Cement Outlook: 2007

Longbow Research

Boston, Massachusetts

Ed Sullivan

Staff Vice President and PCA Chief Economist

For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve

Economic Comfort Index *

1996=100

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

•Combines Real GDP With the Levels Interest Rates, Inflation and Unemployment

Most Favorable Economic Conditions Since the 1960’s

Bottom Line: Baseline

Economic Growth Slows to 2.4% (Real GDP) Economic Growth Slows to 2.4% (Real GDP)

Construction Declines = – 3%Construction Declines = – 3% Housing Starts Decline = -18%Housing Starts Decline = -18%

Cement Consumption Declines = -1.5%Cement Consumption Declines = -1.5% May be optimisticMay be optimistic

Downside Risks IncreasedDownside Risks Increased 1.3% GDP Growth1.3% GDP Growth Housing & Sub-Prime Worse than ExpectedHousing & Sub-Prime Worse than Expected Risk Regarding Intensity GainsRisk Regarding Intensity Gains

Bottom Line: Risks/Adjustments

Even Slower GrowthEven Slower Growth Sub-Prime leakageSub-Prime leakage Energy PricesEnergy Prices Weak 1Weak 1stst Quarter Quarter

Construction Declines in Excess of – 4%Construction Declines in Excess of – 4% Sub-Prime Default Rate….Larger inventory problemsSub-Prime Default Rate….Larger inventory problems Housing Starts decline even deeper and more prolongedHousing Starts decline even deeper and more prolonged Slower economy = Slower NonresidentialSlower economy = Slower Nonresidential

Cement Consumption Declines LargerCement Consumption Declines Larger Larger decline in construction spendingLarger decline in construction spending Intensity Gains may not be as strongIntensity Gains may not be as strong

Portland Cement Outlook

Thousand Metric Tons

450

20,450

40,450

60,450

80,450

100,450

120,450

140,450

160,450

1995 1997 1999 2001 2003 2005 2007 2009

2006 – 2007: A Pause Before A Resumption in Growth

You Can Argue Depth of Housing Decline, Timing of Recovery…Not

Fundamentals of Longer Term Growth

Growth Slows When One of Three Sectors (Residential,

Nonresidential & Public Declines)

Key Points of Analysis

U.S. Economic Outlook

Construction Outlook

Cement Outlook

Residential

Nonresidential

Public

Demand

Operating Conditions

Economic Outlook

Economic Outlook

Economic Fundamentals SoundEconomic Fundamentals Sound Unemployment, Inflation, Interest Rates Low Unemployment, Inflation, Interest Rates Low

Current Strength Cushions Against Current Strength Cushions Against Downside RisksDownside Risks

Past Growth of 3.3% is UnsustainablePast Growth of 3.3% is Unsustainable

Economic Outlook

Consensus 2007 GDP Forecast: 2.7%Consensus 2007 GDP Forecast: 2.7%

2006 Real GDP Growth: 3.3%2006 Real GDP Growth: 3.3% 11stst Quarter: 5.5% Quarter: 5.5% 22ndnd Quarter: 2.6% Quarter: 2.6% 33rdrd Quarter: 2.0% Quarter: 2.0% 44thth Quarter: 2.2% Quarter: 2.2% 11stst Quarter 2007: 1.3% Quarter 2007: 1.3%

Past Four Quarter Average: 2.0%Past Four Quarter Average: 2.0%

What is going to Propel Growth Beyond the What is going to Propel Growth Beyond the Past Four Quarter Average?Past Four Quarter Average?

Economic Outlook

What is going to Propel Growth Beyond the What is going to Propel Growth Beyond the Past Four Quarter Average?Past Four Quarter Average?

Budget Deficits Prevents Government Spending from Budget Deficits Prevents Government Spending from Being the Growth Driver.Being the Growth Driver.

