PCA Spring Cement Outlook

Board Week, April 2021

Ed Sullivan, SVP & Chief Economist
Presentation Focus
1. Putting the Forecast Into Context: 2020 Performance
2. IHME Covid-19 Projections, Impacts & Risks
3. Evidence of a Strong Recovery…So Far
4. 2021-2023 Macroeconomic, Inflation & Interest Rate Scenario
5. Growth Composition In the Context of Rising Interest Rates
6. The Biden Agenda Face Value: Infrastructure “America’s Jobs Plan”
7. Political Considerations & Alternative Scenarios
8. The Weighted Average Baseline Outlook
9. Questions & Answers
Putting the Forecast Into Context
2020 Performance Data
 Economic Performance

RGDP Growth Net Job Creation

%, Y-O-Y Thousand Jobs
Largest decline in GDP Growth
5% since 1946 when economy was 6,000
transitioning from a war time
4%
economy. 4,000
3%
The 2nd Quarter saw Real GDP 2,000
2% decline 31%.
0
1%

0% Since Q2, the economy has been -2,000

Nearly 9.5 million jobs lost. That
mired with state shutdowns,
-1% -4,000 equates to nearly 1.0 million
reopenings, and shutdowns.
more jobs lost during the great
Covid has retreated and
-2% -6,000 recession.
increased.
-3% More than 20.6 million jobs were
And…since Q3 economic growth -8,000
lost in one MONTH.
-4% has exceeded 5%
-10,000
Last three months average
-5% 2020 GDP Growth: -3.5
2010 2012 2014 2016 2018 2020
monthly job creation: 539K
-12,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
 Cement Consumption
Cement Consumption Cement Consumption
%, Y-O-Y Y-O-Y, %

5%
WA
West North Central 7.0%
MT ND VT
NH ME
4%
OR
MN West South Central -2.5%
ID NY MA
SD WI 4%
New England 3.4%
WY MI CT RI
IA PA
NE NJ
NV OH 3%
UT
CO
IL
IN

WV
DE
MD
East North Central 1.9%
CA KS VA
MO

NC
3% Middle Atlantic -2.9%
TN
AZ OK
NM AR
South Atlantic 0.9%
SC

GA
2%
AL
MS
LA
TX
2% East South Central 8.0%
FL

1% Pacific 0.1%

1% Mountain 11.4%
11% or 2% to +2% to - -2% to - 11% or
Greater 10% 2% 10% Greater
United States 2.0%
Growth 0%
Decline 2015 2016 2017 2018 2019 2020
Off to a Bad Start
February 2021 year-to-date
West North Central -10.4%

West South Central -12.5%

WA

NH
-13.6%
ME
MT ND VT
New England
OR
MN

East North Central -27.7%

ID SD NY MA
WI
WY MI CT RI
IA
-21.7%
PA
NV
NE
IN
OH
NJ
Middle Atlantic
UT DE
IL
CO WV MD
CA KS
MO
K
VA
South Atlantic -2.0%
Y
NC
TN
AZ
NM
OK
AR SC
East South Central -1.7%
KY
GA
-10.2%
AL
LA
MS
Pacific
TX

FL Mountain -2.6%

United States -9.9%

11% or 2% to 11% or Despite PCA weather metric data to the

+2% to - -2% to -
Greater Greater
10% 2% 10% contrary, cross-checks suggest declines
Growth Decline are weather related - and not reflective of
a structural decline.
Source: USGS/PCA
Covid Data & IHME
Projections
Confirmed & Projected COVID-19 Deaths
Risks
U.S. Coronavirus Deaths; 7-day moving average; IHME Projections • Some are reporting the potential
of a third bump in Covid due to
4000
the spread of Variants.
3500 • 3 Million Vaccinations Daily
• IHME Projections are Bi-Modal –
• 18.5% Fully Vaccinated
they do not project a third “bump”
3000 • 40% At Least One Dose
• 25% Refuse Vaccination
• 75% Herd Immunity Reached by
IHME Baseline
2500
July 6th (PCA) Forecast
2000

