A MARKET UPDATE for JULY / AUGUST, 2009

Events:

TCC will be attending the EPCA October 3-7, 2009 at the InterContinental Hotel Berlin, Germany. To Schedule time with a TCC Representative please contact Robb Roach at robb@thechemco.com

New Product:

TCC is proud to Introduce our New Non- Phthalate Plasticizers ChemFlexx NP 500 and ChemFlexx NP600. ChemFlexx NP 500 is our non-phthalate replacement for general purpose plasticizers like DOP and DINP where the NP 600 is our non-phthalate replacement for DIDP. Both products are available immediately in Bulk, Drums and Totes. Technical data and samples are also available upon request.

NatureFlexx 509 Phthalate Free General Purpose Plasticizer! This high molecular weight plasticizer is an excellent, phthalate free replacement for general purpose phthalate plasticizers like DINP, DOP, DEHP, DOTP, Etc.

New Product Lines:

TCC now offers Chlorinated Paraffin Oil, 85% Phosphoric Acid, Sulfonic Acids, Phenolic Resins and Specialty Chemicals to the Americas.

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 chemcobob@comcast.net

Critical Raw Materials Markets

Oil: Current spot prices are in the $74.00/ bbl range. Futures are trending higher.

Natural Gas: Mid-August spot price declined to $3.02/MMBtu, a decrease of $.32 per million cubic feet. September futures contract decreased $.36 to $3.12/MMBtu.

Benzene: U.S. Benzene pricing for August settled up strongly at US$3.65/ gallon! July was US$2.92/ gallon, June $2.42/ gallon and May was US$1.90/ gallon;. Benzene pricing was ~$.90/ gallon at the start of 2009.

Propylene: August US contract prices were increased $.04/lb bringing chemical grade and polymer grade to $.435/lb and $.45/lb respectively.

Orthoxylene: August contracts settled on a two-tier basis at $0.40/lb and $.41/lb, increased from July’s $.395/lb.

Chemicals Markets

Methanol: The Methanex Non-Discounted Reference Price for August increased by US$.04/ gallon to US$.72/gallon. Spot barge offers are currently in the upper $.70’s and demand is strong. Inventories are tight especially in the Northeast where two major marketers were out of material mid- month. We expect a $.05- $.15/ gallon increase for September and prices to continue to firm over the next few months.

Notes:
North American demand has certainly improved but how much of this is restocking, and how much is actual improved demand is still being questioned. Seasonal demand has started to kick in, so despite higher interest rates and other stymieing factors prices are expected to move higher during this higher demand cycle.

Europe is seeing a surge in price as increased demand and a lack of available material has created a surge in spot pricing.

Asia pricing has also surged on lack of available material due to maintenance issues and unplanned outages.

Uncertainty still surrounds Hugo Chavez’s move to put Chemical producing entities under state control. Many consumers dependent on producers operating here are understandably nervous.

Chinese demand continues to be ravenous. Prices have reached the point where coal plants will and have started production. China’s Ministry of Commerce has announced an “anti- dumping” investigation into methanol produced in Saudi Arabia, Malaysia, Indonesia and New Zealand. The effects of this will be forthcoming.

China has also set a national standard for M85 Fuel (85% Methanol and 15% Gasoline) which will be implemented on December 1, 2009. This will obviously have a tremendous affect on demand and is an important development in what many consider the future of methanol, its use as a fuel.

Urea: Urea prices are firm in the US$285- $292/ ton range. Urea pricing has moved up approx. US$50/ ton from the range it was trading since prices declined the beginning of this year. Prices are expected to continue to climb for the short term.

Notes:
CF Posted August at $270/ ton and September at $275/ ton. Most agree that Urea inventories are currently very low. There are however major disagreements on future pricing as some feel prices will move down when rice demand goes away while others feel wheat demand will pick up the slack. Those having the ability to use ammonia or UAN will certainly be moving away from Urea while the alternatives offer price advantage.

