A MARKET UPDATE for AUGUST/SEPTEMBER, 2007

TCC periodically posts video “snapshots” regarding critical markets and economic updates on our web site. We welcome your viewing them and will appreciate your feedback.

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: ~$71.00- $72.00/bbl.
Natural Gas: Current spot prices average ~$5.28/ MMBtu; September contracts settled at ~$5.58 MMBtu.
Benzene: August price $3.59/ gallon. September price estimated at ~$3.45/gal.
Propylene: US contracts for August were up $0.0175/lb from July at $0.5225/lb
Orthoxylene: August decreased $.01/ lb. to $0.49/lb. and is expected to roll over for September.

Chemicals Markets

Methanol: Prices are moving up due to an uptick in consumer interest and continued production issues/ gas supply issues at world scale plants. Southern Chemical announced a $.05/ gallon increase for September and we expect Methanex to follow. Both Methanex and Southern are having issues with natural gas availability and their presence in the spot market to cover contracted volumes has pressured pricing up toward and even in excess of contract levels. Panic buying and the continued spot momentum could feed forthcoming increases.

Urea: Urea pricing unexpectedly advances strongly in the past couple of weeks as anticipated cargoes from China and the Middle East fail to materialize. Current spot pricing for granular is seen at $320- $340 per ton and moving up.

Adipic Acid: US prices for Adipic Acid are stable as Asian pricing moves up. Polyurethane demand in China has yet to materialize but producers and importers have levied an increase in anticipation of the demand uptick. Imports to Asia continue to be extremely heavy thus possibly affecting this latest increase.

Ammonium Nitrate/Ammonia/Nitric Acid:
Ammonium Nitrate is quiet right now as seasonal construction slows and housing starts slip. No major production problems to report at press time but with a limited number of producers domestically and globally there is no motivation to reduce prices.

Ammonia is stable but sellers are pushing for an increase sighting higher prices in the Black Sea and increase freight costs. It has been tough for any increase to go through with material readily available and transactions seen in the $265/ ton range.

Nitric Acid is quieting down a bit after a couple of major production issues in August causing some consumers to scramble. With Natural Gas trending lower over the last 3 months no increase is expected unless a major supply interruption occurs.

Plasticizers: Plasticizers continue in very tight supply. DINP continues to be very short worldwide. A lack of affordable oxo alcohol in Asia and the falling dollar against the euro continues to cause cost problems with material coming from either location. Price increases have been nominated for September 1 on all plasticizers.

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

Unavailable/Allocated Plasticizers:
DINP — Limited availability, with worldwide tight supply.

Epoxidized Soybean Oil: TCC now offers ESO to the North American Marketplace.

Dicyandiamide: Prices advance on the reduction of China’s export rebate.

Dicyclopentadiene: Stable market.

Fumaric Acid: Prices advance on the reduction of China’s export rebate and high Butane prices in July and August.

Isophthalic Acid: Ridiculously tight and not getting better. Eastman and FHR continue to allocate to contract customers. Imports available at inflated costs. Global tightness continues.

Maleic Anhydride: Prices are up on high butane costs for July and August. Those without a butane adjusted contrtact will receive a $.03/ lb. increase effective Sept. 1, 2007.

Phthalic Anhydride: Demand remains flat in North America as prices drop $.05/ lb. over the last two months following orthoxylene. Availability in Europe remains critical on two outages and decent demand.

Styrene monomer: Prices were down slightly for August and continue to slide going into September on reduced Benzene pricing and lackluster demand.

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

According to recent NPRA data, US production of 15 key petrochemicals reached ~50 billion pounds during the second quarter, up 4% from 2006.

Dow Chemical declared force majeure on deliveries of vinyl acetate monomer (VAM) from its Texas City, TX plant. Dow stated that a maintenance shutdown was necessary. It’s expected that customers will be on allocation in September and October. Dow recently announced that it is selling its western Canada caustic soda business to Univar.

The world’s first large-scale (350,000T/year) PE facility to use a renewable feedstock is planned for Brazil. The joint venture between Dow and Crystalsev will use sugar cane as the raw material and is expected to start up in 2011.

The way now seems to be clear for Akzo Nobel to acquire Imperial Chemical Industries Plc (ICI). The price is approximately EUR 12 billion/$US 17 billion. Savings of EUR 280 million are expected. As part of the transaction, Henkel will acquire the adhesives business of ICI subsidiary National Starch for an estimated EUR 4 billion. It’s expected that things will be finalized by the beginning of December. Akzo Nobel had sold its pharma division to Schering Plough for EUR ~11 billion in March of this year.