Housing Contraction Prevents Investment Spending Housing Contraction Prevents Investment Spending

from Being a Growth Driver.from Being a Growth Driver. Net Exports are Improving. Sector So Small In Context Net Exports are Improving. Sector So Small In Context

of Overall Economy Prevents this from Being a Growth of Overall Economy Prevents this from Being a Growth Driver.Driver.

That Leaves Only Consumer Spending.That Leaves Only Consumer Spending.

Snap Shot of Economic Activity

Investment15%

Government18%

Consumer69%

Consumption acts as the anchor for US economic activity.Consumption acts as the anchor for US economic activity.

Any retrenchment in consumer spending will lead to slower economy-wide growth rates

Economic Outlook

That Leaves Only Consumer Spending.That Leaves Only Consumer Spending.

To Reach 2.7% Consensus Real GDP Growth….To Reach 2.7% Consensus Real GDP Growth….

Consumer Spending Must Grow at a Rate of More Consumer Spending Must Grow at a Rate of More than 3.5%.than 3.5%.

During Past Three Quarters, Consumer Spending During Past Three Quarters, Consumer Spending Averaged 3.2% Growth.Averaged 3.2% Growth.

And…And…

Economic Outlook

Consumer Spending has Relied On Debt.Consumer Spending has Relied On Debt. Net savings rate has been negative for years.Net savings rate has been negative for years.

Consumer Debt Burdens Near Historical HighsConsumer Debt Burdens Near Historical Highs Often a precursor to reduction in consumption growth.Often a precursor to reduction in consumption growth.

Sub-Prime Defaults Force a Tightening in Lending Sub-Prime Defaults Force a Tightening in Lending StandardsStandards

Reflects a new assessment of risk-return philosophy – beyond Reflects a new assessment of risk-return philosophy – beyond mortgages and perhaps globally.mortgages and perhaps globally.

Tapping Home Equity Not as Viable As In the PastTapping Home Equity Not as Viable As In the Past

Can Debt Based Consumer Spending Thrive In This Can Debt Based Consumer Spending Thrive In This Environment?Environment?

If not, growth in consumer spending slows.If not, growth in consumer spending slows. Income Growth is Improving – but perhaps not fast enough.Income Growth is Improving – but perhaps not fast enough.

Consumer Worksheet

Pay Increase Averages 3.5%.Pay Increase Averages 3.5%. Health Insurance Premiums Rise 7%-11%.Health Insurance Premiums Rise 7%-11%.

State and Local Property Taxes Rise.State and Local Property Taxes Rise. Reassessments based on high home appreciationReassessments based on high home appreciation

Energy Prices Take a Large Bite.Energy Prices Take a Large Bite. Even in context of recent improvement.Even in context of recent improvement.

Inflation Running near 2.5%Inflation Running near 2.5% Slowdown in Job Creation – 180K Per Month is Not Slowdown in Job Creation – 180K Per Month is Not

Sustainable.Sustainable. If Job Creation Drops Below 100K on Sustained Basis – Expect If Job Creation Drops Below 100K on Sustained Basis – Expect

a Significant Downward Revision in Forecast.a Significant Downward Revision in Forecast.

Economic Outlook : Real GDP Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

----------2005---------- -------2006------- -------2007------

2005: 3.5%

Real GDP Annual Growth Rate

-------2008-------

2006: 3.3%

2007: 2.4%

2008: 2.4%

NABE Consensus 2007: 2.7%

Fed Eases

Risks: Sub-Prime Mortgages

Housing Threat

Real threat to economic growth not Real threat to economic growth not the decline in housing…..the decline in housing…..

But…..But…..

The way we financed the past The way we financed the past boom…boom…

And…And…

Its impact on consumer Its impact on consumer spending…..spending…..