1500

1000
Projections July 1st
500 • April 6th: 818
• Base Case: 165
0 • Worst Case: 883
• Best Case: 78
Vaccine Impact on the Economy
Once the Vaccine is Mass Distributed….and herd immunity levels reached…..
This is largely based on
It will:
consumers returning to
pre-Covid patterns.
• Result in a dramatic surge in consumer confidence.
Given the severity and
• Encourage a return to many, but not all, Pre-Covid activities
duration of the
• Dining, movies, shopping, face-to-face interactions.
disruption…full restoration
of consumer patterns may
• Business will reopen, new businesses will emerge to fill voids created by the virus.
occur over several
• Perhaps encouraged by SBA support
quarters.
• Investment uncertainty will decline.
The process begins with
consumers sense of safety
• Economy will expand rapidly.
and the achievement of
herd immunity.
• Jobs growth will be strong.
Evidence of a Strong
Recovery
Consumer Comfort •
•
Pace of Vaccinations Accelerates
Covid-19 Daily Death Rates Drop
Morning Consult, % All Adults
60

50

40

30

20

10

0
May July Sept November January March

Public Socializing Dining Out Shopping Travel Sport/Concert Event

 Note:

Consumer Sentiment
Vaccinations & Reductions in death rates
have recently resulted in the highest level of
optimism since the start of the pandemic.
Composite, University of Michigan With continued gains in vaccinations a
return to pre-Covid levels is expected during
Q2 2021.
120

100

80

60

Covid-19 Rises Vaccinations

Increase,
40
Deaths Decline

20

0
 Light Vehicle Sales
SAAR

20000

18000

16000

14000

12000

10000 Note:
With the return in consumer optimism, LV sales
8000 has returned/exceeded pre-Covid levels.
6000
This has been replicated across many sectors.
4000

2000

0
 Economic Performance

Net Monthly Job Gains Net Job Creation

Net Thousands Thousand Jobs
6,000

1,000 4,000

800 2,000

0
600

-2,000
400
Employment is 8.4 million jobs
-4,000 Net New Jobs:
lower than pre-Covid levels.
200
-6,000 2021: 4.5 million
Millions have left the 2022: 3.5 million
workforce.
0 This blurs the
unemployment rate. Without -8,000
Even with continued robust job
the reduction in workforce,
-200 creation, Pre-Covid employment
unemployment would be 9%. -10,000
levels not reached until 2023.
-400 -12,000
Oct Nov Dec Jan Feb Macrh 2019 2020 2021 2022 2023 2024 2025

Back to Normal Index
Moody’s-CNN Survey 100=March
120
Back to Normal: July
With continued progress in
1st 2020 vaccinations, re-openings,
growing consumer confidence,
and sustained strength in job
gains….return to pre-Covid
“normal” is expected early in Q3.

100 August 15th:

Real GDP
-21% Current
-8%
80 2021: 6.2%
2022: 4.5%

60 Unemployment Rate January

-18%
40 -40% 2021: 5.2%
2022: 4.8%
37 monthly Note:
& highUnemployment
frequency variables
rate included in the index from
20
home prices, rail traffic,
estimates business
include confidence, seated diners, etc.
a significant
expansion of the labor force –
0 muting the decline in
unemployment rates.
 2021-2023
Inflation & Interest Rates
 Growing Inflation Concerns
2020
• Global Pandemic Unfolds
• Oil Prices Drop
• Massive Unemployment
Materializes
• Consumer Demand Contracts
• Capacity Utilization Eases
• Inflationary Expectations are
Reduced
• Federal Reserve
Accommodative.
• US Covid-19 Vulnerability
Prompts Weakening of Dollar
• Inflation Declines an Estimated
50 Basis Points
• Inflation Rate: 1.3%
2021
• Global Increase Access to Vaccine
Materializes in 2nd Half 2021.
• Consumer Demand Increase
• Capacity Utilization Rises But Slack
Remains.
• High Inventories, Increased Iran Supply,
Potential OPEC Production Significantly
Neutralize Demand Pull on Oil Prices
• Unemployment Reduced to 6% by Year End
– Still High and Holds In-Check Wage
Increases
• Minimum Wage Slowly Phased In.
• Inflationary Expectations Rise Modestly.
• Federal Reserve Remains Accommodative.
• Reduced US Covid-19 Vulnerability Prompts
a modest Strengthening of Dollar.
• Inflation Increases an Estimated 80 to 90
Basis Points – From Low Level.
• Inflation Rate: 2.0%
2022-23
• Much of Pandemic Has Passed.
• Pent-Up Demand Is Released.
• Unemployment Declines Below 5%.
• Phase in of Minimum Wage Limits
Impact on Inflation.
• Capacity Slack is Reduced.
• Inflationary Expectations Rise More
Aggressively.
• Federal Reserve Becomes Mildly
Restrictive.
• US Dollar Strengthens.
• Inflation Increases an Estimated 50 to
70 Basis Points
• Inflation Rate: Above Fed Target Rate
 Inflation Rate Scenario, %
Stage I
Stage I • Covid supply disruptions, increased
8% demand create product specific shortages.
Stage II
6% Stage III • Transitory not Structural
Stage IV
4% Stage II
• Covid supply disruptions fade.
2% • Slackness that characterizes productive
side of economy slowly recedes.
0% • Inflation eases.

