A MARKET UPDATE for MAY / JUNE, 2009

Events:
Visit with TCC at NPE 2009: “The International Plastics Showcase” June 22- 26, 2009 McCormick Place, Chicago, IL USA TCC Representatives Booth: W129033

New Product:
Introducing NatureFlexx 509 Phthalate Free General Purpose Plasticizer! This high molecular weight plasticizer is an excellent, non- phthalate, replacement for general purpose phthalate plasticizers like DINP, DOP, DEHP, DOTP, Etc. Please contact Robb Roach at robb@thechemco.com or Tel: (401) 423- 3100 for more information.

New Product Lines:
TCC now offers Adipic Acid, Citrate Esters, 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 $70.00/ bbl range. Futures are trending higher.

Natural Gas: Current pricing reported at ~$3.945/MMBtu.

Benzene: U.S. Benzene pricing for may was US$1.90/ gallon; June is $2.42/ gallon. Spot is trading higher. Benzene pricing was ~$.90/ gallon at the start of 2009. Based on $70/ barrel crude benzene should be in the $2.90/ gallon range.

Propylene: June is not toally settled but it appears prices will increase $0.085 to $.385/ lb. for chemical grade and $.40/lb. for polymer grade.

Orthoxylene: June contracts increased US$.03/ lb. to $0.395/lb. This increase is less than expected most likely due to lack of demand.

Chemicals Markets

Methanol: The Methanex Non-Discounted Reference Price for June will remain at US$.60/gallon a “roll” from May. Spot barge offers are in the mid $.50’s per gallon and demand is strong. Spot dependent sellers have begun to increase pricing based on the strengthening spot values. It is reported that Hugo Chavez has announced plans to put the petrochemical industry under state control. This will certainly add to the uncertainty of supply from this nation. At least one major East Coast methanol marketing company depends on supply from this troubled nation. Another major marketer in the south and mid-west could be affected as well. Also China has approved a National Industry Standard for Fuel Methanol in motor vehicles. This will transform methanol from mainly an industrial product to a motor vehicle fuel. At current gas pricing in the USA (approx $3.95/ MMBTU) cash costs per gallon of Methanol is approx $.515/ gallon. Demand is improving in North America, which is very encouraging as Methanol demand tends to indicative of the overall economy.

Urea: Urea prices are in the US$245/ ton range and quickly strengthening. Demand returned quickly and robustly and inland prices are increasing at a furious rate. Seasonal demand came a bit late as wet weather plagued the mid- west and delayed fertilizer purchases. Low natural gas pricing makes current prices profitable for domestic producers.

Adipic Acid: Adipic Acid prices have moved up with the major raw material benzene continuinig to advance in May and June. The Invista rationalization in Europe and North America has tightened supply in both geographies especially Europe. The closure of the Wilton, UK plant and mothballing of the Maitland, Canada plant has eliminated 14% of the global AA capacity and 40% of Invista’s overall capacity. Solutia has found a buyer in SK Capital Partners a US Private Equity Company. It is unclear how this company will be organized going forward.

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.

Molding Compounds: Prices have come down slightly but availability has become an issue. The extreme run up in raw material prices in 2007 and 2008 has left the remaining producers in a severe cash crunch and one of the remaining major producers is shut down.

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$285/ton (NOLA Barge) although Tampa has reportedly settled at US$210/ mt del. Buyers are seeking lower prices but higher priced transactions in other regions and rumors of production cuts in Russia have these offers falling on deaf ears.

Nitric Acid: Nitric Acid pricing is stable with demand seen as soft. Ammonia prices have come down slightly but we do not expect Nitric Acid prices to follow yet. If ammonia pricing stay in the low $200’s or lower we expect price erosion in Q3, 2009.