As of September 5 the shares of BASF will no longer be traded on the New York Stock Exchange. North American stockholders own about 20% of BASF shares but most are traded elsewhere. A number of European companies such as CIBA, Rhodia, Akzo Nobel, and others have also indicated that they intend to delist from the NYSE. By delisting, these companies expect to lower the costs incurred by compliance with the Sarbanes-Oxley Act.

BASF announced record second quarter profits of EUR one billion on a sales increase of 19% to EUR14.6 billion.

BASF recently was awarded $US 170 million in damages against Lyondell by a New Jersey court. At issue was excessive delivery price for propylene oxide.

The pressure against the use of plastic bags continues. An industry coalition (The Coalition to Support Plastic Bag Recycling) has filed its first lawsuit challenging Oakland, CA restrictions on the use of the bags. Among other cities considering similar restrictions are Boston, MA and Portland, OR. A limited production tote called “I’m NOT a Plastic Bag” is now being marketed, and has already found its way to eBay at triple digit prices.

In the first half of this year, 22 chemical tankers were attacked by pirates and armed robbers, with 152 crew members taken hostage and 41 kidnapped. The number of attacks on shipping had declined in recent years, but the trend appears to be reversing. Many of the attacks have taken place in Somalia, Nigeria and the Malacca Straits.

Sibur, Russian petrochemicals, plastics and rubber producer, has announced a number of expansions aimed at becoming a significant player in the European market.

The Chinese government’s recent reduced rebates on export taxes affected many products seen as highly polluting, and it is hoped production of such goods will be discouraged. Consequently, it is expected that there will be more emphasis on technology innovation and reduction of resource intensive manufacturing.

Beginning August 23, 2007, Chinese processors that import raw materials will have to pay deposits equivalent to 50 – 100% of the value of the material. Current requirement is approximately 22%. The Ministry of Commerce says that the deposits will help to reduce the country’s trade surplus and improve the quality of finished goods. The deposits will be refunded once the finished goods are exported.

Some observers believe that although the tainted products/toys scandal may briefly chill US chemicals and plastics investments in China, Chinese quality control will advance, long term. A recent Boston Consulting Group study indicates that the China sourcing opportunity is as great as ever.

However, recent reports of suicide and execution of Chinese officials reflect the seriousness of the problem and the necessity for effective QC programs in Chinese industry. One observer cautions that in spite of other appearances, China, in many ways, is a “developing country” and lacks an infrastructure regarding product safety, credit/commerce, etc. It’s been stated that the ultimate responsibility for managing QC is the foreign buyer of Chinese goods.

China also leads in patent infringement legal disputes. It’s estimated that losses due to brand piracy are approximately US$400 million.

The Economy

THE DOW JONES INDUSTRIAL AVERAGE CONTINUES ABOVE THE 1300 MARK AFTER A RECENT ROLLER-COASTER RIDE.

The US is becoming less dependent on OPEC oil, and increasingly dependent on oil from Africa, where the risk of disruption is high. Although 60% of US oil comes from imports, Nigeria, Angola, and Algeria are overtaking Iraq, Saudi Arabia and Kuwait. Africa supplies ~20% of imports, Canada ~18%, Mexico ~15%. Africa also provides greater opportunity for exploration for US companies.

Sales of new homes rose 2.8% in July after declining in five of the last six months. Sales dropped in the Northeast and Midwest, but rose in the South and West. On a year-to-year basis, sales of new homes fell 10.8%, marking the nineteenth consecutive monthly drop. Median price rose 3.9% and is up 0.6% on a year-to-year basis.

New orders for durable goods increased $12.9 billion, or 5.9%, to $230.7 billion in July. This was the fifth increase in the last six months. Excluding transportation, new orders increased 3.7%. Excluding defense, new orders increased 4.9%.

Consumer Price Index was virtually unchanged in July. The July level was 2.4% higher than July, 2006.

Interest rates: Prime at 8.25%.

Inflation: Currently 2.7%; average 3.0% in 2007.

Unemployment: Continued 4.5% in 2007.

Trade Deficit: Decreased to $58.1 billions in June from $59.2 billions in May.

Crude Oil: Some forecasts indicate return to $60/bbl by December.

Industrial production for July rose 0.3%, and was 1.4% above its year-earlier level.

Economists predict average 2.7% GDP growth in 2007, possibly 3.2% into 2008.

The US dollar trading at 120.33 yen. $1.371 = euro. The British pound sterling = $2.05.

The US is the European Union’s largest trading partner, with trade and investment relationships valued at almost $US 3 billion per day. EU projections of full employment by 2010 seem to be falling behind. Annual growth rate lags significantly behind the US. A recent poll revealed that a number of countries would prefer to return to their previous national currency instead of the euro.

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