Adipic Acid: Adipic Acid is now as tight as it has been in recent memory, possibly ever. Supply options are few and availability is limited at best. Invista is running only 1 of 5 plants, Ascend seems to be mostly interested in PA66 which is also very tight, Rhodia is having quality problems at their plant in France and Radici is still down for maintenance at their German AA plant. Add a benzene price of $3.56/ gallon to the mix and you are looking at pricing in excess of $1.00 per lb. if you can get it. We expect Adipic Acid to remain tight through the end of the year and possibly longer. With the current market conditions Chinese Adipic Acid is now finding its way into Europe and North America despite its lower quality.

Melamine: Melamine pricing is considered stable. Demand remains weak. China remains the low cost supplier worldwide but not all consumers can use what is considered lower quality product.

Phenolic Resins: Prices have firmed with increased Phenol and Formaldehyde pricing. A limited number of players has resulted in few options for consumers and many have opted to seek toll manufacturing opportunities.

Ammonium Nitrate: Low density AN prices are currently stable. Demand on both low and high density has softened considerably in most sectors and due to the extreme prices seen in 2008 some have successfully found alternate chemistries for their application.

Ammonia: Current U.S. Gulf NOLA barge pricing is reported at US$250- 260/ton (NOLA Barge). Higher numbers are seen in Tampa ($330/ ton) but have yet to translate to NOLA. Higher prices are expected based on global pricing.

Nitric Acid: Nitric Acid pricing has moved slightly lower in line with the lower ammonia price. Demand is relatively weak.

Plasticizers and Plasticizer Alcohols:
Plasticizer demand is improving in most regions. Raw materials continue escalating (propylene/ orthoxylene) but not at the levels seen in Q2. Price increase announcements in August were unsuccesful but now another increase of US$.05/ lb. for most branched plasticizers and $.02/ lb. for linear plasticizers has been announced for August 1st. State level phthalate restrictions/ bans are having a more rapid and greater affect on phthalate plasticizers, especially DOP, in the USA.

TCC Plasticizers available:
Phthalate:
DINP (DiIsononyl Phthalate)
“ChemFlexx 206” Linear Phthalate Plasticizer
“ChemFlexx 208” Low Temp Linear Phthalate Plasticizer
DOP (DiOctyl Phthalate)
DUP (DiUndecyl Phthalate)
DMP (DiMethyl Phthalate)
Brominated DOP
9 11 Phthalate

Non- Phthalate:
“ChemFlexx NP 500” Non- Phthalate Replacement for General Purpose Plasticizers
“ChemFlexx NP 600” Non- Phthalate Replacement for DIDP
“NatureFlexx 509” Phthalate Free General Purpose
Epoxidized Soybean Oil
TOTM (TriOtcyl Trimellitate)
DOA (DiOctyl Adipate)
8 10 Trimellitate

Epoxidized Soybean Oil: Pricing is level and demand is considered good.

Dicyandiamide: Prices are moving up quickly on demand and increased raw material costs. Producers are reporting tight inventories and higher prices moving forward.

Dicyclopentadiene: Prices are stable with underlying crude values. The Polyester Resin market continues to be extremely slow. Chevron Phillips plans to exit market after inventories are sold.

Fumaric Acid: Fumaric Acid prices are moving up. Global values have increased as demand improved and raw material costs move up. China remains the low cost option for consumers.

Malic Acid: Global values have improved slightly with demand and increased raw material cost. China remains the low cost option for consumers.

Isophthalic Acid: Prices have increased in line with underlying raw material costs. Demand has also improved in most major markets.

Maleic Anhydride: Demand remains slow yet a $.03/ lb. price increase was announced by two majors. Butane pricing has escalated and the cost to produce each pound is higher. Rationalization of older plants is expected.

Styrene monomer: Benzene values have moved up and so has SM pricing. Price increase announcements for August stuck. Domestic demand from all sectors is poor to extremely poor but prices are up on Benzene values of $3.56/ gallon.

Phthalic Anhydride: Orthoxylene rolled increase to US$.40/ lb. and $.41/ lb. in August hence phthalic anhydride pricing will increase in September. Demand is weak and the peak demand season affecting orthoxylene has waned- we expect price erosion in the coming months. Imports are available at a slight discount.

Mono Ethylene Glycol: Producers announced a US$.05- $.06/ lb. Increase effective September 1st. This will bring the transaction price up to US$.40 and $.42/ lb. fob gulf.

