Connect With Concrete Cement Outlook: 2009-2013 Ed Sullivan, Chief Economist PCA PCA Committee Meetings Summer 2009

Connect With Concrete

Cement Outlook: 2009-2013Ed Sullivan, Chief Economist PCA

PCA Committee Meetings Summer 2009


Introduction: Overview Economic fundamentals are improving.

Conditions remain weak.

Recovery will be gradual

Strong-Moderate Growth still a year away.

Private Sector no longer drives demand

Residential & Nonresidential recoveries are not expected to materialize anytime soon.

Outlook shaped by policy actions.

ARRA reveals bureucratic delays

Tilts impact even more so to 2010-2011


Portland Cement Consumption Thousand Metric Tons

450

20,450

40,450

60,450

80,450

100,450

120,450

140,450

1998 2000 2002 2004 2006 2008 2010 2012 2014

- 50 MMT


Capacity Expansion: DelaysThousand Metric Tons

Stated Capacity Expansions: Fall

2008

Stated Capacity Expansions: Spring

2009


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.


Economic Outlook

Introduction


Sub-Prime

FinancialCrisis

Energy

Labor Markets

2006 20082007 2009 2010

State Deficits

Economic Adversity Abates Mid-2010Economic Adversity Abates Mid-2010


Job Recovery: Past Recessions - Change, Thousands of Jobs

1980-1982 Recession

2000-2001 Recession

1990-1991 Recession

Current Recession


Bank Charge-Offs versus Unemployment Rate - % Loans Charged-Off, % Unemployed

10


Economic Outlook: Consumers

Sustainable, strong consumer spending growth will not materialize until labor markets recover.

Job losses and high unemployment rates depress income growth.

Bank write-downs continue, delays an easing in Lending Standards

Consumer sentiment is improving from record low levels.

Consumer Spending is now saving. Economic and pychological reasons. Parodox of Thrift


Economic Outlook: Investment

Declines in Residential softening Becomes a neutral contributor to growth near term

Low expected ROI hinders recovery in business investment.

Access to credit remains an issue.

Business Investment likely to be a significant drag on economic growth for another year.

Inventories will add strength….but probably less than many think


Inventory-to-Sales Ratio - Total

Betting on Inventory

Accumulation to Spur Near Term Growth May Be

Premature.


“Stimulus Timeline

Tax Cuts, Entitlement Spending, State Aid

Phase IStabilize

Economy, halt adverse momentum

2009 20112010

Phase II

Phase III

Shovel Ready

Projects

Long Term Investments

Policy Tool Objective

Job Saving Job Creating

Job Creation

Job Creation, Address

Structural Economic

Issues

Bureaucratic Delays have

Diminished the Potential

Stimulatory Impact of ARRA


Economic Growth OutlookPercent Change, GDP Growth Rate


Residential Outlook

Take-off in mid-2010


New Home Sales Outlook - Number of Homes, SAAR

Forecast


New Home Inventory Outlook - Months Supply

Forecast


Nonresidential Outlook

Dramatic Declines Ahead, Recovery Begins in late-2011


Public Outlook

ARRA Impact Delayed


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 2009-2010


“Shovel Ready” Timeline

House Bill

Senate Passes & Bill Signed

Obama Inaugurated

Federal Paperwork

State Paperwork

Jan MarchFeb April May

Bid Letting

June July August

Bid Review

Contractor Paperwork

Construction Begins


ARRA – Weekly Highway Outlays - Dollars

Only 2.5% of All ARRA Highway

Dollars have been spent through July

.

40% of this spending has

occurred during the last two weeks

of July

Connect With ConcreteARRA – Weekly Highway Construction Spending - Dollars (Trend – No Seasonal Consideration)

History Forecast

Connect With ConcreteARRA – Weekly Highway Construction Spending - Dollars (Trend – No Seasonal Consideration)

History Forecast


2004-2009SAFETEA-LU: Composition of Work


2012New Highway Bill: Composition of Work


After the Economic Crisis

Medium Term Outlook


After the Crisis 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).


After the Crisis

Slow Sustained Recovery (Baseline) = 45%

Early Double Dip = 30%

Late Double Dip = 25%


Units

Housing PermitsHousing Permits

Pent-Up Demand

Connect With ConcreteProjected:Initial Bid Concrete Vs Asphalt Paving CostsPer Two Lane Road Mile - Urban

Concrete

Asphalt

Parity Achieved in Fiscal 2009


Portland Cement Consumption Thousand Metric Tons

450

20,450

40,450

60,450

80,450

100,450

120,450

140,450

1998 2000 2002 2004 2006 2008 2010 2012 2014

2009-2014: +43 MMT


Regulatory Impacts Most Significant Threat To Domestic Cement Production in

History


Economic Growth, Policy Initiatives, Regulations

Population & Demographic Drivers Add 60 million more persons by 2030

Add 50 million more drivers

Schools, Residential, Retail, Hospitals

Energy independence Renewable energy

Wind, Hydro, Nuclear

CO2 Reduction Road congestion

Residential – ICF Homes

Nonresidential

Manufacturing Base Erosion Import Dependence, Port Infrastructure

Co

ncr

ete

Pla

ys A

Cri

tica

l R

ole

in

Ach

ievi

ng

Bro

ad

Nat

ion

al E

co

no

mic

& E

nvi

ron

men

tal

Po

licy

O

bje

ctiv

es


Economic Growth, Policy Initiatives, Regulations

How Do you Reconcile These Issues with Regulatory Reform?

NESHAP Emissions

Climate Change

Leads to Dependence on Foreign Sourcing Policy Inititiatives Captive to International

Conditions

Connect With ConcreteU.S. Supply Balance: No New Capacity Expansion Plans

Million Metric Tons

Cement Consumption

Su

pp

ly G

ap:

25 M

MT

Cement Production


U.S. Supply Balance: EPA Mercury ImpactsMillion Metric Tons

Cement Consumption

Imp

ort

s: 4

7 M

MT

Cement Production

EPA: Hg Impact

Connect With ConcreteU.S. Supply Balance: Mercury & Climate Change

Million Metric Tons

Cement Consumption

Imp

ort

s:60

MM

T

Cement Production


Cement Outlook: 2009-2013Ed Sullivan, Chief Economist PCA

PCA Committee Meetings Summer 2009

Documents

Connect With Concrete Cement Outlook: 2009-2013 Ed Sullivan, Chief Economist PCA PCA Committee Meetings Summer 2009