A MARKET UPDATE for NOVEMBER / DECEMBER, 2008

Special Announcements:
To all of our friends in the chemical world The Chemical Company wishes you a Merry Christmas, Happy Hannukah and a happy, safe and healthy new year.

TCC now offers Citrate Esters, Urea Molding Compounds, Melamine Molding Compounds 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 $47.00/ bbl range. January futures have been reported in the same range or lower. It’s been reported that OPEC’s unofficial target price is $70 – 90/bbl and it may consider further production cuts. Prices are down ~50% from the beginning of the year.

Check thechemco.com for up to the minute info.

Natural Gas: Current prices trading at ~$6.35/MMBtu; Futures contracts at ~$6.50/MMBtu.

Benzene: Benzene prices collapsed worldwide in November down 62% in to $1.60/ gallon. Pricing is at or below $1.00 per gallon in December.

Propylene:November prices were halved to chemical grade at $.285/ lb., polymer grade at $.30/ lb. Producers are at reduced operating rates.

Orthoxylene: November contracts settled at $0.33/lb., down $0.17/lb from October.

Chemicals Markets

Methanol: The Methanex Non-Discounted Reference Price for December is set at US$1.00/gallon down US$.40/ gal. from November ($1.40/ gal). Spot barge offers are now below US$.60/ gal. and trading thinly. Methanex has announced their intention to return to a terminal (Kinder Morgan) in Perth Amboy, NJ in Q1 of 2009. Currently these tanks are held by American Agip and there is question as to where Agip will end up once the transition takes place. Many believe Agip will resign their position in the overly supplied Northeast. At current natural gas pricing in the USA (approx $6.4/ MMBTU) cash costs per gallon of Methanol is approx $.76/ gallon. Any further erosion in price could cause the shutdown of the few remaining production points. The M5000 unit in Trinidad and Tobago remains down and Southern is on 100% allocation yet there is very little concern about availability. Downstream demand continues to be “way off,” and seasonal demand still hasn’t materialized.

Urea: Urea pricing in the USA are now the cheapest in the world. NOLA barges are seen at $245- $255 per ton. Bagged Urea prices continue to decline as lower priced inventories are brought into play.

Adipic Acid: With Benzene values slipping (Benzene makes cyclohexane the precursor to Adipic) and a lack of demand globally, prices on Adipic Acid have fallen. Exports from Europe and the USA to China have fallen dramatically as domestic producers gain a foothold on their market. One major Chinese producer Liaoyang has brought dumping charges against several global producers including Solutia (Pensacola, FL).

Melamine: With Urea prices crashing globally Melamine pricing has followed. Demand has eroded as well, intensifying the downward pricing trend, especially in China. The massive Chinese export tariff on urea, that kept urea prices down most of the year, may be lifted stimulating exports and possibly price.

Molding Compounds: Prices have stabilized for the moment as consumers eagerly await lower prices. Methanol, melamine and Urea price erosion should mean forthcoming price decreases.

Ammonium Nitrate: Ammonia surcharged pricing will end effective 1/1/09 or earlier. Low density AN prices are currently stable but pricing should retreat in line with the current ammonia price of $250/ ton. Demand on both low and high density has softened considerably in most sectors and some have successfully found alternate chemistries for their application.

Ammonia: Prices have dropped exponentially and are expected to fall even farther. Current U.S. Gulf NOLA barge pricing is US$250/ton (NOLA Barge). At this time demand is extremely soft and tanks are full with scheduled deliveries not far behind.

Nitric Acid: Nitric Acid pricing is stable at the moment but demand is certainly slipping. Those that are tied to the Ammonia Surcharge will finally get major relief in the coming weeks and all surcharges will end by 1/1/09 or earlier.

Plasticizers and Plasticizer Alcohols: Pricing on plasticizers and plasticizer alcohols continue to erode following the drop in oil, natural gas, propylene, orthoxylene and ethylene. Domestic demand is soft as buyers await lower prices and run down inventories for year end. U.S. and European producers continue to have Asian import pressure on commodity pz’s.

Asian demand has picked up slightly along with prices on the news of the government economic stimulus actions.