Diethylene Glycol/ Triethylene Glycol: Producers announced increases from US$.06- $.10/ lb. on DEG effective September 1st. Pricing is in the $.39- $.45/ lb. fob gulf range based on this increase. TEG price increase announcements range from $.05- $.09/ lb. for September 1st. TEG benchmarks range from $.70- $.78/ lb.

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

SOCMA now stands for “Society of Chemical Manufacturers and Affiliates.” It was stated that the new name represents their commitment to the batch chemical industry.

BASF, which acquired Swiss chemical giant CIBA in April for $5.1 billion recently made public its restructuring plan. An estimated 3,700 jobs will be eliminated and 23 out of 55 CIBA plants will be closed or sold at a cost of $1.5 billion.

ExxonMobil plans to invest $600 million to research and develop biofuels that will use algae as feedstock. An alliance with California’s Synthetic Genomics (SGI) is planned. SGI believes that algae in its natural state can use sunlight to convert carbon dioxide into oils and hydrocarbons. Dow Chemical has also been reported as seeing algae-based feedstock chemicals as a new industry opportunity. Biodiesel producer SunEco Energy has contracted eventually to supply major motor freight carrier J. B. Hunt with algae-based fuel.

A US bankruptcy court has approved a lawsuit filed by Lyondell Chemical creditors against the lenders, former board members, and company officers accusing them of driving the company into bankruptcy shortly after the Basell merger. A number of LyondellBasell executives are named in the suit.

Ineos Olefins and Polymers USA has offered $1 million in cash to Lyondell/Basell Industries to buy an Alvin, Texas high density polyethylene resin plant that is set to close its doors by the end of September.

The official creditors’ committee of bankrupt Tronox, Inc. has filed a “fraudulent transfer” lawsuit against the banks that arranged its spinoff from Kerr-McGee in 2006. The suit claims that the Tronox spinoff was structured in such a way that Kerr-McGee was able to dump hundreds of environmental, tort claim, retiree, and other legacy liabilities on Tronox.

The chief economist of the American Chemistry Council expects US chemicals production to decline 8.1% in 2009 before recovering 1.6% growth in 2010 and 2.2% in 2011.

Department of Labor June data show that the chemical industry employs 41,300 fewer workers than at this time a year earlier, a decrease of 4.8%. However, chemical companies in the Kanawha Valley of West Virginia have job openings and are advertising to fill them as well as supporting operator training programs at local community colleges.

DuPont will consolidate its 23 businesses into 14 in an attempt to capitalize on growing markets for products that protect the environment and bolster food and energy security. The consolidation will be part of a plan cutting 14,500 employees and contractors in order to slash fixed costs by $1 billion.

Dow Chemical plans to spin off its styrenics and aromatics operations into a company to be called Styron. It will include Dow’s polycarbonate, acrylonitrile butadiens styrene/styrene acrylonitrile resins, polystyrene and styrene monomer operations with annual volume of $5 billion. Dow has also agreed to sell its Clear Lake, TX acrylic acid and esters business to Arkema. The deal includes the North American UCAR Emulsion Systems business.

European chemical makers will get no reprieve from next year’s deadline to register thousands of potentially dangerous chemicals as part of the REACH program. Chemical producers have until the end of November 2010 to file detailed information about 9,000 to 10,000 substances that fall into this category. Without a complete registration by then, the materials will be pulled off the market. It has been reported that the European Chemicals Agency, responsible for implementation, has been swamped with registration applications.

Specialty chemicals manufacturer Chemtura has announced that its PVC additives business is for sale. Revenues are estimated at $200 – 300 million per year. Chemtura has been in Chapter 11 bankruptcy since March, 2009.

CF Industries announced in early August that the legally mandated waiting period for its hostile bid for Terra Industries had expired. Terra said that its board will consider the most recent enhanced offer by the end of August.

Chemical industry leaders, represented by the American Chemistry Council, have said that they are joining environmentalists, public health groups and consumer advocates in seeking more robust federal regulation of chemicals. Reform of the Toxic Substances Control Act is a main target.