Plasticizers and Plasticizer Alcohols:
Plasticizer demand is improving but the big news is rapidly escalating raw material prices (propylene/ orthoxylene). Price increase announcements were made for May 1st , June 1st and now another round for mid- June. Raw material pricing has escalated significantly and current pricing will keep producers in the red. State level phthalate restrictions/ bans could have a more rapid and greater affect on phthalate plasticizers in the USA.

TCC Plasticizers available:
“ChemFlexx 206” Linear Phthalate Plasticizer
“ChemFlexx 208” Low Temp Linear Phthalate Plasticizer
“NatureFlexx 509” Phthalate Free General Purpose Plasticizer
DINP (DiIsononyl Phthalate)
DOA (DiOctyl Adipate)
DOP (DiOctyl Phthalate)
DUP (DiUndecyl Phthalate)
Epoxidized Soybean Oil
TOTM (TriOtcyl Trimellitate)
DMP (DiMethyl Phthalate)
8 10 Trimellitate
Brominated DOP
9 11 Phthalate

Epoxidized Soybean Oil: Pricing is level with one major recently exiting Chapter 11. Overall demand is considered slow. Current pricing is higher than phthalate plasticizers which is hurting demand.

Dicyandiamide: Prices are level but demand is relatively slow. Many consumers have worked off over priced inventories from last Summer and will be returning to the market soon.

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: Global values have eroded as inventories build. Offshore producers are eager to participate in North American markets as demand weakens.

Malic Acid: Global values have eroded with demand seen as slow. Offshore producers have shown keen interest in North American markets and may offer a lower priced alternative.

Isophthalic Acid: Prices have started come down in line with underlying raw material costs. Demand has also slowed in most major markets.

Maleic Anhydride: Demand remains slow but improving slightly in May. Huntsman’s new MMA plant is believed to be operational adding 100 million lbs. to an already over- supplied market. Prices have eroded in recent months as buyers seek lower prices and producers position for business. Rationalization of older plants is expected to happen in the near future.

Styrene monomer: Benzene values have moved up and so is SM pricing. Price increase announcements of $.05/ lb. were made for June. Domestic demand from all sectors is poor to extremely poor and pricing remainslow despite benzene values.

Phthalic Anhydride: Orthoxylene settled up $.03/ lb. to US$.395/ lb. in June hence phthalic anhydride will move up $.03/ lb. in July. Demand is poor globally and the peak demand season affecting orthoxylene is waning- we expect price erosion in the coming months. Imports are available at a slight discount.

Mono Ethylene Glycol: A $.02- $.03/ lb. increase has been announced for June 1 with the MeGlobal benchmark at staying at US$.27/ lb.

Diethylene Glycol/ Triethylene Glycol: Demand is extremely weak on DEG. Spot is thin but reported around US$.22/ lb. MeGlobal benchmark is at US$.27/ lb. but net contracts are approx. US$.24/ lb. All producers are operating at reduced levels. TEG benchmarks are at approx. US$.78/ lb. fob but imports continue below US$.60/ lb. and are driving prices lower.

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

Cytec has announced further measures in order to maintain liquidity and flexibility. They include suspension of production at unnamed facilities, a global salary freeze, limits on most bonuses and suspension of company matching contributions to the pensions of US employees.

DuPont CEO Ellen Kullman stated that the company wants to reduce costs by $1 billion this year while stepping up its agricultural, safety, and biofuels businesses. DuPont expects to add back about 30% of the cuts once the economy improves.

A US private equity group, Access Industries, has agreed with Germany’s ProChemie Holding to form a new joint venture that will own LyondellBasell. The new company, named ProChemie will be equally owned by the JV partners. The deal gives Access Industries flexibility to invest additional funds in LyondellBasell. The company plans to emerge from bankruptcy by year-end.

Chemspec Europe, the world’s only show dedicated to fine and specialty chemicals will take place in southern Europe for the first time on 17 – 18 June in Barcelona, Spain.

German specialty chemical manufacturer Evonik reported a net loss of $62 million in the first quarter largely attributed to a substantial decline in sales.

