A MARKET UPDATE for April 2008 / May 2008

Special Announcement: TCC now offers Dioctyl (Di- 2 Ethyl Hexyl) Phthalate shipping in Truck and Railcar from Kinder Morgan Terminal, Philadelphia, PA. For more information please contact Robb Roach at robb@thechemco.com or Tel: (401) 423- 3100.

We appreciate your taking the time to review this newsletter. We welcome your comments as well as contributions regarding our readers’ company/industry activities. Please send them to Bob Beavins at bob@thechemco.com

Critical Raw Materials Markets

Oil: Price maintaining above $115.00/ bbl. Most recent pricing hovering around $116.00/ bbl., with some spot prices as high as $120.00/bbl.

Natural Gas: Current spot prices trading above $/9.00/MMBtu; Futures contracts at ~$10.80/MMBtu.

Benzene: Benzene prices fell in April despite underlying crude value. The US benzene contract price decreased $.22/ gal (5.5%) to US$3.75/ gallon.

Propylene: April chemical grade pricing was $.635/ lb., polymer grade pricing was $.65/ lb.

Orthoxylene: April contracts settled at $0.545/lb, an increase of $0.025 from March.

Chemicals Markets

Methanol: The Methanex Non- Discounted Reference Price for May will decrease by $.10/ gal. to US$1.50/ gallon. Southern Chemical kept their posted pricing unchanged at US$1.52/ Gal. Spot is seen in the low $1.20’s per gallon and stable. Demand is not great in the U.S. and Europe mainly due to a slower economy. Methanex is reporting that they have one plant operational in Chile. This is only 30% of their total capacity in Chile (3.8 million tons). The M5000 plant in Trinidad went down unexpectedly for 10- 15 days with technical issues but it is not expected to impact contract customers. With natural gas prices trending up and current production issues we are now anticipating a more stable price in the coming months. Consumers will keep up the pressure for lower prices.

Urea: Urea prices surged the last two weeks of April as demand picked up, but more importantly on the news that China will raise export duties 100% or more on all fertilizers immediately. The rationale behind this move was to control the export of fertilizers during the application season which has just begun. Pricing for Urea in mid April was in the $360- $400 per ton range yet at the end of April prices were noted in excess of $510- $525 per ton and continuing to increase. Price increase announcements were made by US producers and importers for May in the $115- $130/ ton range.

Adipic Acid: Despite higher raw material costs (ammonia and benzene) Adipic Acid prices remains relatively stable due to a far less robust export opportunity for one US producer. The high demand season in China is well underway but better prepared Chinese producers, additional capacity and large inventories in Asia have kept pricing stable.

Ammonium Nitrate: AN prices are now tied to an ammonia surcharge escalator. The massive cost adjustment in AN production due to ammonia pricing has forced manufacturers to add this surcharge. At current Ammonia prices the surcharge will be significant but relief is in sight.

Ammonia: Prices have started to weaken worldwide but have stalled domestically at the current US$610/ ton. Most feel that price erosion will continue in May as demand weakens. This anticipated decline will be warmly welcomed by many down stream producers whose margins have been slammed by the massive cost spike.

Nitric Acid: Nitric Acid prices in some cases are tied to an ammonia surcharge escalator. The current ammonia prices will make this surcharge substantial. Nitric Acid demand is described as “good” despite the cost increases. For those producers who do not have the ammonia surcharge in place they have stated that a July increase is expected.

Plasticizers and Plasticizer Alcohols: Although some plasticizer demand as related to housing has slowed, other areas have remained surprisingly strong. Prices continue to climb on increased raw material costs (propylene, orthoxylene, etc.) and demand in Asia is growing, applying pressure on pricing also. Another round of increases has been announced for May on branched, linear and specialties. Pricing on both plasticizers and plasticizer alcohols continue to see pressure as energy feedstocks continue to rise.

TCC Plasticizers available:
TOTM
DOA
ChemFlexx 206 Linear Phthalate Plasticizer
DINP
Brominated DOP
8 10 Trimellitate
DOP
DUP

Epoxidized Soybean Oil: The April 1st increase of $.15- $.20 / lb. was hard to swallow but considering feedstock costs there was no way to avoid it. Soybean prices have leveled but remain in excess of $1300.00. Reference www.ino.com

Dicyandiamide: Prices have moved up considerably (30 cts./ lb) as energy costs soar, the US Dollar continues to devalue against the Yuan, plants run at reduced operating rates and the “Olympic Effect” begins. It is important to order now, as we approach the summer Dicyandiamide and other products produced mainly in China will be more difficult to procure competitively and in a timely manner. Building inventory is recommended.

