U S Cement Outlook PCAs Fall Committee Meetings

Cement Data 2015 Monthly Metric Tons, SAAR 110 000 100 000 90 000 80

Cement Data 2015 Monthly Metric Tons, SAAR 110 000 6 Mo. Incremental: 7. 9%

Portland Cement Consumption Thousand Metric Tons 140 000 120 000 2014 = 8. 7%

Trade Weighted Value of $ 125 115 105 95 +14% Last 12 85 75

Baltic Dry Index Proxy for Dry Bulk Freight Rates 2 575 2 075 1

2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 Import

Capacity Utilization 110% 100% Spring Import Forecast 90% 80% 70% 60% 50% 40% 2002

Economic Outlook Despite recent volatility in equity markets and concerns about global growth conditions,

Net Job Creation Thousands Net New Jobs 600 500 400 300 200 100 0

GDP Error? Polynomial 3 Comparison 5% 4% Employment Based GDP Estimate 3% 2% Actual

Inflation Rate CPIU Percent Change 5% 4% 3% 2% 1% 0% -1% -2% -3%

Interest Rates Annual Percentage Rate 9, 0 8, 0 BAA Bonds 7, 0 6,

Home Prices Total: Existing & New 280 000 260 000 240 000 220 000

Consumer Sentiment Index: 2000 = 100 90 80 70 60 50 40 30 20

Federal Reserve Policy Assessment Dual Mandate: Expansion/Jobs & Price Stability

Unemployment Rate Index: 2000 = 100 11% 10% 9% Natural Rate of Unemployment 8%

Inflation Rate CPIU Percent Change 5% 4% Fed Target Rate: 2% 3% 2% 1%

Inflation Rate CPIU Percent Change 5% Fed Target Rate: 3. 5%? 4% 3% 2%

Federal Reserve Interest Rate Assumptions • Strong dollar, weak global conditions, low oil prices,

Housing Assumptions • Focus on cyclical explanations for slow recovery in Single Family construction.

Housing Assumptions: Millennials Aged 18 -34 • Form the basis of first time home

01 13 20 14 20 15 20 16 20 17 20 18 20 19

17 20 18 20 19 20 16 20 15 20 14 20 13 20

Nonresidential Recovery: Construction Details 2014 2015 2016 2017 2018 2019 2020 8. 0% 10.

Oil Prices & New Rig Count Total Rigs Oil 2 500 120, 00 100,

Oil Cement Thousand Metric Tons 3 500 3 000 2 500 2 000 1

Oil Price Impacts 1 Metric Ton Oil Cement = 2. 9 Metric Tons Other

Public Construction Million Real $ Six Years Decline 300 250 200 150 2014 =

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U. S Cement Outlook PCA’s Fall Committee Meetings Ed Sullivan Group VP, Chief Economist 1

Cement Data 2015 Monthly Metric Tons, SAAR 110 000 100 000 90 000 80 000 70 000 60 000 2014 Volatility Adds to Uncertainty 2014 2015

Cement Data 2015 Monthly Metric Tons, SAAR 110 000 6 Mo. Incremental: 7. 9% 3 Mo. Incremental: 7. 1% 100 000 July Avg: 4. 9% 90 000 3 Mo. Avg: 2. 7% 6 Mo. Avg: 1. 8% 80 000 Model: 5. 4% 70 000 60 000 2014 2015

Portland Cement Consumption Thousand Metric Tons 140 000 120 000 2014 = 8. 7% 2015 = 5. 0% 2016 = 6. 5% 100 000 80 000 60 000 40 000 20 000 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Trade Weighted Value of $ 125 115 105 95 +14% Last 12 85 75 2009 2010 2011 2012 2013 2014 2015

Baltic Dry Index Proxy for Dry Bulk Freight Rates 2 575 2 075 1 575 1 075 575 75 1990 1995 2000 2005 2010 2015

2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 Import Volume Metric Tons, SAAR 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0

Capacity Utilization 110% 100% Spring Import Forecast 90% 80% 70% 60% 50% 40% 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Economic Outlook

Economic Outlook Despite recent volatility in equity markets and concerns about global growth conditions, the fundamentals in the United States are sound and should support sustained growth in construction activity. 11

Net Job Creation Thousands Net New Jobs 600 500 400 300 200 100 0 -100 -200 2009 2010 2011 2012 2013 2014

GDP Error? Polynomial 3 Comparison 5% 4% Employment Based GDP Estimate 3% 2% Actual GDP 1% 0% -1% -2% 2010 2011 2012 2013 2014

Inflation Rate CPIU Percent Change 5% 4% 3% 2% 1% 0% -1% -2% -3% 2009 2010 2011 2012 2013 2014