Potentially more profound in Potentially more profound in historyhistory

Growing Home Price & Income Gap

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1990 1992 1994 1996 1998 2000 2002 2004

Annual Growth Rate Comparison

Home Prices

Household Income

Emergence of Exotic Mortgages

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2003.4 2004.1 2004.2 2004.3 2004.4 2005.1 2005.2 2005.3

Interest Only Loan Share of Sub-Prime Market

Share by Principle Share by Principle Balance: Solid GreenBalance: Solid Green

Share by Loan Count: Share by Loan Count: Striped YellowStriped Yellow

Note: Sub-Prime accounts for 36% total mortgage market

Sub-Prime Mortgage Resets

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Total Loans Scheduled for Reset

Period of Emerging Period of Emerging TroubleTrouble

Impact on Economic Growth

Monthly Payments Increase 50% or More.Monthly Payments Increase 50% or More.

Credit Card Debt Increases As Consumers Try Credit Card Debt Increases As Consumers Try

To Preserve Standard of Living.To Preserve Standard of Living.

Delinquencies Increase.Delinquencies Increase.

Defaults Increase.Defaults Increase.

Adverse Impact on Consumer Spending. Adverse Impact on Consumer Spending.

Impact on Economic Growth

Adverse Impact on Consumer Adverse Impact on Consumer Spending can be Contained.Spending can be Contained.

As Long As….As Long As….

Relatively Strong Job Growth Persists.Relatively Strong Job Growth Persists.

And…And…

Interest Rates Remain Stable. Interest Rates Remain Stable.

Worst Case Scenario PCA Scenario

Exotic Market 1,782,000,000,000 1,782,000,000,000

Default Rate 30.00% 6.00%

Homes Into Default 2,227,500 445,500

GDP Growth 0.3% 2.4%

Risk to Baseline Construction

Government Intervention Will Materialize Well Before 30% Default Rate

Conclusion

Economic Growth SlowsEconomic Growth Slows

Extent of Slowdown UncertainExtent of Slowdown Uncertain

Sub PrimeSub Prime EnergyEnergy 2.4% Real GDP now seems strong2.4% Real GDP now seems strong

Risk Hinges Largely on Sub-Prime “Leakage”Risk Hinges Largely on Sub-Prime “Leakage”

Threat not to be dismissedThreat not to be dismissed

Construction & Cement OutlookOverview

Total Construction

Billion 1996 $

450

500

550

600

650

700

750

800

1990 1992 1994 1996 1998 2000 2002 2004 2006

2007: Decline projected …BUT.. based off record levels

Changing Composition of Construction Spending Growth

Growth Leader: ResidentialGrowth Leader: Residential Low Interest RatesLow Interest Rates

PublicPublic State Tax Revenues Hurt by State Tax Revenues Hurt by

Anemic Economic GrowthAnemic Economic Growth

Growth Laggard: Growth Laggard: NonresidentialNonresidential

Weak EconomyWeak Economy

Growth Leader : NonresidentialGrowth Leader : Nonresidential Strong EconomyStrong Economy

PublicPublic State Tax Revenues Recovery State Tax Revenues Recovery

Due to Strong Economic Due to Strong Economic GrowthGrowth

Growth Laggard : ResidentialGrowth Laggard : Residential Rising Interest RatesRising Interest Rates

2001-2005 2006-2009

Low Interest Rates, Weak Economy

Rising Interest Rates, Strong Economy

Cement Intensities

Composition Of Cement Growth: Construction Activity Vs Cement Intensity Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2003 2004 2005 2006

Cement Intensity Growth

Cement Intensity Growth Cement

Intensity Growth

Construction Activity Growth

Construction Activity Growth

Annual Percent Change, Real Put-In-Place Construction & Cement Intensity

Reasons for Cement Intensity Gains

Competitive Price Position Vs Other Building Competitive Price Position Vs Other Building MaterialsMaterials

Compare from 2000Compare from 2000 Large advantage – Even with recent declines in steels and Large advantage – Even with recent declines in steels and

increases in concrete. increases in concrete.

Composition of ConstructionComposition of Construction Gains associated with strengthening of higher intensity construction Gains associated with strengthening of higher intensity construction

sectorssectors

Nonresidential Intensities are CyclicalNonresidential Intensities are Cyclical Type of construction differs on downside and upside of business Type of construction differs on downside and upside of business

cycle.cycle.

