A MARKET UPDATE for January 2007

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New PASSPORT Requirement

A new regulation is expected to go into effect on January 23, 2007 requiring all passengers traveling by air to and from the US have a valid passport. It applies to all passengers – including US citizens. It includes travel to/from Canada, Mexico, Bermuda and the Caribbean.

Critical Raw Materials Markets

Oil: Prices continue to decline as heating oil supplies go unused due to mild weather in the Northeast. February delivery price is ~$55/bbl down from the $78 of last July with continued reduction seen as low as $35 – 40/bbl. A current oversupply and slowing US economic growth may keep the lid on significant price increases, with a 2007 average cost below the average $67/bbl of 2006.
Natural Gas: $6.601/mmbtu
Benzene: January up to ~$4.00/gallon.
Propylene: Q1 settled with some majors at $.49/lb.
Orthoxylene: January contracts at $0.465/lb

Chemicals Markets

Methanol: Very competitive market with producer and distributor efforts at reducing inventories. Full operating rates, lack of seasonal demand, slowing derivative market all impact the market. Spot trades reported in the $1.40’s. Increased demand is seen in biodiesel application. It has been reported that a major MTBE producer (Lyondell) is starting back up due to transition problems from MTBE to Isooctane and Isooctene. Export demand for MTBE is still good. There is a wide discrepancy between North American pricing vs Europe and Asia and it is likely that February will see reductions.

Urea: Prices continuing to advance as demand for wheat/corn fertilizer increases. Volume requirements from China and India are increasing. There is concern re: meeting demand for spring planting. February 1 price increase expected.

Adipic Acid: US prices $.82 – .90/lb $1900/MT

Ammonium Nitrate/Ammonia/Nitric Acid: $20/ton ammonium nitrate increase in effect for January 1, 2007.

Plasticizers: DINP remains in tight supply.

TCC Plasticizers available:
TOTM
DOA
ChemFlexx 206 Linear Phthalate Plasticizer
DINP — Limited availability
Brominated DOP
8 10 Trimellitate
Diundecyl Phthalate
DiButyl Phthalate
DiOctyl Phthalate

Unavailable/Allocated Plasticizers:
DINP

PVC: TCC now offers an extensive line of homopolymer emulsion PVC.

Dicyandiamide: Price/availability stable

Dicyclopentadiene: Availability improved. Further price decreases possible.

Fumaric Acid: Stable market; imports available.

Isophthalic Acid: Stable market, price and supply.

Maleic Anhydride: Butane adjusted contracts have benefited some molten MA buyers, with price drop from $1.13/gal in September to ~$1.05/lb today. Marketplace rumor says that at least one large producer has throttled back. Imported MA briquettes are available, but not at last year’s price levels as benzene spikes.

Styrene: Prices up in January ($.035/ lb.) following Benzene’s jump in late December.

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

Norwegian energy groups Statoil and Norsk Hydro have stated that they want to combine their oil and gas businesses in a new company. Shareholders’ meetings will take place in Q2 in order to approve this action. The new energy company will be the world’s leading offshore producer, with daily production of 1.9 million bbls of oil and gas. The Norwegian government holds ~80% of Statoil and ~40% of Hydro. Its stake in the new company will be ~62.5%.

Celanese has announced that it will move the management of its acetyls businesss to Shanghai, China from Dallas, TX.

It has been reported that CITGO, because of reduced sales, has started changing the name at some of their locations to “Petro Express” in order to avoid identification with “Chavez.”

Oil-producing countries have reduced their dollar holdings to the lowest level in two years and have shifted some income to other currencies. OPEC members reduced dollar holdings from 67% to 65% while increasing holdings of euros to 22%. About eighteen months ago, dollar holdings were above 70%. The last time oil exporting countries reduced their dollar exposure, in 2003, it pushed the euro to an all time high.

REACH – Registration, Evaluation, and Authorization of Chemicals – has been passed by the European Union Parliament. It affects not only products manufactured in the EU, but also products sold in the EU. A number of issues are uncertain, but it seems clear that there will be increased cost to industry/consumer. It requires manufacturers to substitute safer materials for hazardous ones when possible. Some critics believe that EU regulators have in the past chosen expediency over scientific evidence in setting standards.

BASF Seal Sands facility in the North East of England suffered a major incident on January 3 with 37 people reported injured. It’s believed that the incident involved Hexamethylene Diamine (HMD).

Verasun Energy Corp., second largest US ethanol producer, said it planned to produce biodiesel from oil extracted from distillers’ grains, a co-product of ethanol production. Production is expected in 2008.

Celanese announced that it will sell its oxo products businesses, including its share in European Oxo, to Advent International, a global private equity firm. The Degussa AG interest in this joint venture will also be purchased by Advent. The sale price was approximately USD 630 million and includes facilities in Germany and in Texas.

The Economy

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

Inflation: Annualized rate of 2.4%, 3% 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: Slump is seen persisting into 2007.

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

Manufacturing in the US expanded slightly as the year began, but there is no clear signal that the economic slowdown is over.

Economists continue to predict 2.3% GDP growth in 2007 with A housing slump and its related layoffs knocking off approximately 1 percentage point. Recession isn’t forecast. But there are many risks in 2007, including the volatile Middle East.

The EC published a new study predicting a rapid rise in energy consumption and rising energy prices in the coming years despite conservation efforts. Most of the demand will come from developing regions, accounting for two-thirds of the world’s total by 2050. A price of $110/bbl is forecast at that time. As an offset to this, the EU study predicts that both coal and nuclear energy will revive.

The US dollar gained in trading at 120.5 yen, $1.2898 vs the euro.

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