Eagle Materials Inc (EXP)

[Democritus_of_Abdera]

TXI Q1 2009 CC – Comments relevant to EXP...

Note: EXP has cement plants in LaSalle Il, Laramie Wy, Fernley Nv, and joint venture with Texas Lehigh in Buda Tx... TXI has cement plants in TX with a small presence in California.

1. Currently, cement consumption in Texas significantly exceeds cement production.

Based on Texas excise tax receipts, cement consumption for 2008 will be 4-5% greater than that reported in 2007. Currently, Texas is consuming about 17.5M tons of cement/yr. It can produce about 12M tons/yr currently and 14.5M tons/yr soon. About 3.5-4M tons is shipped into Texas from Oklahoma, Arkansas, and Florida. Foreign imports have greatly diminished.

Texas 2008 cement prices increased an average of about 1% over a year ago. There was a $4/ton increase in April and a $5/ton increase in July. It is expected that the Oct 1 price increase of $10/ton will hold in South-Central Texas. An effort to add energy surcharges did not hold.

2. Construction activity in California continues to decline with the demand less than capacity.

The expectation is that if demand drops, capacity will be reduced rather than prices cut. That is because excess cement production does not create demand and market share can not be efficiently increased by cutting prices. Cement imports into California have stopped. California Portland has a cement plant in Colton that uses older technology to produce 800-900K tons/yr. Other than that there are no high costs plants in California that might close. However, it is difficult to run precalcinar plants at less than 90% capacity.

There has been a decline in realized cement prices in CA. Prices declined by an average of 8% in CA. Fifty percent of the decline was due to increased shipping costs.

Recently, the CA state budget passed and there has been an increase in bid lettings for public works. But it will take a bit of time before the money is actually spent.

3. Aggregate pricing has continued to show an upward trend.

4. Energy costs for cement, particularly electricity, were 35-40% higher than in 2007.

As natural gas prices have declined from the recent peak in the summer, electricity costs have declined as well. For TXI, a $1/Mcf increase in natural gas results in a $1.20/ton cement cost increase in CA and a $1.50/ton cement increase in TX.

About 20% of the cost per ton for cement is due to the cost of coal.

5. Some of the International cement producers that cover the entire country have announced a general price increase for Jan 1, 2009.

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