Dicyclopentadiene: Stable Market- feedstock pressures continue. Polyester Resin market reported to be extremely slow.

Fumaric Acid: Prices are stable and availability is limited in China due to the lack of Gov’t tax rebates, local demand and increased energy costs. China remains the most competitive source globally. Building inventory is recommended.

Isophthalic Acid: Stable market. Prices remain in excess of $1.00/ lb for both domestic and import. Hopefully the problems of the past summer will not return.

Maleic Anhydride: Although demand continues to be slow feedstock pressures remain. Huntsman will bring on an additional 100 Million lbs. plant in Geismar, LA in the 4th quarter of this year. The addition of this capacity in a slower demand market could devastate pricing despite feedstock pressures.

Styrene monomer: Pricing will decline in May in line with Benzene pricing. Availability has become more limited.

Phthalic Anhydride: Demand is seasonal but with Orthoxylene prices advancing again in April (+.025/ lb.) PA pricing will surely follow. Buying interest has returned as well, pushing prices higher in many geographies.

For more information on these or any of the products and services provided by TCC please contact Robb Roach directly at Robb@thechemco.com or go to our web site at thechemco.com

Chemical Industry News

The low dollar has given the US a significant gain among the G7 countries as a cost-effective location for business. Germany and Japan remain the most expensive places to do business.

New US regulations announced on April 21 are aimed at clarifying a controversial review program for foreign investment in US companies. The proposed regulations will update the review process for the Committee on Foreign Investment in the US, and are said to reflect a strong and continued commitment to national security while continuing a policy of welcoming foreign investment.

The National Petrochemical and Refiners Association (NPRA) is planning to launch a campaign to educate the public on the benefits of the petrochemical industry and the impact of proposed legislation on the US economy. The American Chemistry Council sponsors information programs and advertising as well.

In contrast with earlier studies, the Global Information Technology Report issued in April on behalf of the Swiss-based World Economic Forum found that the US internet infrastructure ranks number four world-wide, behind Denmark, Sweden, and Switzerland.

Keltic Petrochemicals Inc. of Halifax, Nova Scotia has received governmental approval to develop a polyolefin resins plant in Goldsboro, NS. When completed, the plant will produce ethylene, polyethylene, and polypropylene as well as operate a cogeneration plant. Annual production is estimated at 1.5 million MT. Start-up is not expected until 2011.

Stirol, a Ukrainian manufacturer, has opened a new plant for the manufacture of granular urea. The facility is rated at 2,000MT per day. Stirol intends to export to the EU and US.

The Russian Ministry of Industry and Energy recently announced that first quarter chemical output rose 3.7% from a year earlier. The Federation government has also abolished export duties on all grades of polyethylene.

Mitsui & Co., Ltd. has proposed to convert natural gas to ammonia and methanol on Russia’s Far East Sakhalin Island. In other Russian activities, TOYO will be providing engineering, procurement and installation supervision services for a new ethyl benzene plant to be built in Perm. Badger Licensing LLC (US) was selected as licensor and designer of the 220,000MT/year plant expected to go on line in 2010.

The conflict over the use of polycarbonate baby bottles has increased with the Canadian government’s proposing a ban on their import and sale because of the use of bisphenol A (BPA) as a feedstock. Canada is the first country to propose such regulation, and is opposed by various industry groups. The Canadian Plastics Industry Association along with the American Chemistry Council is questioning what appears to be a precautionary ban that is not supported by the government’s own prior study.

Concerns about the implications of the EU’ s REACH program have led to acceleration of the Chemical Assessment and Management Program (CHAMP) endorsed by the US, Canada, and Mexico. This is a risk-based system and by 2012 the US is to complete risk characterizations on more than 9,000 chemicals produced in quantities of 25,000 lbs or more, classified as moderate volume chemicals. Assessment of high production volume chemicals is nearly complete on approximately 2,800 chemicals produced or imported in volumes of 100,000 lbs a year or more. CHAMP’s major appeal to the US chemical industry is that it’s not REACH. It’s been reported that the major difference between the programs is that the EU version requires that chemicals must be proven safe before they are allowed in commercial use, whereas CHAMP assigns testing and regulation on those substances that pose the greatest risk to consumers and environment. There is great concern within the US chemical industry that REACH will significantly damage international trade. Leading trade associations have put their support behind implementing CHAMP as quickly as possible.

