A MARKET UPDATE for February 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.

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Critical Raw Materials Markets

Oil: Prices climbed to settle near $61/bbl early this month after the US government reported large drops in heating oil and gasoline inventories. Tension with Iran, cold regional US weather and high stock market averages all helped to drive upward moves. April deliveries of light sweet crude are quoted at $60.95/bbl. Supply remains relatively ample as US crude, gasoline and heating oil stockpiles remain at or above average for this time of year.

Natural Gas: $7.35/mmbtu for February with recent high heating demands, average of $7.10 for the year.

Benzene: February contracts down to $3.26/gallon. Current spot above contract, oil and naptha have increased March contracts expected to be higher.

Propylene: Q1 settled with some majors at $.49/lb.

Orthoxylene: Mixed March contracts from $.46 – 49/lb.

Chemicals Markets

Methanol: Methanex announces a $.10/ gal. Decrease for March bringing their contract number to US$1.55/ gal. Further decreases are expected in coming months as inventories are seen as fully recovered (a recent outage at M5000 in Trnidad had no affect on the market), seasonal demand wanes, and derivative markets slow. Spot Barges are trading between $1.22- $1.24 giving ample opportunity to traders with tankage to buy large parcels and sell at a discount into the truck and rail market. This should also have a major affect on forward pricing.

Urea: Prices continuing to advance in a frenzy as buyers gobble up every pound that they can get. Prilled product is currently at $320- $330 per ton and indications are that the next shipment could go for $30 per ton more. Urea imports are off 1 million tons or more since June as demand increases 10% mainly in wheat and corn. Domestic producers are operating at capacity to keep up with demand but there is major availability concern for the coming months. Expect double digit price increases in coming months as this supply and demand imbalance matures.

Adipic Acid: Pricing and product availability is currently stable in all regions (NA, Asia and Europe) with slight movement downward ($25- $75/ ton) on spot transactions. NA prices seen at $.82- $.90/ lb. Del. Producers are enjoying a slightly larger margin (approx. $50/ ton) with the lower benzene price. There is no longer a threat of supply interruption at a European AA plant.

Ammonium Nitrate/Ammonia/Nitric Acid: $20/ton ammonium nitrate increase in effect for January 1, 2007. Snug inventories are expected in the warmer months of this year as major construction projects and coal mining consume large amounts of AN. Ammonia rolled over in Tampa at $360/ mt delivered. Jan. 1, 2007 Nitric Acid increase seen as sticking.

Plasticizers: March 1 increase of $.02/lb announced. DINP continues to be tight. 2-EH increase announced for March 1, 2007

TCC Plasticizers available:
TOTM
DOA
ChemFlexx 206 Linear Phthalate Ester
DINP — Limited availability
Brominated DOP
8 10 Trimellitate
DOP
DBP

Unavailable/Allocated Plasticizers: N/A PVC: Lower pricing available as inventories build with the slow housing market. TCC now offers an extensive line of homopolymer emulsion PVC.

Dicyandiamide: Price/availability stable

Dicyclopentadiene: Availability improving.

Fumaric Acid: Stable market; imports available.

Isophthalic Acid: $.02/ lb. increase effective March 1, limited availability.

Maleic Anhydride: Prices eroding slightly with a lack of demand and with lower Butane costs.

Styrene: Pricing down a total of $.05- $.08/ lb. for Jan and Feb seen rising with benzene in March.

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

Chemical Industry News

REACHRegistration, Evaluation, and Authorization of Chemicals – has been passed by the European Union Parliament and is supposed to go into effect on June 1 for this biggest regulatory system ever for the European chemical industry. Various chemical industry groups have stated that Reach remained a big challenge, bringing additional costs and considerable expenditures on red tape. Required substitution of safer materials for hazardous ones when an alternative might exist is seen as having an impact on the competitiveness of European industry. US chemical industry leaders have also criticized Reach as being an unworkable regulatory plan that will stifle trade. The US Congress is considering legislation similar to Reach. Many expect that product consolidation will occur in the US because of the costs involved with Reach.

A new lower cost technology for recovering petroleum from oil shale has been announced by the Department of Energy. The technology would eliminate the need to mine oil shale before it is treated for petroleum extraction. This new process could increase US domestic oil production and ease price pressures. The system heats oil shale deposits underground, separating refinery grade petroleum from the rock and making it liquid enough to be pumped to the surface. However, the shale deposits will have to be heated to ~850deg. C. If successful on a large scale, it is expected that it would return approximately 2 trillion barrels of recoverable domestic petroleum.

