A MARKET UPDATE for May 2008 / June 2008

Special Announcement: TCC now offers Dioctyl (Di- 2 Ethyl Hexyl) Phthalate shipping in Truck and Railcar from Kinder Morgan Terminal, Philadelphia, PA. 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 above $130.00/ bbl.

Natural Gas: Current spot prices trading at $/11.60/MMBtu; Futures contracts at ~$12.00/MMBtu.

Benzene: Benzene prices went up worldwide due to crude and naptha values. The US benzene contract price for may increased $.12/ gal (5.5%) to US$3.87/ gallon.

Propylene: May chemical grade pricing was $.675/ lb., polymer grade pricing was $.69/ lb.

Orthoxylene: May contracts settled at $0.565/lb, an increase of $0.02 from April.

Chemicals Markets

Methanol: The Methanex Non- Discounted Reference Price for June will increase by $.08/ gal. to US$1.58/ gallon. Southern Chemical also increased but by $.03/ gal. to US$1.55/ gal. Spot is seen in the low $1.30’s per gallon and moving up mainly due to supply constraints and Asian demand. Demand is not great in the U.S. and Europe due to logistical problems from the earthquake and fuel blending Asian specifically Chinese demand has spiked. Methanex has announced that they will restart their 900,000 ton Montunui, New Zealand Plant in Q3 but continue to have only two plants operational at reduced rates in Chile. There is some hoe that all 4 Chilean plants will be operational by 2009- 2010. The M5000 plant in Trinidad is back up and running but the 550 KTon M2 Plant will be taken down for 20-25 days.

Urea: Urea prices settled just over $600 per ton as demand slowed but many see this as temporary relief. Pricing has increased well over $200 per ton to consumers thanks to this recent run up. China’s export duty of 100% is certainly to blame as those countries dependent on Chinese Urea have scrambled to other markets to maintin supply. 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 and continuing to over $600 per ton the end of May. Price increase announcements were made by US producers and importers for June in the $85- $120/ ton range.

Adipic Acid: Despite rising raw material costs Adipic Acid prices remains soft. Weak demand is noted both domestically, in Europe and in Asia. With the peak demand season (polyurethane) in Asia drawing to a close and Japanese producer Asahi Kasei restarting their 120Kton plant after a 1 month outage pricing in Asia and worldwide looks to weaken. Dumping suits have begun in China sighting several producers participating in their market.

Melamine: Prices will move up strongly (double digit) in July based on today’s Urea prices. Demand is good globally and production issues are noted in some regions. Some producers have already announced an increase.

Molding Compounds: TCC now offers a full line of Urea and Melamine Molding Compounds. Perstorp and Chemieplastica have announced a merger, the new organization will be known as Chemitorp.

Ammonium Nitrate: AN prices tied to an ammonia surcharge are just now seeing relief. At current Ammonia prices the surcharge will be less significant.

Ammonia: Prices have finally weakened but were slowed by the massive increases in urea, potash and phosphates. Most feel that price erosion will continue in June as demand is weak. This recent decline has been warmly welcomed by many down stream producers whose margins have been slammed by the massive cost spike.

Nitric Acid: Nitric Acid prices in some cases are tied to an ammonia surcharge escalator. With ammonia prices in decline there is some relief for consumers. Nitric Acid demand is described as “good” despite the cost increases. For those producers who do not have the ammonia surcharge in place they have stated that a July increase is expected based on Natural gas and ammonia prices.

Plasticizers and Plasticizer Alcohols: Plasticizer demand is good in North America but with a flurry of price increases (some mid-month) over the last couple of months many have heavily pre-bought to avoid the increased cost. Domestic producers have had pressure from Asian imports offering lower prices but with demand and prices picking up in Asia the availability of this lower cost material should be short lived.

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

Epoxidized Soybean Oil: The April 1st increase of $.15- $.20 / lb. was hard to swallow but considering feedstock costs there was no way to avoid it. Soybean prices have leveled but remain in excess of $1300.00. Reference www.ino.com

Dicyandiamide: Prices have 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. 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 May (+.02/ 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 earthquake in China’s southwest Sichuan province, which has killed almost 15,000 people, severely disturbed chemical production and transport links in the region. It has been estimated that losses are in excess of $9 billion.

In advance of the Olympics, the Chinese government is regulating the production and sale of a number of chemicals in the Beijing area. Dow Chemical, the largest US chemical maker, will raise prices on all 3,200 products by as much as 20% on June 1 because of increased costs for energy, raw materials, and transportation. The company stated that their raw materials and energy costs jumped by 42% in quarter one.

Dow Chemical and Chevron Phillips Chemical have started operations at their styrenics joint venture, Americas Styrenics. It has been stated that the facility in Houston has the largest polystyrene capacity in the Americas.

The US Department of Transportation is expected to issue a final rule that will permit in-flight use of methanol powered fuel cells in laptop computers, a major growth potential for both methanol and fuel cells.

It has been reported that the Purchasing Magazine Commodity Price Index jumped 4.3% in May, and is now 31.4% higher than May 2007.

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.

It was recently stated by the president of the Synthetic Organic Chemical Manufacturers Association (SOCMA) that the future regulatory environment for chemicals will become increasingly stringent in the US.

Canada has seen an outbreak of proposals for bans on plastic bags. To date, 37 proposed bag bans and 16 proposed bag taxes have been defeated, with two municipalities implementing such bans and five more having such proposals pending.