BASF says it is reconsidering plans for a $4.5 billion MDI plant in China because of weakened global demand. Plant capacity was designed for 400,000 MT/year.

German soap and adhesives manufacturer Henkel reported a drop of 46.5% in its first quarter net profit to $156 million. Sales in the adhesives segment grew 7.7% due to their acquisition of the National Starch business.

Cambrex has fallen below the NY Stock Exchange required standard for continued listing because its average market capitalization and shareholders’ equity were below $75 million on December 31, 2008. The firm must furnish the NYSE with a business plan showing its ability to return to compliance within 18 months. Its stock is still being traded.

Tronox has filed suit against Kerr-McGee, its former parent company, saying that the company saddled Tronox with debt, stripped it of cash and doomed it to fail. The suit says that Kerr-McGee moved liabilities from discontinued operations into Tronox before being acquired by Anadarko Petroleum just months before the Tronox spinoff.

Saudi Basic Industries Corporation (SABIC) and Saudi International Petrochemical Company have signed a memorandum of understanding on a $4 billion, nine plant project. The new plants are expected to start up in 2013. SABIC reported a first quarter loss of $260 million, its first loss in seven years, due to product price reductions and a large one-off charge.

The US Supreme Court recently delivered a major victory for Shell Oil Company, chemical producers, and other industry members by ruling that Shell was not liable for environmental damage caused by one of its customers.

Shell also recently announced that it will end its investments in wind, solar, and hydrogen power as a result of the difficult economy.

Dow Chemical Co.’s first quarter profit dropped 97% year to year, reporting $24 million. This topped expectations. Dow CEO Liveris was quoted as saying that this will still be a recessionary year. Dow has also announced that it hopes to sell about $1.63 billion in common stock in order to pay down the cost of its recent acquisition of Rohm & Haas Co.

The US Labor Department reported that the workforce in the US chemical industry shrank by an additional 4,400 in April. This is 35,400 jobs below April, 2008.

US-based Hexcel has received approval from UK officials to build a carbon fiber plant at its Duxford site. The plant would store as much as 400 MT of acrylonitrile, a flammable liquid classified in the US as a possible carcinogen.

Japan’s exports showed modest signs of recovery in April, with shipments to China declining at a slower pace than a year earlier. Exports rose for a second month in April, taken by some as an encouraging sign of recovery from Japan’s worst ever economic contraction. Japan’s economy shrank at a 15.2% annual rate in the first quarter.

South Korea’s LG Chem reported an 11.6% year-to-year first quarter profit growth to $215 million based on strong petrochemical demand from Chinese customers and recovery of product pricing.

The resubmitted Agrium offer to acquire CF Industries has been rejected again. CF board said that both offers undervalued the company.

Analysts say that a $1.02 billion subsidy in China to accelerate the replacement of older automobiles and appliances with more energy efficient ones should help the petrochemicals industry. The impact of a total $580 billion package to stimulate domestic demand has started to be felt.

A recent statement by the Canadian Environment and Plastics Industry Council described reusable plastic shopping bags as a “breeding ground for bacteria and posing a public health risk” because of high levels of molds, yeast, and bacteria.

It was recently announced by the EPA that the US government will reverse a Bush administration policy and increase the role of scientists in setting air standards for criteria pollutants harmful to human health. The move was in accord with President Obama’s pledge to increase the role of science in regulating pollutants.

The House Committee on Energy and Commerce recently passed the American Clean Energy and Security Act (ACES Act). Responses from business and industry were negative, citing adverse impact on the chemical and energy industries.

The EU had expected 180,000 pre-registrations of 30,000 substances under its Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) system. But its chemical agency was flooded by 2.7 million pre-registrations of approximately 143,000 substances said to be manufactured or imported into the EU in quantities of more than one MT. The next deadline date of December 1, 2010 will require full REACH registration dossiers. But not everyone in the industry seems to understand what registration entails or what substance data it requires.