Construction Stronger in Southern StatesConstruction Stronger in Southern States Generally higher intensities in Southern statesGenerally higher intensities in Southern states

Green Construction & PromotionGreen Construction & Promotion

Concrete: Improving Competitive Position

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

2005 5-May 5-Sep 2006 6-May sept 6-Feb 6-Jun oct

Change Relative Price Vs Concrete

Asphalt

Steel

Rapid Improvement in Concrete’s Relative Pricing Position

Oil Price Outlook

$10

$20

$30

$40

$50

$60

$70

$80

20002002

20042006

20082010

$ Per Barrel, West Texas Intermediate

Projected

Oil Prices Oil Prices Retreat to 2002 levels not going Retreat to 2002 levels not going

to happen.to happen.

Strong International DemandStrong International Demand Japan’s Economic RecoveryJapan’s Economic Recovery Stronger Asian Demand: China Stronger Asian Demand: China

& India& India

Supply Disruptions ContinueSupply Disruptions Continue Middle East Uncertainties, Middle East Uncertainties,

Nigeria, VenezuelaNigeria, Venezuela Iran & Uranium EnrichmentIran & Uranium Enrichment

OPEC ActionsOPEC Actions $60 per barrel target?$60 per barrel target?

2006: $65.85 per barrel WTI 2006: $65.85 per barrel WTI 2007: $60.302007: $60.30

-9 +60

-10 +50

-10 +30

-7 +20

Competitive Position Vs Asphalt

Sustained high oil pricesSustained high oil prices

Plus…..Plus…..

More efficient refining processesMore efficient refining processes

Suggest…..Suggest…..

New competitive position of Concrete New competitive position of Concrete is sustained…is sustained…

It is not a temporary phenomenon…It is not a temporary phenomenon…

But, other issues could reduce this But, other issues could reduce this advantage advantage

Intensity Risk

Growth in Intensity to Cushion Construction Growth in Intensity to Cushion Construction DeclineDecline

Cross Price Elasticities Difficult to EstimateCross Price Elasticities Difficult to Estimate

Number of factors & SCM ImpactsNumber of factors & SCM Impacts Data IssuesData Issues

TimingTiming

Lag StructureLag Structure

Less Cushion = Greater DeclineLess Cushion = Greater Decline Gut, Error on DownsideGut, Error on Downside

Intensity Conclusion

Intensity GrowsIntensity Grows

Cushions Construction DeclinesCushions Construction Declines

Extent this Materializes In QuestionExtent this Materializes In Question

Residential Construction

Past Strength in Starts More Than Low Rates…

The Cyclical Upside: 2001 - 2005The Cyclical Upside: 2001 - 2005

Low mortgage rates key factor in single family starts over past few Low mortgage rates key factor in single family starts over past few years.years.

Emergence of exotic mortgages also a key factor…particularly in Emergence of exotic mortgages also a key factor…particularly in

strong home appreciation environment.strong home appreciation environment.

Easy credit conditions contributed to strong home-buying Easy credit conditions contributed to strong home-buying environment.environment.

Speculators add froth to market in light of strong appreciation Speculators add froth to market in light of strong appreciation

rates.rates. Lean inventories supplement demand …add strength to starts.Lean inventories supplement demand …add strength to starts.

Each Factor at Work on Cyclical Downside: 2006 - 2007Each Factor at Work on Cyclical Downside: 2006 - 2007

No Such Thing as a “National” Market…

Structurally Changed MarketsStructurally Changed Markets

Hurricanes (Louisiana)Hurricanes (Louisiana) Economically Depressed (Michigan)Economically Depressed (Michigan)

Boom/Bust MarketsBoom/Bust Markets Dynamic EconomiesDynamic Economies Strong DemographicsStrong Demographics Robust Appreciation RatesRobust Appreciation Rates High Presence of SpeculatorsHigh Presence of Speculators Large Inventory Overhang, Large Starts Decline, Slow RecoveryLarge Inventory Overhang, Large Starts Decline, Slow Recovery 2009 Surprising Strength2009 Surprising Strength Arizona, Nevada, Florida & California = 28% Cement ConsumptionArizona, Nevada, Florida & California = 28% Cement Consumption