The Canadian government may add a toxic label to vinyl acetate monomer, as a “potentially high-hazard substance.”

Senators Chuck Schumer (D, NY) and Dianne Feinstein (D, CA) have proposed legislation banning from commerce any product containing bisphenol A intended for use by or the care of a child seven years or younger. The American Chemistry Council has said that health effects of the chemical have been overblown by the news media.

The Indian chemical industry has grown at 12% per year since 2006, and the annual rate of growth could be as high as 16% by 2010.

BASF subsidiary Elastogran and the Kanoo group have established a joint venture to take over the polyurethane business of Multi Chemical Est., based in Abu Dhabi.

Four financial investors are involved for the first Evonik Industries share package, these being KKR, Blackstone, and Bain Capital from the US, and British investor CVC Capital Partners. Bids were to have been received by RAG by the end of May.

The EU has approved the joint venture between Solvay, BASF’s JV Solvin, and Sibur Gazprom’s petrochemical division. Primary products manufactured are PVC and PVDC. The EC said the transaction was reviewed based on “simplified” merger procedures that the commission believes do not create competition concerns.

PPG plans to build its first plant in Russia. The wholly owned facility, located in the Kaluga region about 70 km southwest of Moscow, will produce automotive and industrial coatings. The Kaluga region has attracted foreign investment from companies such as VW, John Deere, Volvo truck, and others.

Ukraine’s largest petrochemical company, Karpatneftekhim recently announced that it intends to halt manufacturing for approximately 3 months starting in early June. It was stated that costs of feedstock petroleum products make operations unprofitable. The company normally produces 800,000 tonnes of chemicals per year.

Huntsman has signed a memorandum of understanding to acquire a 70% stake in PUR-Systems, a German polyurethane company. Terms were not disclosed, but PUR reported annual sales of ~$77 million.

Borealis and the International Petroleum Investment Co. are planning a multi-billion dollar chemical project in Abu Dhabi/UAE. The project includes a naphtha cracker with downstream propylene and ethylene derivatives. The first phase of the project is expected to be complete in 2013.

General Electric and Schlumberger have announced a partnership to develop and implement “cleaner coal” technology through GE’s integrated gasification systems and Schlumberger’s carbon capture and storage.

The European Biodiesel Board has filed a legal complaint with the European Commission accusing US producers of unfairly dumping subsidized exports.

The food vs fuel controversy continues as the public see food costs on the rise. Governor Rick Perry of Texas has petitioned the EPA for a one-year reprieve from the federal ethanol mandate. Because of the mandate to add ethanol to gasoline, Texas ranchers are being forced into bidding wars with ethanol producers for the grains they feed their cattle. Congress gave the EPA the authority to grant waivers in the event that the ethanol mandate had unforeseen consequences and Governor Perry argues that this qualifies. It’s been reported that it takes 510 lbs of corn to make 13 gallons of ethanol, while that amount of corn could feed a child for a year.

US corn growers and biofuel firms have gone on the defensive regarding recent stories faulting ethanol. An example was that a shortage of pasta and related price increases in Italy was said to be caused by ethanol demand for corn, but it was pointed out that pasta is made from durum wheat, not corn.

NPRA representatives have urged the US Congress to repeal a massive new federal ethanol mandate. They cited rising corn and food prices, and the lack of infrastructure and markets for biofuels. However, other agricultural industry spokesmen think that there is little risk of losing government support for the program.

At the request of Alaskan Senator Ted Stevens, the Energy Information Administration recently provided an analysis of Crude Oil Production in ANWR (Report #SR-OIAF/2008-03.) The report states that opening of ANWR to oil and gas development is projected to increase domestic oil production starting in 2018. Various volume projections range from 510,000 to 780,000 bbls/day.

The US Department of Transportation recently issued a proposal regarding rail tank cars that carry poison inhalation (PIH) chemicals such as chlorine and anhydrous ammonia to be equipped with puncture resistance protection at speeds higher than existing tank cars. DOT proposes eliminating all existing PIH railcars, estimated at 15,300, within eight years at an estimated cost of $350 million.

DuPont has filed a petition at the Surface Transportation Board (STB,) the successor to the Interstate Commerce Commission, that would require railroads to set limits above which rates could not rise. The Association of American Railroads opposes anything resembling “reregulation.”

The Economy

Privately owned housing starts in April were 8.2% above the revised March rate. Single family housing starts declined 1.7% in April.

New orders for durable goods in April decreased $1.0 billion, or 0.5%, to $214.4 billion. This was the third decrease in four months and followed a 0.3% March decrease. Excluding transportation, new orders increased 2.5%. Excluding defense, new orders decreased 0.3%.

Consumer Price Index increased 0.6% in April. The April level was 3.9% higher than April 2007.

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

Inflation: April ~4%; ~3.0% in 2008.

Unemployment: April 5.0%.

Trade Deficit: For March 2008 the goods and services deficit decreased to $58.2 billion from an adjusted $61.7 billion in February.

Crude Oil: Average $120 – 130/bbl predicted for 2008.

Industrial production declined 0.7% in April, after an increase of 0.2 % in March. As in March, a strike at a parts manufacturer idled a number of motor vehicle assembly plants. Total industrial production in April was .2% above its year-earlier level. Capacity utilization rate for total industry in April declined 0.7% to 79.7%.

GDP slowing to 1% for 2008.

The US dollar trading at 103.98 yen. $1.57 = euro. The British pound sterling = $1.975.

Leave a Reply

Your email address will not be published. Required fields are marked *