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Spring Board Meeting
Cement Outlook: 2008
Ed Sullivan, Chief Economist PCA
Introduction: Overview
The economy is in recession…and it may not be mild.
December beginning
Fiscal & Policy actions will not avert a recession.
Timing lags
Fiscal Policy not have as strong an impact on GDP as
expected.
Debt, Energy, Adverse Momentum.
Lending aversion toward risk is spreading
Mortgage here
Consumer and Commercial impacts begins to emerge.
Job losses compound economic adversities.
Key Questions
How deep will retrenchment go ?
How long will it last ?
Portland Cement Consumption
140,450 Declines Continue
Through 2009.
120,450
100,450
80,450
60,450
40,450
Peak (2005)-to-Trough (2009) Decline:
20,450 30 MMT (Worst in History)
(On a Percentage Basis: Equal to 1980-82 Recession)
450
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Capacity Expansion
Thousand Metric Tons
10,000
Stated Capacity
Expansions Potential Increases
8,000 From Specification
Changes
6,000
4,000
2,000
0
2006 2007 2008 2009 2010 2011 2012
Conclusion
Double-digit decline in consumption with trough in 2009.
Large capacity increases magnify potential market
imbalances.
Imports record large, sustained declines.
Global conditions suggest high freight rates continue.
2008: Bears most of the burden of correcting market imbalances.
Utilization Rates decline.
Materializes to a greater extent in 2009.
Days Supply Inventory remains above historical average.
Most pressure materialize in 2009.
Past Peak (2005) not realized until 2014
Spring Board Meeting
Economic Outlook
Recession is Here, and its not going to be Mild
Introduction
To determine the cause of a slowdown in economic Growth,
or even a recession ….
…. Look no further than the excesses and imbalances
created during the preceding boom period.
Debt played important role in 2003-2006 growth.
Responsible debt?
Easy terms & standards
Unprecedented link in consumer spending to housing
wealth.
Payback is tough – maybe more than consensus of
economists believe.
Sub-Prime Mortgage Resets
Total Loans Scheduled for Reset
50,000
45,000
40,000
35,000
30,000
25,000
20,000
Period of Emerging
15,000
Trouble
10,000
5,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Recession: Construction Declines May not
be Short or Shallow.
2006
Foreign
Capital Inflows
2007
Housing
2008
Consumer
2009
Commercial
Energy Public
Monetary Policy Timing Lags
Percent Change, GDP Growth Rate, Inflation
0.60% Change in Real
GDP Growth
0.50% Rate
0.40%
0.30% Change in CPIU
Inflation Rate
0.20%
0.10%
0.00%
-0.10%
-0.20%
0 2 4 6 8 10 12 14 16 18 20 22 24
Peak Economic Stimulus Occurs 8-9 Months After Cut
Fiscal Policy Impacts Per Month
Percent Change, GDP Growth Rate
5.0%
Tax Rebate
4.5% Planned Impact
4.0%
3.5%
3.0% Tax Rebate Impact With
PCA Debt Reduction
2.5%
Assessment
2.0%
1.5%
1.0%
0.5%
0.0%
May July September November January March
Unleaded Gasoline Prices
Cents Per Gallon, Department of Energy At $4.10 Per Gallon, Wipes Out
$170 Billion Fiscal Stimulus.
400
Every 10 Cent Increase at
350
the Pump Takes $15 Billion
Out of Consumer’s Pockets
on
300 an Annualized Basis
250
200
Since January 1st, Gasoline
Prices have increased 35
150 cents = Equating to a $50
Billion Annualized Draw on
5
5
5
5
6
6
6
6
7
7
7
8
00
0
0
00
0
0
0
00
0
0
00
0
Consumer Spending.
20
20
20
20
20
20
20
20
2
/2
/2
/2
7/
/
/
/
/
/
/
/
/
17
26
/3
11
22
30
/8
18
26
/4
12
1/
11
12
10
4/
7/
2/
5/
8/
3/
6/
1/
Net Job Creation
Monthly Change in Total Non-Farm Employment, BLS
Economy has Shed 240,000
400 Jobs in Last Three
Months…AND…The
Recession has Just Begun.