““Normal” MarketsNormal” Markets

More Modest AppreciationMore Modest Appreciation Relatively Low Speculator PresenceRelatively Low Speculator Presence Smaller Inventory OverhangSmaller Inventory Overhang More shallow decline, Quicker RecoveryMore shallow decline, Quicker Recovery

Home Prices: Will Play a Role in Correction

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Annual Growth Rate, Median Home Price

Price Will Play Strong Role In Recovery

But…

In Context of Tighter Lending Standards

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2004 2005 2006 2007 2008

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Inventory of Single Family Homes

Number of Homes for Sale, Thousands: BarMonths Supply: Line

Projected

6.3 Months

Worst Case Scenario PCA Scenario

Exotic Market 1,782,000,000,000 1,782,000,000,000

Default Rate 30.00% 6.00%

Homes Into Default 2,227,500 445,500

GDP Growth 0.3% 2.4%

Risk to Baseline Construction

Government Intervention Will Materialize Well Before 30% Default Rate

Single Family Starts Outlook

Percent Change

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

2004M1 2004M7 2005M1 2005M7 2006M1 2006M7 2007M1 2007M7

Projected

Nonresidential & PublicConstruction

Construction Spending:NonResidential

0

20

40

60

80

100

120

140

160

180

200

1993 1995 1997 1999 2001 2003 2005 2007 2009

Billions $1996

Annual GrowthAnnual Growth

2005: +2.9%2005: +2.9%

2006: +12.3%2006: +12.3%

2007: +8.6%2007: +8.6%

Source: Department of Commerce, PCA

Public Construction Outlook

-60

-40

-20

0

20

40

60

80

1979Q1 1991Q1 2003Q1

93% of public construction 93% of public construction performed at state/local performed at state/local level.level.

State/Local fiscal problems State/Local fiscal problems

fading.fading.

Revenue growth improves Revenue growth improves with economy and job with economy and job growth.growth.

Surpluses will re-emerge.Surpluses will re-emerge.

Pent-up demand released.Pent-up demand released. Highway Bill adds strength.Highway Bill adds strength.

Billion $ State Surplus/Deficit, NIPA

Construction Spending:Public

0

50

100

150

200

250

1993 1995 1997 1999 2001 2003 2005 2007 2009

Billions $1996

Annual GrowthAnnual Growth

2005: 0.0%2005: 0.0%

2006: +5.6%2006: +5.6%

2007: +5.5%2007: +5.5%

Source: Department of Commerce, PCA

Construction Conclusion

Nonresidential & Public Strong GrowthNonresidential & Public Strong Growth Low RiskLow Risk

Residential CorrectionResidential Correction Baseline May understate DeclineBaseline May understate Decline Inventory & Price Correction KeyInventory & Price Correction Key

Baseline Inventory Probably UnderstatedBaseline Inventory Probably Understated

Total Construction Downside RiskTotal Construction Downside Risk

Risk: Largely Residential InventoryRisk: Largely Residential Inventory Aside from General Economic RisksAside from General Economic Risks

Market Conditions

Portland Cement Outlook

Thousand Metric Tons

450

20,450

40,450

60,450

80,450

100,450

120,450

140,450

160,450

1995 1997 1999 2001 2003 2005 2007 2009

2006 – 2007: A Pause Before A Resumption in Growth

Growth Slows When One of Three Sectors (Residential,

Nonresidential & Public Declines)

Performance So Far….Really That Bad?