-2% Stage III

• Economy regains footing. Slackness
-4% disappears. Unemployment drifts below
5%.
-6% • Inflation increases beyond Fed target Rate.

-8% Stage IV
• Fed reacts. Timidly at first. Inflation
-10% continues. Fed reacts more decisively.
2020 2021 2022 2023 2024 2025 • Fed Target Rate achieved 2024 & beyond.
 Interest Rate Scenario, %
Stage I
• Covid supply disruptions, increased
300% demand create product specific shortages.
Stage I & II Stage III & IV
• Transitory not Structural
250%

Stage II
200% • Covid supply disruptions fade.
• Slackness that characterizes productive
side of economy slowly recedes.
150%
• Inflation eases.

100% Stage III

• Economy regains footing. Slackness
disappears. Unemployment drifts below
50% 5%.
• Inflation increases beyond Fed target Rate.
0%
Stage IV
• Fed reacts. Timidly at first. Inflation
-50% continues. Fed reacts more decisively.
2020 2021 2022 2023 2024 2025 • Fed Target Rate achieved 2024 & beyond.
 Growth Composition In the
Context of Rising Interest Rates
 Composition of Growth

Oil/Other

Public

Nonresidential

Residential

-6 -4 -2 0 2 4 6 8 10 12
2023-2024 2021-2022
Residential Projection
Residential Cement Consumption
Monthly Payment Average Annual
Mortgage Interest Rates
Conventional, 30 Year, % AverageIncreases
SF Monthly
% Payment
2005-2019: 1.9%
7 2,000 2020-2022 Q2: 2.3%
1,800
2022 Q3-2024: 11.6%
6
1,600

5
1,400

1,200
4

1,000
3
800

2 600

400
1
200

0 0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
 Housing Starts Outlook
SF Starts MF Starts
Thousands Thousands

SF Starts 450
2,000
Thousands
1,800 400
2020: 1,000
1,600 350
2021: 1,111
1,400
2022: 1,154
300

1,200
250
MF Starts
1,000 Thousands
200
800
150 2020: 395
600 2021: 370
100 2022: 379
400
50
200
Ending Foreclosure & Eviction
0 Moratoriums:
0 PCA’s analysis suggests due to tight housing supplies, little adverse
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
impact will be suffered by either single and multifamily construction.
Nonresidential Projection
 Nonresidential Recovery Process Nonresidential Construction
Real PIP, Y-O-Y Change
Working Capital Factor:
0%
Nonresidential is not
The longer below “normal”
economic conditions expected to contribute
Nonresidential
Construction
Scarring &
persist – the more to growth until 2023
Decline
Bankruptcies pressure occurs on -5%
working capital and ability
to stay open.

-10%

Banks Tighten
Lending
Vacancy Rates -15%
Increase
Standards

Bank Lending Total

-20%
Officer Survey: Structural Factors
Industrial
Contribute to Vacancy
More Banks Rates: Hotel
Tightening Lending
Standards Since -25% Office
Sq Feet Vented • Work-At-Home
2008 NOI Declines
onto Market • E-Retail
• Virtual Meeting
• E-Learning
• Urban Trend Slows -30%
Public Projection
 State Funding – FY2021
Percent Declines in General Fund Tax Revenues from Pre-COVID Levels

On a state weighted
WA

basis, 2021 general MT

ND VT
NH ME
States with high
fund revenues are
OR
MN
exposure to oil &
expected to decline
ID
SD
WI
NY MA
RI
tourism revenues are
12.3% as reported by
WY MI
CT
at most risk
IA
PA

state agencies NE NJ
NV OH
UT IN DE
IL
CO WV MD
CA VA
KS
MO KY

NC
TN
AZ OK
NM AR SC

AL GA
MS
LA
TX

FL

No Data 21% to 26% 16% to 20% 11% to 15% 6% to 10% 1% to 5%

28
Source: Center on Budget and Policy Priorities: Data compiled from various state agencies as of November 6, 2020
State & Local Allocation Scheme
$Billions