TCC Plasticizers available:
10 Trimellitate

Brominated DOP
ChemFlexx 206 Linear Phthalate Plasticizer
Chemflexx 208 Low Temp Linear Phthalate Plasticizer
Citrate Esters
DINP
DOA
DOP
DUP
Epoxidized Soybean Oil
TOTM

Epoxidized Soybean Oil: Pricing has eroded on lower feedstock costs. Demand has slowed as buyers await lower pricing and run down inventories for year end.

Dicyandiamide: Prices have weakened and inventories in China are high. Prices did come down after the “Olympic Effect” and continue to decline on lack of demand and building inventories. Most consumers are looking for lower prices which will come with the new/ lower cost containers arriving in the near term future.

Dicyclopentadiene: Prices are in decline with underlying crude values. Also the Polyester Resin market continues to be extremely slow.

Fumaric Acid: Global values are eroding as inventories build. Offshore producers are eager to participate in North American markets as demand weakens.

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 due to the housing slump and tied to this, lackluster demand in UPR. Prices are eroding based on lower butane costs. Logisitcal issues due to high water in the Mississippi River have delayed the expected start up date on Huntsman’s new 100 million lb. Maleic Anhydride plant in Geismar, LA. They now expect to bring up their plant at the end of Q1 2009.

Styrene monomer: With Benzene values at or below $1.00 per gallon and demand from all sectors poor to extremely poor pricing is at levels not seen in almost 10 years.

Phthalic Anhydride: Demand is poor globally as consumers await lower prices. Orthoxylene settled $.17/ lb. lower to US$.33/ lb. which moved Phthalic prices lower for December.

Mono Ethylene Glycol: Global demand has declined as prices erode and buyers look to use up higher priced inventories. Asian pricing has stabilized but at cash cost of $450- $470/ ton CFR. US spot prices fell 23 cts/ lb as antifreeze and PET demand are extremely weak. Posted benchmark numbers are in the mid thirties per lb.

Diethylene Glycol: DEG pricing in Asia has firmed to over $600 per ton CFR while domestically contract pricing fell into the mid forties. Demand has softened while supply has improved.

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

Melamine food contamination from China continues as a health issue. China is reviewing a tougher food safety law following criticism from the United Nations for its slow response to the tainted milk scandal. The World Health Organization plans to make a detailed assessment of the long term consumption of melamine and has asked China to provide information for a December meeting.

In November the US Food and Drug Administration opened its first overseas office in China with others planned around the globe. The move came after the FDA ordered milk-containing Chinese food products to be stopped at the US border until testing proves that they’re free of melamine.

REACH has run into some serious problems with product pre-registrations required by the end of November. It’s been reported that the volume is too much for the computers, so some chemical companies have not been able to register their products in time. The European Chemicals Agency has thus far refused to extend the deadline. Some European companies have stated that they risk going out of business as a result.

German GDP dropped 0.5% in the third quarter, pushing Europe’s largest economy into an official recession. Second quarter declined 0.4%. German chemical industry production was down 1% from a year earlier. The German government cut its 2009 growth forecast to 0.2% from an earlier 1.2%.

Hexion Specialty Chemicals has sued Credit Suisse AG and Deutsche Bank AG for allegedly breaching their agreement to fund a $6.5 billion buyout of Huntsman.

ExxonMobil and SABIC have agreed to setting up a joint venture in Saudi Arabia for the manufacture of synthetic rubber. The multi-billion dollar complex is anticipated to have an annual production capacity of 400,000 MT.

Wacker Polymers America, a division of Germany’s Wacker Chemie AG, recently broke ground for its American headquarters in the Allentown, PA area. Until earlier this year, it was a joint venture with Air Products and Chemicals.

Mitsubishi Rayon has proposed a friendly takeover of UK-based Lucite International Group for US$1.6 billion. The transaction is expected to be complete by the end of January, 2009.

Peoples Bank of China has announced a significant rate cut to 5.58% in order to stimulate economic growth.

