraction in nonresidential lies ahead

Fundamentals Deteriorate…Longer Recovery
 Larger declines of 2009
Nonresidential Construction
$1996, Millions
States Most at Risk to Credit Crisis / Oil
Nonresidential Share of Total Cement Consumption
WYOMING
MONTANA
NEW MEXICO
IDAHO
COLORADO
NEVADA
WASHINGTON
CALIFORNIA
NATIONAL
ARIZONA
UTAH
OREGON
HAWAII
Source: PCA
44.4%
33.4%
26.1%
25.7%
24.9%
20.5%
19.8%
18.4%
17.8%
17.2%
16.3%
14.8%
10.0%
Office Vacancy Rates – U.S.
Percent Vacant
Source: CB Commercial
Office Vacancy Rates
Metros with largest increase in vacancy rate, % Vacant
Q2, 2008
Q2, 2007
Source: CBRE
Office Construction
$1996, Millions
Industrial Vacancy Rates – U.S.
Percent Vacant
Source: CB Commercial
Industrial Production – U.S.
Institute of Supply Management Index
Source: CB Commercial
Industrial Vacancy Rates
Metros with largest increase in vacancy rate, % Vacant
Q2, 2008
Q2, 2007
Source: CBRE
Office Construction
$1996, Millions
Public Construction
Cement Composition - West
2005
2009
20%
59%
22%
Public
Residential
Nonresidential
State Fiscal Conditions
$49 Billion Shortfall in
2009
2009 Projected Budget Gaps
WA
NH
MT
ME
VT
ND
OR
MN
ID
NY
SD
MA
WI
RI
WY
MI
CT
IA
PA
NE
NV
UT
IL
IN
DE
CO
MD
WV
CA
KS
NJ
OH
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
Deficit
GA
LA
TX
AK
FL
HI
Source: PCA/Center on Budget and Policies Priorities
Surplus
States Most at Risk of Budget Shortfalls
SAFETEA-LU Share of Total Highway Expenditures
WASHINGTON
COLORADO
ARIZONA
UTAH
NEVADA
OREGON
CALIFORNIA
U.S.
NEW MEXICO
IDAHO
WYOMING
MONTANA
HAWAII
Source: PCA
27.2%
29.1%
29.1%
29.5%
30.1%
32.0%
34.0%
34.7%
35.6%
43.3%
52.0%
58.1%
61.8%
Highway Construction
$1996, Millions
2008: -3.0%
2009: -3.5%
2010: -2.6%
2011: +3.2%
Take a Step Back…
Cement Consumption: Long Term
Million Metric Tons
190
170
150
130
110
90
70
50
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Highway Lane Miles
Thousands of Miles
11,000,000
10,000,000
9,000,000
8,000,000
Just to Maintain Current Highway
7,000,000
Congestion
Levels, Federally Aided
Highways Must Expand Nearly 25%
by 2030 . Given 49 Million Additional
6,000,000
Licensed Drivers.
1996 2000 2004 2008 2012 2016 2020 2024 2028
Competitive Opportunity?
Producer Price Index, 2003=100
200
180
Asphalt
160
140
Ready Mix
Concrete
120
100
80
2003
Source: BLS
2004
2005
2006
2007
2008
Liquid Asphalt Supply
Thousands of Barrels
44 Million
Barrel Decline
by 2011
Long Term Conclusions
 Cyclical downturn is temporary.
 Growth rates 2011-2013 extremely strong.
 Demographics remain favorable.
 Green building adds to consumption.

Residential alone could add 9MMT over demographics.
 Asphalt paving vulnerable.

High oil prices.

“Delayed Cokers” = Shortages/Price Increases.
 Consumption could approach 200MMT by 2035.

How to supply the beast in context of climate change
compliance & international freight rate uncertainty.
Cement & Construction Outlook
Concrete Reinforcing Steel Institute
Western Regional Meeting
September 11, 2008
Dave Zwicke, PCA Regional Economist