A MARKET UPDATE for June 2008 / July 2008

Special Announcement:

We wish everyone a safe and happy Fourth of July! God Bless America!

TCC now offers Urea Molding Compounds, Melamine Molding Compounds and Specialty Chemicals to the America’s. 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: Record high prices at $140.00/ bbl. Saudi Arabia agreed to increase output in July by 200,000 bbls/day to 9.7 million bbls/day, highest rate since August, 1981.

Natural Gas: Current spot prices trading at $/12.75/MMBtu; Futures contracts at ~$13.00/MMBtu.

Benzene: Benzene prices went up worldwide due to crude and naptha values. The US benzene contract price for June increased $.44/ gal to US$4.31/ gallon.

Propylene: June chemical grade pricing was $.735/ lb., polymer grade pricing was $.75/ lb. Increases of $.09 and $.15/ lb. have been announced.

Orthoxylene: June contracts settled at $0.595/lb, an increase of $0.03 from May.

Chemicals Markets

Methanol: The Methanex Non-Discounted Reference Price for July will remain at US$1.58/ gallon. Spot is seen in the upper $1.30’s per gallon and trading thinly, as is normally the case for this time of year. The European Methanol price rolled over for Q3 at Eur295 per ton. Methanex is getting creative in Chile, looking to switch their electricity fuel source from gas to coal thereby increasing output by as much as 300 ton per day. There is also news that the Chilean plants will get a slight boost by years end from two new gas fields discovered in the region.

Urea: Urea prices remain in the mid to upper $600’s per ton as demand rebounded sharply from rice farmers. There is also demand from offshore as some barges were bought for export. 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. Pricing continued to advance to over $600 per ton the end of May and most recently in the mid to high $600’s per ton. No new price increase announcements have been made but with strengthening demand and natural gas prices this is highly possible.

Adipic Acid: Benzene pricing moved AA prices up yet demand remains soft, especially in Asia. Despite the weak demand in Asia, imports continue at a staggering rate while 175,000 tons of new capacity will go on-line in June.

Melamine: Prices have moved up strongly (double digit) based on Urea and natural gas pricing. Demand is good globally and production issues are noted in some regions.

Molding Compounds: Prices have moved up on increased melamine and urea costs.

Ammonium Nitrate: AN prices tied to an ammonia surcharge are seeing some relief. Demand has softened considerably in some sectors while mining demand remains good. At current Ammonia prices the surcharge will be less significant.

Ammonia: Prices have weakened to the low $500 per ton level but some feel that new business will be done at higher levels in coming weeks. Higher Natural Gas pricing and inland ammonia prices could drive pricing north.

Nitric Acid: Nitric Acid prices are moving up in certain regions where ammonia surcharge escalators have not been used. There was temporary respite for many buyers who now have to buck up to the higher prices. Those with ammonia surcharge escalators are seeing some relief (not complete) but if ammonia bounces back this surcharge could again become painful. Nitric Acid demand is described as “good” despite the cost increases.

Plasticizers and Plasticizer Alcohols: Despite the flurry of increases throughout 2008 the latest propylene price increase announcement of $.09 and $.15/ lb. will undoubtedly prompt another increase in July. Domestic producers continue to have Asian import pressure on commodity pz’s but with demand and prices picking up in Asia the availability of this lower cost material should be short lived.

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

Epoxidized Soybean Oil: Mid- west flooding will definitely effect ESO in the coming months while immediately effecting the logistics. No price announcements yet for July but with supply interruptions we expect some strengthening.

Dicyandiamide: Prices have sky rocketed to the $3.00 per lb. mark as Chinese producers take advantage of an extremely tight market. The devaluation of the US dollar to the Yuan, plants running at reduced operating rates, increased raw material costs and the “Olympic Effect” have all been sighted as reasons for this historic increase. Many consumers followed our recommendation to order early and increase inventory, those who did not are paying for it (literally) or looking for alternate products to use in their application.

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

Fumaric Acid: Prices are moving up 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. Price increase announcements of $.05/ lb. were announced by some producers to those not under a butane adjusted contract. 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 move up in June in line with Benzene pricing. Availability has become more limited.

Phthalic Anhydride: Demand is seasonal but with Orthoxylene prices advancing again in June (+.03/ 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 increasing demand for Going Green will have a major impact on many manufacturers, either through process change, design overhaul, or component change.

A Gallup poll released in May showed that 57% of the American people wanted the US to drill in coastal and wilderness areas. Data show that global demand for oil and natural gas will grow ~45% by 2030 compared to 2006.

Jack Gerard, well-regarded president and CEO of the American Chemistry Council (ACC) recently announced that he would step down on September 1 to head the American Petroleum Institute. Gerard successfully raised the profile and perception of the US chemical industry during his three-year tenure at ACC. No successor has been named.

According to the ACC, global chemical industry production rose 0.4% in May, following three consecutive months of decline. Activity in North America rose 0.6% with gains in bulk petrochemicals and organic intermediates, plastic resins, man-made fibers, and inorganic chemicals.