The BPA battle continues. Use of Bisphenol A has been banned in baby bottles and sippy cups in Connecticut, Minnesota, and the city of Chicago. Massachusetts has issued a health advisory. The FDA ruled in August 2008 that BPA was safe for all use, but its own advisory board rejected the ruling. A new review will include more than 100 new studies.

A judgment by a committee of California’s Office of Environmental Health Hazard Assessment declined to put bisphenol A on a list of chemicals that could cause reproductive harm. This judgment permits continued use and sale of the chemical in California.

The Maine Department of Environmental Protection and the Maine Center for Disease Control and Prevention released on July 17 a list of about 1,700 “chemicals of high concern,” substances that pose a significant risk to human health that are also used in the manufacture of common consumer products. The release of the list was mandated by a 2008 state law. It was hailed by state officials and environmental health advocates, but a spokesman for the chemical industry expressed concern that Maine may not have the resources to accurately identify or regulate chemicals that pose the greatest risk. The list is 83 pages long and includes some familiar names such as lead, mercury and formaldehyde.

Johnson and Johnson completed its acquisition of Cougar Biotechnology at a price of $893.7 million. The company’s main focus is on oncology.

Georgia-based Mansfield Oil, a motor fuel supplier, has purchased C&N Companies, an ethanol marketer with production capacities of 500 million gallons of ethanol and 150 million gallons of biodiesel processed at eleven plants.

British manufactured goods output increased by 0.4% in June, the best monthly performance since January, 2008. On a 12 month basis, output dropped 11.7%.

Germany and France both ended four consecutive quarters of economic contraction in the second quarter 2009. The GDP of both nations grew at a rate of 0.3% vs the first quarter.

In the first six months of 2009, Russia’s chemical production fell by 17% compared to the same period in 2008. Major exports were fertilizers, plastics and synthetic resins, ammonia and automotive tires.

Russia has raised its duty on crude oil exports effective August 1. Refinery production was down 0.3% compared to the year earlier.

Big River Resources said that it plans to begin producing ethanol at a new 100 million gallon plant in Galva, IL. The Obama administration recently announced that it was allocating $20 million for ethanol research as part of a much larger $786.5 million biofuel research initiative.

The United States is going to lend ~$2 billion, via the export-import bank, to Brazil’s state-owned energy company, Petrobras, to finance exploration of the huge offshore discovery near Rio de Janeiro. Exploration of US outer continental shelf resources has finally been approved by the Energy Dept., and sales of leases in the Gulf of Mexico were supposed to move ahead on August 19.

A National Emphasis Program (NEP) developed by OSHA establishes policies and procedures that are covered by the agency’s process safety management program standard. The Chemical NEP is a one year pilot program.

EPA Administrator Lisa Jackson on August 6 denied GOP requests to perform a new economic analysis of the House-passed climate and energy bill, saying that the Energy Dept. has essentially answered any outstanding questions.

The EPA has recommended a $12 – 19 million pave-over for the worst contaminated section of the abandoned Metachem Products facility near Delaware City, DE. Until 1998 the plant operated as Standard Chlorine of Delaware. Metachem’s former owners declared bankruptcy in 2002, leaving $65 million in debts and more than 40 million lbs of waste chemicals and products. The company once ranked as a major producer of chlorobenzenes.

South Korea posted a record trade surplus of $7.27 billion in June as the value of imports fell more than exports. This is the highest number on record.

Japan’s economy came out of a year-long recession in the second quarter, expanding 3.7% on an annual basis, joining the UK, Germany, France, and other regions that appear to be emerging from financial crisis.

China’s manufacturing growth accelerated in June and July, showing its fastest rate in a year in July. Economic growth grew by 7.9% in the second quarter, up 6.1% from the first quarter. The growth has been attributed in part to the government’s stimulus spending program of $586 billion and new bank lending. However, China’s exports were down 21.4% in June to $95.4 billion, the eighth straight monthly decline. Imports fell 13.2% on a year-to-year basis to $87.2 billion, still showing a trade surplus of $8 billion.

A two-day US-China Strategic and Economic Dialogue ended on July 28 with the two countries agreeing to increase cooperation on economic and financial issues, and to take individual measures meant to address imbalances.