2,800 unionized workers at the Canadian National Railway went on strike effective February 10, 2007. There is no doubt that this strike will affect rail movements in the near future and continue to affect them for as long as it lasts.

Cargill is expanding its bioethanol production by building four 100M gallon/year plants in the Midwest. Sites for the corn-based facilities have not been announced.

The USDA has projected that approximately 20% of the US corn crop in 2006 was converted into ethanol, a jump up from 6% in 2000. This trend will keep more corn in the Midwest, where ethanol production for biofuel is concentrated and decrease the amount available for export. This growing demand for ethanol and corn necessitates the increasing use of urea and other fertilizers, creating a continuing pressure on price. Urea prices have been affected by increasing barge transportation rates, as corn exports decline.

Energy Secretary Samuel Bodman recently stated that the US will not end government support and protections for the ethanol industry before it is appropriate to do so, but certainly not before the end of 2008.

The Federal Railroad Administration recently signed a memorandum of cooperation with Dow Chemical, Union Pacific Railroad, and Union Tank Car Co. with the intent of making a “significant advance in the design and construction of tank cars, especially those that carry toxic inhalants.” A final rule is expected in January, 2008.

The Thai government has backed away from a ban on MTBE in gasoline, replacing it with a 10% ethanol (gasohol) blend. Conventional gasoline will be sold alongside the ethanol blend. Major reason stated was the low supply of ethanol and reluctance to import it. In an effort to encourage use of gasohol, price of the blend is approximately four cents per liter less than conventional gasoline.

Brazil plans to develop a petrochemical complex in the Amazon region using natural gas from a pipeline under construction by state-run oil company, Petrobras. The pipeline will be 700 kilometers long, ending at the intended site complex in Manaus, capital of Amazonas state. Feedstock availability is said to be huge in the area. In addition to an ethane cracker, plans are in place to construct plants to produce methanol, fertilizers, and ethylbenzene/styrene. Brazil has a large biodiesel demand and the bulk of the methanol production could go to domestic demand, with some export as well. The fertilizer production would be used in Brazil.

Tate and Lyle announced the decision to start proceedings to cease production of citric acid at their Selby, UK site. Reasons cited were chiefly economic, with intense competition from China and increased raw material costs. This decision is seen as a further step in the consolidation of the citric acid industry, which has seen a number of plant closures in recent years.

Rhodia and Invista have called Force Majeure on HMDA, AH salt and PA 66 polymer as the result of strike actions at its French production sites. Invista made this move as it shares HMDA JV manufacturing with Rhodia.

It has been announced that Pfizer will eliminate 10,000 jobs by the end of 2008 in order to reduce costs by $2 billion. Facilities affected are in the US, Europe, and the Far East.

South Korean chemical exports rose by 15.7% in 2006, reaching a total of $24 billion. The growth rate is expected to slow in 2007.

Huntsman has agreed to sell its base chemicals and polymers business to Flint Hills Resources, a subsidiary of Koch Industries. The transaction should be finalized in the third quarter.

The German chemicals industry is forecasting reduced growth of 2% this year stating a weaker economic situation in the US. There are collective bargaining negotiations currently taking place, which may also dampen the forecasts.

Chinese GDP grew by 10.7% in 2006. Fourth quarter growth was 10.4%, showing little slowdown. Chinese foreign currency reserves are now over $1 trillion.

The Economy

Producer Price Index dropped 0.6% in January, aided by lower petroleum costs and cheaper vehicle prices. The core index, which tracks prices exclusive of food and energy rose 0.2%. Raw materials prices fell 6.3% in January following an increase in the previous month.

Interest rates: Prime at 8.25% through Q1 2007, but some project Fed increase at mid-year.

Inflation: January was 2.06% average2.8% in 2007.

Unemployment: Currently 4.4% , 4.5% in 2007.

Trade Deficit: Narrowed in Q4, for third straight month.

Crude Oil: Continued downward pricing.

Housing: Construction plunged to its lowest level in nearly ten years in January. Activity was 37.8% below a year earlier.

Retail Sales: Rose in December 0.7% combined with an increase of 1% in November.

Industrial production is expected to increase by 2.4% over the course of the year after a 2.1% growth in the first quarter. A number of economists forecast that increase in investment in business equipment and software will be lower than the prior three year average. Economists now predict 2.7% GDP growth in 2007, up from 2.3% with a rate as high as 3% by the fourth quarter.

The US dollar gained in trading at 121.51 yen, $1.3122 vs the euro.

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