American Petroleum Institute President and CEO Jack Gerard recently praised bipartisan action in the House of Representatives that would enact an offshore development plan introduced under the administration of President George W. Bush. HR 227 also contains provisions to increase revenue sharing with coastal states, adjust the Strategic Petroleum Reserve increase investments in green energy.

The City of Chicago is about to become the first city in the US to ban the sale of baby bottles and sippy cups containing bisphenol A amid health concerns about the chemical. The ban will take effect in January. The American Chemistry Council said that there is little proof of health risks and the new law is contrary to global consensus on the safety of BPA. Similar legislation proposed in Connecticut is having strong opposition in the state Senate. Minnesota recently became the first state to enact such a ban.

New York Governor David Paterson signed an executive order under which state offices will stop buying bottled water. The order is aimed at cutting costs and preventing global warning, and phases out spending on water bottles (BPA) and coolers. Paterson said that taxpayers have spent billions of dollars to ensure that we have clean drinking water supplies; we should reap the benefits and use that water.

Valero Energy announced that it will pay $725 million for Dow Chemical Co.’s 45% share of a Total-operated refinery in Vlissingen, the Netherlands. The refinery produces 190,000 bbls/day.

US biofuels producers criticized new California low carbon fuel standards saying that the state has shut the door on fuels made from corn or soy.

The number of rigs actively exploring for oil and natural gas in the US fell to 975 in mid-April, down nearly 50% from a year earlier number of 1,827.

Railroad companies are petitioning federal regulators for the right to refuse to carry toxic chemicals such as chlorine over long distances.

The big impact of tariffs on 89 US agricultural and manufactured products that this country exports to Mexico that went into effect on March 19 has spurred DOT and Congressional action to reinstate the previous agreement.

Department of Transportation statistics show that freight demand in the US hit a near seven year low in March. The first quarter may have been the low point for freight demand, but it may have bottomed.

The Economy

In April, retail sales were down 0.4% from March and 10.1% below April 2008. Total sales for the February – April 2009 period were down 9.2% from a year earlier. Gasoline stations sales were down 36.4% from April 2008.

Privately owned housing starts in April were 12.8% below the revised rate for March of 525,000 and 54.2% below the revised April 2008 rate of 1,001,000. Single family housing starts in April 2009 were at a rate of 368,000 or 2.8% above the revised March figure of 358,000.

New orders for manufactured durable goods in April increased $3.0 billion or 1.9% to $161.5 billion. This was the second increase in the last three months, following a 2.1% March decrease. April unfilled orders for manufactured durable goods decreased $8.9 billion or 1.2% to $748.9 billion. This made the seventh consecutive monthly decrease.

Consumer Price Index remained the same in April after a decrease of 0.1% in March. This index has fallen 0.7% over the past twelve months, primarily due to lower energy costs and is the biggest decline since August 1955.

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

Inflation: Down 0.7% in April on an annual basis, and the first decline since August 1955.

Unemployment: April 8.9%, with ~10% forecast by early next year, compared to peaks of 10.8% in 1982 and 25.2% in 1932.

Trade Deficit: For March 2009 the goods and services deficit increased to $27.6 billion from an adjusted $26.1 billion in February. Exports decreased more than imports.

Crude Oil: Currently trading at ~$66/bbl with futures on the increase. The Department of Energy has recently shown reluctance to exploit shale oil reserves. OPEC target levels are $70 – 75/bbl. OPEC’s next meeting is scheduled for September 9.

Natural Gas Total consumption of natural gas is projected to decrease by ~2% in 2009, leading to lower prices.

Industrial production decreased 0.5 % in April. At 97.1% of its 2002 average, output in April was 12.5% below its year-earlier level. Capacity utilization rate for total industry in April was 69.1%, a historical low.

Revised statistics show GDP drop of 5.7% in the first quarter.

The US dollar trading at 95.4 yen. $1.42 = euro. The British pound sterling = $1.62.

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