Total State & Local Government Aid: $350

State Governments & DC: $195.3 Counties & Cities: $130.2 Territories & Tribes: $24.5
Counties: $65.1 Cities: $65.1
Divided equally: $25.5 Tribes: $20
Territories: $4.5
>50,000:
Divided $45.6
Divided based on states’ share of based on
total unemployed Americans: $169.8 population
<50,000:
$19.5
 The legislation says the funds are to be distributed based on
each states’ share of total unemployed Americans. So I used
Estimated Aid Sent to States BLS unemployment numbers to figure out the share. Each
state and DC also starts out with $500 million.
$Billions
Alaska $ 0.89 Kentucky $ 2.26 New York $ 14.02
Alabama $ 2.12 Louisiana $ 3.12 Ohio $ 5.58
Arkansas $ 1.55 Massachusetts $ 5.38 Oklahoma $ 1.84
Arizona $ 4.46 Maryland $ 3.77 Oregon $ 2.69
California $ 28.31 Maine $ 1.08 Pennsylvania $ 8.08
Colorado $ 3.99 Michigan $ 4.98 Rhode Island $ 1.15
Connecticut $ 2.97 Minnesota $ 2.76 South Carolina $ 2.58
District Of Columbia $ 1.07 Missouri $ 2.67 South Dakota $ 0.74
Delaware $ 0.99 Mississippi $ 1.86 Tennessee $ 3.32
Florida $ 8.47 Montana $ 0.85 Texas $ 16.37
Georgia $ 4.78 North Carolina $ 5.43 Utah $ 1.33
Hawaii $ 1.61 North Dakota $ 0.80 Virginia $ 4.26
Iowa $ 1.45 Nebraska $ 1.04 Vermont $ 0.67
Idaho $ 1.01 New Hampshire $ 0.95 Washington $ 4.28
Illinois $ 8.33 New Jersey $ 6.25 Wisconsin $ 2.44
Indiana $ 2.84 New Mexico $ 1.88 West Virginia $ 1.35
Kansas $ 1.36 Nevada $ 2.56 Wyoming $ 0.75
Source: BLS, PCA
Cement Consumption Outlook
No Infrastructure
Cement Consumption Outlook: No Added Infrastructure
Y-O-Y %
Cement Consumption
Late Years of Horizon
Growth
Annual, %
4.0%
• Covid-19 accelerates structural
2020: 2.0% trends that were in-place.
3.5%
2021: 2.2%
2022: 1.9% • Fossil fuel prices remain
3.0%
2023: 1.8%
constrained.
2024: 0.9%
2.5%
2025: 0.6%
• Interest rates increase.
2.0% •
• Private sector slows.
1.5%

• Public sector growth largely a

1.0%
state phenomenon and
supported by moderately growing
0.5%
economic conditions.
0.0%
2017 2018 2019 2020 2021 2022 2023 2024 2025 Growth slows to 1% or Less
Biden’s American Jobs Plan
Face Value
 a

After Congressional Passage: There

Will Be a Wait for Pouring to Begin

Six One Eighteen

April Months Year Months

House & Senate Passage 4-9 Months

Federal & State Paperwork 4-12 Months

Bid Letting & Review 6-15 Months

Contract Award to Construction 6-21 Months

Average Construction Start: Early 2023

34
 Non-Traditional Infrastructure Investments a
Spending Segmented by Cement Intensities

Low Cement Intensities

Biden
“Face Value”
High Cement $669.0
Intensities $894.0 Infrastructure
Scenario: $

$2.2 Trillion
$610.0
28% of spending has no
impact on cement
consumption.

Zero or Undetermined Cement 59% of spending has little or

no impact on cement
consumption.
 Cement Consumption Estimates a

Roads & Bridges, 25.0

Biden
“Face Value”
Miscellaneous, 29.0 Infrastructure
Scenario:
Cement
Rail, 2.0 Consumption

Airports, 6.0 Programs Totaling

Other Traditional Infrastructure, 82 MMT
8.6
Buildings, 11.8

36
Infrastructure Timing Distribution
Highway & Bridges

Process repeated across all

14 construction segments that
are impacted by the
Infrastructure Program
 S&L Sterilization TEA/SAFETY-LU:
ARRA:
31%
81%
Percentage Foregone

0% 10% 15% 20% 33%

VA Buildings Education Conservation Highway Shovel Ready

Manufacturing Residential Public Bridges
Utilities Renovations Buildings Water
Public Misc.
Biden Housing Initiative
Biden’s Housing Impact
Over Full Horizon