While truckload demand remains low and LTL rates continue to decline, carriers are investing very minimally in new capacity, which could mean that as truckload demand returns, freight buyers will have to be prepared for tight capacity and increased rates.

Many ocean freight carriers are saying that their current rates have sunk to levels that are not sustainable and are pushing for rate hikes. But most shippers are working their way out of a down economy and are attempting to control their costs.

For the first six months of 2009 US rail carloadings were down 19.3% while intermodal traffic was down 17%. Some negotiated rate reductions have been reported.

Earlier this year, Mexico instituted tariffs against a variety of US exports after the US Congress cut the funding for its cross-border trucking pilot program, which allowed a certain number of Mexican truckers access to US highways. After President Obama’s recent trip to Mexico a new security initiative came out of the meetings with President Calderon which could lay the groundwork to allow Mexican trucks into the US with more confidence. The Department of Homeland Security reported that a Letter of Intent was signed between US and Mexican officials addressing a coordinated response to the threat of smuggling and weapons trafficking.

The Economy

The Obama administration will raise its 10 year budget deficit projection to approximately $9 trillion from $7.1 trillion in a report due the week of August 24.

Second quarter earnings from the major chemical companies indicate that demand continues low and that the industry is not near a sustained recovery. The bright spots are in agrochemicals and oil services.

The Conference Board’s index of leading economic indicators increased again in July, its fourth consecutive increase. The six month change in the index of 3% compares to the previous six months figure of -2.8%. The Conference Board noted that the data suggests that the recession is bottoming out and that economic activity will likely begin to recover soon.

In July, retail sales decreased 0.1% from June and were 9.4% below July 2008. Total sales for the May – July 2009 period were down 9.0% from a year earlier. Gasoline station sales were down 32.5% from July 2008.

Privately owned housing starts in July were 1.0% below the revised rate for June of 587,000 and 37.7% below the revised July 2008 rate of 933,000. Single family housing starts in July 2009 were at a rate of 490,000 or 1.7% above the revised June figure of 482,000.

August adjusted figures for new orders for manufactured durable goods in June decreased $3.6 billion or 2.2% to $159.1 billion. This decrease followed two consecutive monthly increases. June unfilled orders for manufactured durable goods decreased $6.5 billion or 0.9% to $740.2 billion. This has declined for nine consecutive months, following a 0.3% May decrease.

Consumer Price Index was unchanged in July after an increase of 0.7% in June on a seasonally adjusted basis after a 1% increase in May. This increase was due largely to gasoline price increases.

Interest rate: Prime at 3.25% as of 12/16/08.

Inflation: Down 2.1% in July on an annual basis, the largest decline since 1950.

Unemployment: July 9.4%, lower than the ~10% forecasted, compared to peaks of 10.8% in 1982 and 25.2% in 1932. A 10% rate is still expected in early 2010.

Trade Deficit: For June 2009 the goods and services deficit increased to $27.0 billion from an adjusted $26.0 billion in May as imports increased more than exports. Exports and imports both increased to $125.8 billion and $152.8 billion respectively.

Crude Oil: Currently trading at ~$74/bbl, a ten-month high, with forecasts approaching $80. OPEC target levels are $70 – 75/bbl. OPEC’s next meeting is scheduled for September 9.

Natural Gas Spot prices and futures have both declined as supplies continue to be seen as more than adequate for short-term demand and inventory is higher than the five year average.

Industrial production increased 0.5 % in July, the first monthly increase since December, 2007. For the second quarter as a whole, output fell at an annual rate of 11.6%, compared to 19.1% in the first quarter. Capacity utilization rate for total industry in July was 68.5%, a .5% increase from June. Total industrial production was 13.1% below a year earlier and 12.4 points below its average for 1972 – 2008. The previous historical low was 70.9% in December 1982.

Estimates issued by the Bureau of Economic Analysis on July 31 show Gross Domestic Product drop of 1.0% in the second quarter of 2009. In the first quarter, real GDP decreased 6.4%. In comparison, Eurozone GDP fell 2.5% in Q1 2009, and 4.7% year to year. The US dollar trading at 94.4 yen. $1.43 = euro. The British pound sterling = $1.65.

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