Demand has collapsed at BASF, the world’s largest chemical company. As a result, up to one quarter of all production capacity is being shut down or reduced until January of next year. Worldwide, 20,000 members of BASF’s total 95,000 work force will be affected.

DuPont has filed a suit against INVISTA alleging that it misappropriated DuPont trade secrets, and infringed on patents covering DuPont’s nylon engineering resins business.

Nan-Ya Plastics has announced an expansion of butyraldehyde and 2-EH capacity at its Taiwan oxo unit. Increases will be from 192,000 MT/yr to 242,000 MT/yr and from 150,000 MT/yr to 200,000 MT/yr respectively. Completion is expected in early 2010.

Ineos Group plans to close two polypropylene production lines in La Porte, TX with total capacity of 520 million pounds. Ineos will continue to produce high density polyethylene at the site.

Air New Zealand and Boeing are planning to test a sustainable biofuels system in December using a 747 aircraft. One of the engines in a three hour test flight will be powered by fuel derived from the jatropha plant. Air New Zealand plans to use the fuel, which costs ~$43/bbl, for 10% of its needs by 2013.

The Kenyan government announced that foreign investors will be funding biofuel projects in the amount of US$500 million. Raw materials include jatropha, croton, sweet sorghum, and sugar.

According to the International Atomic Energy Agency, as of 2007 France led the world with 78% of its electric power derived from nuclear facilities. The US gets about 19% of its electricity from nuclear plants.

The debate over Bisphenol A (BPA) risk continues. An October 31 meeting of the FDA’s Science Board included a critical review of initial findings showing BPA as having no real health risk. The review judged the FDA’s conclusions flawed and is concerned over BPA’s use in food and beverage containers. The FDA has until February, 2009 to respond.

A new Federal ban on the use of phthalates in children’s products won’t apply to goods already in warehouses or on store shelves according to the Consumer Products Safety Commission. It will be illegal to sell products made after the ban takes effect on February 10, but products made before that date will be legal to sell. Consumer advocates say the decision violates the intent of the law and that it will cause confusion for consumers.

It has been predicted that the chemical industry can expect the new Congress to take stronger action on environmental issues in 2009. Democrats have already announced plans to increase oversight of the EPA, introduce tougher legislation, enforce more strictly the rules against violators, and increase the size and use of penalties. Some observers think that REACH-like legislation will also be proposed.

The American Chemistry Council will press energy issues, especially a comprehensive energy policy, as the top priority for the US chemical industry with the incoming administration and Congress.

UPS and the US Postal Service recently announced their 2009 rate increases. In the meantime, DHL has announced its exit from the US express shipping market.

New measures announced by US security officials to protect rail shipments of chemicals against terrorist attack were welcomed recently by industry leaders.

The Economy

In October, retail sales declined 2.8% from September, and were 4.1% below October 2007. Total sales for the August -October 2008 period were down 1.3% from a year earlier.
Contrary to some predictions, “Black Friday” retail sales rose 3% from a year earlier to $10.6 billion.

Privately owned housing starts in October were 4.5% below the revised rate for September, and 38.0% below October 2007. Single family housing starts declined 3.3% in October.

New orders for durable goods in October decreased 6.2% to $193.0 billion. This was the largest percent decrease in new orders since October 2006. Unfilled orders for manufactured durable goods in October, down for the first time in twenty-six months, decreased 0.6% to $823.6 billion from September’s level of $829.6 billion.

Consumer Price Index decreased 1.0% in October.

Interest rate: Prime at 4.0% as of 10/29/08.

Inflation: October 3.7 %

Unemployment: October 6.5%.

Trade Deficit: For September 2008 the goods and services deficit decreased to $56.5 billion from an adjusted $59.1 billion in August.

Crude Oil: Average $75/bbl predicted for 2008, with continued low numbers in 2009.

Industrial production increased 1.3 % in October. Capacity utilization rate for total industry in October was 76.4%, a level 4.6% below the average for 1972- 2007.

GDP fell by a seasonally adjusted rate of 0.3% in the third quarter with further reduction seen.

The US dollar trading at 95 yen. $1.27 = euro. The British pound sterling = $1.54.

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