The plastic bag issue continues. There have been taxes or fees charged at retailers for polyethylene bags in many countries. Beginning June 1, China will ban cheap, thin bags and tax thicker ones; HHP, a major Chinese producer, has gone into bankruptcy. Australia’s environmental minister announced that he would introduce a ban on plastic bags by the end of the year. Legislative proposals in various cities have been halted, and recycling laws are now being considered and voluntary recycling is happening. Many people in the US think that they’re helping to conserve oil by not using plastic bags, but most are made from domestic natural gas.

SABIC is on schedule for quarter four start-up of its new 400,000 MT/year polyethylene facility in Teesside, UK. It will be the world’s largest.

Rohm and Haas and Tasnee and Sahara Olefins Co. (TSOC) have formed a joint venture to manufacture acrylic monomers in Saudi Arabia. Saudi Acrylic Monomer Co. will build a plant with capacity of 250,000MT/year. Start-up is expected early in 2011.

DuPont plans to reduce its costs by $1.7 billion over the next three years. Enhanced investments in its agricultural, safety, and protection businesses are expected to increase revenues.

BASF has indefinitely postponed its decision on making an investment of ~1.5 billion euros in a coal gasification plant.

US oil refiner Valero will build a $1.4 billion refinery expansion at its St. Charles, LA complex. A $2 billion benzene recovery unit is also under consideration.

Sasol’s coal-based synthetic jet fuel has been approved by the International Air Transport Association. The product is the first synthetic jet fuel approved for commercial aircraft use.

Pilgrim’s Pride, a large US poultry producer, has attacked the government’s policy of encouraging ethanol fuel production, saying that it has hurt the chicken industry by making corn feed unaffordable. The company plans to reduce production.

The food vs fuel controversy is escalating and coming under greater scrutiny as the public sees food costs on the rise. One financial analyst has suggested that food price escalation will force the government to backtrack on its ethanol mandates. News reports are beginning to appear stating that ethanol and other biofuels might not be the cure-all for energy and environmental problems. A recent cover article in Time magazine refers to “The clean energy scam. Hyped as an eco-friendly fuel, ethanol increases global warming, destroys forests and inflates food prices. So why are we subsidizing it?”

The third-largest crude oil deposit in the world may have been discovered off the coast of Brazil. The reserves could possibly be as high as 33 billion barrels.

It was recently announced that the Bakken oil basin, stretching from North Dakota and Montana into Canada, contains an estimated 4 billion plus barrels of oil. Colorado and Utah are estimated to contain as much as 1.2 trillion barrels of oil trapped in shale below ground. Shale oil was not considered economical in the past; current economics make it more attractive. Untapped resources in ANWR have been estimated at 16 billion barrels, equal to 30 years of Middle East imports.

The six nations that make up the Gulf Cooperation Council (Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, and the United Arab Emirates) are now consuming about as much oil as China as their economies continue to grow.

The American Trucking Association Chairman recently asked a Senate committee to make fundamental changes to federal surface transportation programs. These changes would allow the industry to operate more efficiently. Reforms to truck size and weight limits were recommended as part of these changes.

There is a movement in the Congress to place the railroad industry under the same antitrust laws as other industries. Some industry experts say that this will not result in the level playing field expected by politicians.

The Economy

Privately owned housing starts in March were 11.9% below the revised February rate. On a year to year basis, single family housing starts declined 36.5% in March.

New orders for durable goods in March decreased $.7 billion, or 0.3%, to $212.2 billion. This was the third consecutive monthly decrease and followed a 0.9% February decrease. Excluding transportation, new orders increased 1.5%. Excluding defense, new orders increased 0.3%.

Consumer Price Index increased 0.9% in March. The March level was 4.0% higher than March 2007.

Interest rates: Prime at 5.25% as of 3/18/08.

Inflation: March 4+ %; lower to ~3.0% in 2008.

Unemployment: March 5.1%.

Trade Deficit: For February 2008 the goods and services deficit increased to $62.3 billion from an adjusted $59 billion in January.

Crude Oil: Average $96 – 100/bbl predicted for 2008.

Industrial production rose 0.3% in March, after a decrease of 0.7% in February. For the first quarter, output declined at an annual rate of 0.1% after edging up slightly in Q4 2007. A strike at a parts manufacturer idled a number of motor vehicle assembly plants. Total industrial production in March was 1.6% above its year-earlier level. Capacity utilization rate for total industry in March rose 0.2% to 80.5%.

GDP slowing to 1% for 2008.

The US dollar trading at 102.70 yen. $1.60 = euro. The British pound sterling = $2.OO.

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