300
200
100
0
-100
-200
2005M1 2005M7 2006M1 2006M7 2007M1 2007M7 2008M1
Economic Growth Outlook
Percent Change, GDP Growth Rate
6.00% Tax Rebate
Bump
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
-2.00%
2005.1 2006.1 2007.1 2008.1 2009.1 2010.1
Hard to Sell Businessmen that Recession is “technically”
over in 3rd Quarter – Distress Continues Into 2009.
Spring Board Meeting
Residential Outlook
Recovery Delayed
Home Inventory
Thousands of Homes for Sale, December
5000
4500 New
4000 New New
3500
New
3000 New
New
2500 Existing
Existing Existing
2000
Existing Existing
1500
Existing
1000
500
Existing Homes Account for 87% of
0
Total Home Inventory
2004 2005 2006 2007 2008 2009
Single Family Price Trend:
Existing Homes Compared to Year Ago Levels
Percent Change, Year Ago (%)
Projected
20.00% 12
High Inventories Will Depress Prices
Throughout 2008.
15.00% 10
10.00% 8
5.00% 6
0.00% 4
-5.00% 2
-10.00% 0
2004 2005 2006 2007 2008 2009
Lenders Reporting Tighter Lending Standards: Mortgages
Percent Reporting Tighter Lending Standards
60
Tighter Credit Will Undermine Sales
50 Easy
Recovery Credit
40 Period
30
20
10
0
-10
Sub-Prime Lending Has
disappeared.
-20
2000Q1 2002Q1 2004Q1 2006Q1 2008 Q1
Spring Board Meeting
Nonresidential Outlook
Declines in 2008 and 2009
Nonresidential Construction
Nonresidential 2006-2007 Strength
Strong Expected ROI Fostered by Strong Economic Growth
Pent-up Demand
Easy Credit Conditions
Nonresidential 2008-2009 Softening
Expected ROI Softens With Overall Economic Slowdown
Credit Conditions Tighten
Risks and Uncertainty Grow
Lenders Reporting Tighter Lending Standards:
Commercial
Percent Reporting Tighter Lending Standards
40
Medium to Large
Firms
30 Easy
Credit
Period
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
100
80
Bullish
60 Business
Attitudes
40
20
0
2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008 Q1
Spring Board Meeting
Public Outlook
Slower Growth in 2008, Problems Looming Ahead
States With Projected
Budget Shortfalls
District of
Columbia
2009 Shortfall 2010 Shortfall
No Shortfall
Spring Board Meeting
Conclusion
Correction is Temporary
Market Imbalances
- Changes in Cement Consumption Tons + Capacity Expansion Tons
20,000,000
15,000,000 2007
1974
1991
10,000,000
1981
2002
5,000,000
0
-5,000,000
-10,000,000 1980-82 1990-91 2000-01 2007-2008
-15,000,000 1973-74
1970 1980 1990 2000 2010
Freight Rate Trends
$ Per Metric Ton
$120 HANDYMAX 40-50,000 DWT
South East Asia U.S. Gulf
$100
$80
$60
$40
$20
$0
HANDYSIZE 28-40,000 DWT Transatlantic
2002M1
2001M1 East Coast/U.S.2003M1 2004M1
U.S. Gulf 2005M1 2006M1 2007M1 2008M1
Market Imbalances: After Import Reductions
- Changes in Cement Consumption Tons + Capacity Expansion Tons
15,000,000
10,000,000
5,000,000 2008
0
2007
-5,000,000
1980-82 1990-91 2000-01 2009 !
-10,000,000
1970 1973-74 1980 1990 2000 2010
Conclusion
Double-digit decline in consumption with trough in 2009.
Large capacity increases magnify potential market
imbalances.
Imports record large, sustained declines.
Global conditions suggest high freight rates continue.
2008: Bears most of the burden of correcting market imbalances.
Utilization Rates decline.
Materializes to a greater extent in 2009.
Days Supply Inventory remains above historical average.
Most pressure materialize in 2009.
Past Peak (2005) not realized until 2014
Spring Board Meeting
Take a Step Back
Longer Term Outlook
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
Spring Board Meeting
Cement Outlook: 2008
Ed Sullivan, Chief Economist PCA