On June 6, Dow Chemical declared force majeure at its Freeport, TX caustic soda plant, resulting in sharply increased price. Certain customers have been put on allocation. Caustic soda had been in tight supply due to reduced demand for its co-product chlorine due to a slow PVC market.

The Chinese government recently announced the Outline of National Intellectual Property Rights, a strategy to confront the many issues around IPR. It is expected to improve IPR protection in China and attract greater intellectual resources from abroad. The concept of intellectual property rights is relatively new in China, and this announcement should provide greater protection from “knock-offs.”

Most recent estimates from the 8.0 magnitude earthquake in China exceed 51,000 deaths and damages of $20 billions.

With Chinese chemical manufacturers required to reduce or halt production in advance of the Olympic games, Indian producers are hoping to fill the gap.

A mid-year 2010 startup for a new Lihuayi Group oxo alcohol facility in Shandong, China was recently announced. The major product will be 140 kta of 2-EH.

The European Commission (EC) recently adopted the fees and charges that will apply for the registration, evaluation and authorization of chemicals under the REACH program. They were published in the official journal of the EU and the full text is available online at: www.reachforum.eu/docs/regulations/EU/ECHA/charges/REACH-Fees.html. Basic fees are payable to the European Chemicals Agency (EChA) in Helsinki. Fees start at 1600 euros and are intended to finance the EChA. The fees have been criticized for being surprisingly high, in addition to creating legal challenges under World Trade Organization rules. US exporters are starting to abandon what is seen as marginal business rather than face the cost of the program. There are estimates that 8,000 to 10,000 substances now sold into Europe will not be continued.

The European Commission has imposed a fine of 79 million euros against three European chemicals groups based on cartel agreements in the sodium chlorate market.

Oil and natural gas producer Hunt Petroleum has been sold to XTO Energy (US) for $4.2 billions. Takeover is to be completed by September.

Japan and China have reached agreement over the joint exploration oil and gas fields in the East China Sea. The participating Japanese companies have not been determined.

British buyout firm CVC Capital Partners has won the bidding contest for Evonik Industries AG for ~2.4 billion euros. The acquisition is expected to make the company more attractive to investors.

Chevron (US) and Transneft (Russia) have signed a memorandum of understanding on possible joint projects to design, build, and use the Russian pipeline structure. The companies plan to study international pipeline projects, including joint ventures.

DuPont Russian Coatings has opened a technical center for applied R&D of high-tech automotive coatings in Yaroslavl at an investment of 3 million euros. DuPont Russian Coatings provides primers, mono coats, base and clear coats to the Russian automotive industry.

DuPont Danisco Cellulosic Ethanol, a joint venture between DuPont and Genencor, will invest $140 million over the next three years to commercialize cellulosic ethanol technology. A US pilot plant start-up is planned for late 2009, with commercial capacity in 2012. Cellulosic ethanol relies on non-edible vegetation parts and other biomass, not food products.

Honda Motor Co. recently began producing a next-generation fuel cell vehicle that it hopes will propel zero-emission hydrogen powered cars into the automotive mainstream. Honda plans to deliver about 200 FCX Clarity fuel cell vehicles on lease in the US and Japan. Honda stated that the Clarity had fuel efficiency three times that of gas powered cars.

Multibrid, a German producer of offshore wind turbines, is looking at southern Ontario, Canada for its first North American plant. Planned location is in Lake Ontario, about 15 km offshore.

New security laws that demand all cargo containers headed for the US be scanned for weapons or radiation could hit consumer costs. Congress has mandated that these rules go into effect in 2012. This means that every one of the estimated 18 million US-bound containers each year will have to be inspected before leaving port of departure. More than three-quarters of the world’s trade, in terms of volume and weight, is moved by sea.

Information to help chemical buyers and supply chain managers prepare for the 2009-2010 global economy, energy feedstock, and key chemicals will be presented at the Chemical Purchasing Summit in Boston on September 17-18. The conference is to be organized by the editors of Purchasing and ICIS Chemical Business.

The Economy

Privately owned housing starts in May were 3.3% below the revised April rate, and 32% below May 2007. Single family housing starts declined 1.0% in May.

New orders for durable goods in May increased to $213.6 billion. This was the first increase in three months and followed a 1.0% April decrease. Excluding transportation, new orders decreased .9%. Excluding defense, new orders decreased 0.6%.

Consumer Price Index increased 0.8% in May. The May level was 4.2% higher than May 2007.

Interest rates: Prime at 5.00% as of 4/30/08.

Inflation: April ~4%; ~4.0% in 2008.

Unemployment: May 5.5%.

Trade Deficit: For April 2008 the goods and services deficit increased to $60.9 billion from an adjusted $56.5 billion in March.

Crude Oil: Average $130/bbl predicted for 2008.

Industrial production declined 0.2 % in May, after a decrease of 0.7 % in March. End of a strike at a parts manufacturer in late May had little effect on motor vehicle output. Total industrial production in May was .1% above its year-earlier level. Capacity utilization rate for total industry in May declined 0.2% to 79.4%.

GDP slowing to 1% for 2008.

The US dollar trading at 107.29 yen. $1.57 = euro. The British pound sterling = $1.987.

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