Percent Change, Year Ago

Raw Tons, MMT

Average, MMT

WinterWeather

2004 January -4.3 6.2

February 14.8 6.1 6.2 Mild

2005 January 6.9 6.7

February 15.5 7.1 6.9 Mild

2006 January 27.6 8.5

February 12.8 8.1 8.3 Very Mild

2007 January -19.4 6.9

February -20.2 6.2 6.6 Very Harsh

Off 5% from 2005 Record Year…With Harsh Winter

Back Ended Growth

Market Conditions

Import Volumes: 2007

No Shortage Tight Supplies

Cement Supply Survey Summer 2005

Spot Tight Supplies

$0

$10

$20

$30

$40

$50

$60

1/1/2001 7/1/2002 1/1/2004 5-Feb 5-Jul 5-Dec 6-May

Import Volume & Freight Rates

Import Volume, Million Metric TonsFreight $ Per Ton, Handymax, Asia-Gulf

Imports 1st Half 2006: 40 MMT Rate

Imports 2005: 33.6 MMT

Net Increase (SAAR): 8.4 MMT

Consumption Growth Rate: 1 MMT

7 MMT (SAAR) Overhang

No Shortage Tight Supplies

Cement Supply Survey Summer 2006

Spot Tight Supplies

Market Balances: Trend

0

20000

40000

60000

80000

100000

120000

140000

160000

2002 2004 2006 2008 2010

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

2002 2004 2006 2008 2010

0

5

10

15

20

25

Inventory Adjustment

Adjusted Supply Vs ConsumptionGreen: Domestic Yellow: Imports

Green: Inventory Red: Day Supply

Import Outlook

2007 Worksheet2007 Worksheet

Consumption = 1.5% DeclineConsumption = 1.5% Decline

Domestic Utilization = Same as 2006 (94%)Domestic Utilization = Same as 2006 (94%)

Inventory = 19 Days SupplyInventory = 19 Days Supply 770K Draw770K Draw Note: Added 1.1 Million MT in 2006Note: Added 1.1 Million MT in 2006

Imports 2007 = 33.1 MMT (-7.8 %)Imports 2007 = 33.1 MMT (-7.8 %)

Downside Risks Downside Risks

Imports: SAAR

Million Metric Tons, Seasonally Adjusted Annual Rate

0

5

10

15

20

25

30

35

40

45

50

2006M1 2006M4 2006M7 2006M10

1st Q: 42 MMT Rate

2nd Q: 38 MMT Rate

3rd Q: 34 MMT Rate

4th Q: 31 MMT Rate

2nd Half 2006: Import Rate Contracts

Some Re-Tightening of Market

January: 28.1 MMT SAAR

Freight Rates

0

10

20

30

40

50

60

$ Per Ton to Gulf

2001 2002 2003 2004 2005 2006

From Europe

From Asia

Source: Intercem

Import Conclusion

Import Volume DeclinesImport Volume Declines

Freight Rate Risk on VolumeFreight Rate Risk on Volume Larger declines than anticipated very likelyLarger declines than anticipated very likely January Data (latest) = -30.9% (28 MMT SAAR)January Data (latest) = -30.9% (28 MMT SAAR)

Potential Exists for Market Tightening…Even Potential Exists for Market Tightening…Even in Face of Declining Volumein Face of Declining Volume

Single digit declines in volumeSingle digit declines in volume Double digit decline in importsDouble digit decline in imports

Freight Rates: Note

Dry-Bulk Ship Retirement

Thousand, Deadweight Tons

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2000 2001 2002 2003 2004 2005 2006

Dry-Bulk Ship Retirement to Increase

Thousand, Deadweight Tons

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

2000 2001 2002 2003 2004 2005 2006

Actual, Retirement2% Of Fleet Retirement

Potential Additional Retirement: 22 mdwt

HandySize Fleet Changes

Thousand, Deadweight Tons

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

2000 2001 2002 2003 2004 2005 2006 2007

New Deliveries

Retirements

Source: Simpson, Spence & Young

Long Term

US Population

Thousands of Persons

200,000

250,000

300,000

350,000

400,000

1980 1990 2000 2010 2020 2030

US Population Adds Roughly 65 Million People by 2030 ….

a 22% Increase.