Interest Rates Annual Percentage Rate 9, 0 8, 0 BAA Bonds 7, 0 6, 0 5, 0 4, 0 Fixed Mortgage 3, 0 2009 2010 2011 2012 2013 2014 2015

Home Prices Total: Existing & New 280 000 260 000 240 000 220 000 200 000 180 000 Most of Middle-Class Wealth is tied to Home Value 160 000 140 000 120 000 100 000 2009 2010 2011 2012 2013 2014

Consumer Sentiment Index: 2000 = 100 90 80 70 60 50 40 30 20 10 0 2009 2010 2011 2012 2013 2014

Federal Reserve Policy Assessment Dual Mandate: Expansion/Jobs & Price Stability

Unemployment Rate Index: 2000 = 100 11% 10% 9% Natural Rate of Unemployment 8% 7% 6% 5% 5% 4% 4% 3% 2009 2010 2011 2012 2013 2014 2015

Inflation Rate CPIU Percent Change 5% 4% Fed Target Rate: 2% 3% 2% 1% 0% -1% -2% -3% 2009 2010 2011 2012 2013 2014

Inflation Rate CPIU Percent Change 5% Fed Target Rate: 3. 5%? 4% 3% 2% 1% 0% -1% -2% -3% 2009 2010 2011 2012 2013 2014

Federal Reserve Interest Rate Assumptions • Strong dollar, weak global conditions, low oil prices, spot slack conditions and low wage rate gains suggest slow inflation increases. • Unemployment data may underestimate slack in the economy. • Some discussion regarding appropriate target rate of inflation. • Past recession worst since post-WWII and recovery has been slow. Fed (Yellen) likely to err on over stimulate. • Suggests a somewhat bigger window for raising rates (4 th Q 15 – 1 st Q 2016). • Rate increases probably smaller and longer time lapses between increases.

Housing Outlook

Housing Assumptions • Focus on cyclical explanations for slow recovery in Single Family construction. • Employment gains should leak through to stronger household formation and starts activity. • Affordability favorable. Mortgage rates low. Focus on access to credit. • BUT…… • Structural changes may also explain slow recovery.

Single Family: Structural

Housing Assumptions: Millennials Aged 18 -34 • Form the basis of first time home buyers – the foundation for home construction growth. • Millennials formed opinions on housing growing up during the crash, high foreclosures and home price declines. • Millennials are saddled with huge student loan debt. • Millennials marrying later. • Millennials forming families later. • Structural issue. Not a cyclical issue.

01 13 20 14 20 15 20 16 20 17 20 18 20 19 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 20 Housing Outlook Housing Starts Thousands of Units 2 500 2 000 1 500 1 000 500 0

17 20 18 20 19 20 16 20 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 Starts Composition Multifamily Starts Share of Total 40% 35% 30% 25% 20% 15% 10% 5% 0%

Nonresidential Outlook

Nonresidential Recovery: Construction Details 2014 2015 2016 2017 2018 2019 2020 8. 0% 10. 7% 5. 3% 4. 8% 4. 2% Industrial 9. 3% 7. 1% 4. 2% 3. 8% 3. 6% 2. 5% 1. 9% Office 13. 9% 15. 8% 8. 0% 6. 6% 3. 5% 3. 4% 3. 6% Hotels, Motels 6. 3% 23. 8% 3. 6% 3. 9% 4. 2% 3. 1% 3. 0% Hospitals, Institutions -7. 5% 12. 2% 2. 6% 2. 8% 4. 3% 6. 4% 5. 9% Religious -12. 3% -1. 5% -3. 0% 0. 8% 0. 3% 0. 6% 1. 0% Educational -3. 8% -2. 1% -0. 6% 1. 4% 2. 2% Other Commercial 17. 6% 10. 4% 8. 1% 8. 5% 8. 6% 6. 6% 7. 0% Nonresidential Buildings 32

Oil Prices & New Rig Count Total Rigs Oil 2 500 120, 00 100, 00 2 000 Rig Count 80, 00 1 500 60, 00 1 000 40, 00 West Texas Intermediate 500 20, 00 0 0, 00 1995 2000 2005 2010 2015 2020

Oil Cement Thousand Metric Tons 3 500 3 000 2 500 2 000 1 500 1 000 500 0 1995 2000 2005 2010 2015 2020

Oil Price Impacts 1 Metric Ton Oil Cement = 2. 9 Metric Tons Other Construction Cement 35

Public Outlook

Public Construction Million Real $ Six Years Decline 300 250 200 150 2014 = -1. 9% 2015 = +3. 6% 100 50 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Summary

U. S Cement Outlook PCA’s Fall Committee Meetings Ed Sullivan Group VP, Chief Economist 40