5,960,00
Total $213 Billion 500,000 Units
Metric Tons

New SF $7 Billion 30,000 Units 810,000

Metric Tons

New MF $55 Billion 470,000 Units 4,000,000

Metric Tons

Rehabilitations $106 Billion 1,150,000

Metric Tons

Clean Energy & Insulation $45 Billion ---

Tax Impact
 GDP Impacts Reflect Consensus of:

Biden Tax Impacts Tax Foundation, American Enterprise

Institute, Wharton
Biden Face Value Impact
Summary
Cement Consumption Outlook: Infrastructure Face Value
Y-O-Y %
Late Years of Horizon
4.5%
• Private sector growth decays in
4.0% the context of rising interest rates

3.5% • Public sector supports stronger

Cement Consumption growth rates during back end of
3.0%
Growth the forecast.
2.5% Annual, %

• More than $860 billon in the

2020: 2.0%
2.0% Biden Infrastructure plan
2021: 2.2%
1.5% 2022: 1.9%
contributes little or nothing to
2023: 2.8% cement consumption.
1.0% 2024: 3.8%
2025: 2.5% • Adds 7 MMT to consumption by
0.5%
end of forecast horizon.
0.0%
2017 2018 2019 2020 2021 2022 2023 2024 2025 Growth increases to 3% annually.
The Political Assumptions
Covid-19 Relief Spending & Debt
It took from George Washington to Ronald
Covid Relief Reagan – more than 200 years – to
6000 Spending amass $1 Trillion in Debt.
$5.2 Trillion

During 2020-2021 – two years - the US

5000 will amass $7.2 Trillion in Debt.

$1.9 Trillion
ANY Infrastructure
4000 proposal must pay for Note: Passed through
itself. On-Going Federal reconciliation with no
Government Republican support;
3000 $900 Billion That means taxes. Deficits signed into law on March
$2.0 Trillion 11
Some in Congress have
$483 Billion
2000 concern about the deficit
& rigid stands against 2021
new taxes. $1.0 Trillion
$1.7 Trillion
Cares
1000
This forms the basis of 2020
1st & 2nd Relief Bills opposition to the Biden $1 Trillion
($200 Billion) proposal.
0
Compromise Scenario
Cement Consumption
• Ditch the contentious Biden tax increases. Growth
Annual, %

• Scrap the expanded definition of “Infrastructure”.

2020: 2.0%
•
2021: 2.2%
• Focus on expanding commitment to traditional infrastructure programs already 2022:
in-place.
1.9%
2023: 2.1%
• Fast Act 2024: 2.7%
• WRDA 2025: 1.3%
• Army Corps Projects
• FAA Reauthorization

• Assume a 25% expansion in each program.

• Net Impact: + 4.6 MMT annually, 4.1 MMT after sterilization assessments.
Adjusting for Political Risks
Potential Outcomes
Considered
NOTE:
Regardless of which political outcome
materializes, it will not have any
substantive impact on cement
consumption until 2023.

That implies that this source of risk to the

Biden Face Value 60% forecast is not present during 2021-2022
time period.

Base Case =
Compromise 5% Weighted Average of
the Three Scenarios

Note: The $1.9 Trillion “America Rescue

No Plan is Passed
35% Plan passed through reconciliation with no
Republican support; signed into law.
Reconciliation will be in force for the
Infrastructure bill.
Summary
 The Political Scenarios: Summary
Total Cement Consumption Cement Consumption Growth
Metric Tons Y-O-Y % Change

120,000 4.50%

4.00%
115,000
3.50%

110,000 3.00%

2.50%
105,000
2.00%

100,000 1.50%

1.00%
95,000
0.50%

90,000
0.00%
2018 2019 2020 2021 2022 2023 2024 2025
2018 2019 2020 2021 2022 2023 2024 2025

Biden Face Value Compromise No Infrastructure

 Weighted Average Baseline: Summary
Total Cement Consumption Cement Consumption Growth
Metric Tons Y-O-Y % Change

120000 4.00%

3.50%
115000

3.00%
110000
2.50%

105000 Cement Consumption

2.00%
Growth
Annual, %
1.50%
100000
2020: 2.0%
1.00%
95000
2021: 2.2%
2022:0.50%1.9%
2023: 2.4%
90000 2024:0.00%2.8%
2018 2019 2020 2021 2022 2023 2024 2025
2025: 1.8% 2018 2019 2020 2021 2022 2023 2024 2025
PCA Spring Cement Outlook
Board Week, April 2021
Ed Sullivan, SVP & Chief Economist