Demographics: 2005-2030

Population Adds 65 Million PersonsPopulation Adds 65 Million Persons

Adds 9.1 Million School Age PersonsAdds 9.1 Million School Age Persons Education ConstructionEducation Construction

Adds 34 Million Retirement Age PersonsAdds 34 Million Retirement Age Persons MedicalMedical

Adds 31 Million HouseholdsAdds 31 Million Households Housing, Retail & Infrastructure.Housing, Retail & Infrastructure.

Highway Lane Miles

Thousands of Miles

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

11,000,000

1996 2000 2004 2008 2012 2016 2020 2024 2028

Just to Maintain Current Highway Congestion Levels,

Federally Aided Highways Must Expand Nearly 25% by

2030 .. Given 49 Million Additional Licensed Drivers.

10% + 0% to 1% Share

Total U.S. Population Growth: 65 Million Persons

Share of U.S. Population Growth 2006-2030(Percent Share of Total)

1% to 3%3% to 10%

Note:

47% of Total Population

Growth Occurs in California, Texas and

Florida

Source: U.S. Bureau of Census

Cement Consumption Per Capita

Tons Per Persons

0.000

0.100

0.200

0.300

0.400

0.500

0.600

1980 1990 2000 2010 2020 2030

Per Capita Consumption Expected to Grow 32% 2005-2030…Compared to Nearly

39% in Previous 25 Year Period

Cement Consumption: Long Term

50

70

90

110

130

150

170

190

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Million Metric Tons

U.S. Capacity Growth

-4000

-2000

0

2000

4000

6000

8000

10000

12000

1975 1980 1985 1990 1995 2000 2005 2010

Thousand Metric Tons

2006-2010: Industry Expands by More Than 20% - Adds 24 MMT of Capacity

U.S. Capacity Growth: Financial Investment History

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1975 1980 1985 1990 1995 2000 2005 2010

Estimated, Thousands 2005 Dollars

2006-2010: Industry Invests $5.4 Billion in Plant Expansion

10% + 0% to 1% Share

Total U.S. Capacity Expansion: 24.2 Million Metric Tons

Share of U.S. Plant Expansion 2007-2010(Percent Share of Total)

1% to 3%3% to 5%

Source: PCA

5% to 10%

Capacity Utilization Vs Import Share“Swing Supply Strategy”

0%

10%

20%

30%

1979 1984 1989 1994 1999 2004 2009 2014

50%

60%

70%

80%

90%

100%

Capacity Utilization

Import Share

Market Digests

New Capacity

Consumption Consumption will Growwill Grow

Utilization Rate Utilization Rate

ReductionsReductions

Import Import ReductionsReductions

RationalizationRationalization

Conclusions

Bottom Line

Economic Growth SlowsEconomic Growth Slows Temporary: Stronger Growth 2Temporary: Stronger Growth 2ndnd Half 2008 Half 2008

Construction DeclinesConstruction Declines Temporary: Stronger Growth 2Temporary: Stronger Growth 2ndnd Half 2008 Half 2008

Sector Importance Shifts Away From ResidentialSector Importance Shifts Away From Residential

Global Conditions Face Shipping: Supply PressuresGlobal Conditions Face Shipping: Supply Pressures

Concrete Relative Price Competitiveness SustainedConcrete Relative Price Competitiveness Sustained Advantage Could Be Reduced With Market Tightening Advantage Could Be Reduced With Market Tightening Could Be Reduced Due to Global Import ConditionsCould Be Reduced Due to Global Import Conditions

Cement Consumption: Rough Months AheadCement Consumption: Rough Months Ahead Temporary PhenomenonTemporary Phenomenon

Even Then….Market Balances Could TightenEven Then….Market Balances Could Tighten

Cement Outlook: 2007

Longbow Research

Boston, Massachusetts

Ed Sullivan

Staff Vice President and PCA Chief Economist

For the Second Straight Year Awarded Most Accurate Forecaster (GDP) by the Chicago Federal Reserve