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Déjà Vu or New Horizon? ISM 2009

Déjà Vu or New Horizon? ISM 2009. Stephen Harriman Harriman Chemsult, London. Who are we?.

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Déjà Vu or New Horizon? ISM 2009

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  1. Déjà Vu or New Horizon?ISM 2009 Stephen Harriman Harriman Chemsult, London

  2. Who are we? • Harriman Chemsult was established in 1985 and is widely recognised as the world’s leading authority on chlor-alkali, vinyl and bleaching chemical markets. In 2006 it became part of the Access Intelligence group. • Harriman Chemsult publishes weekly and monthly newsletters, periodic multi-client reports, and also undertakes single-client consultancy work. • Harriman Chemsult’s price series are highly respected and widely referenced in contracts.

  3. The current market position • Demand determined by recession • Initially greater impact on chlorine and derivatives • Reduced operating rates at chlor-alkali plants • Lagged decline in caustic soda demand • Falling ECU demand • Divergent regional caustic soda price trends

  4. The road to the current market position I • Rising caustic soda prices since mid 2004 • Higher power costs • Consolidation of suppliers • Plant closures • Caustic soda export opportunities in Latin America

  5. The road to the current market position II(million st/%) 15 Chlorine gas production Liquid chlorine shipped 10 51 52 52 5 25 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

  6. Increases: ~4.4 million mt Decreases: ~3.3 million mt Net change: ~1.0 million mt The road to the current market position III 1000 Additions Removals 750 Net change 500 250 0 -250 -500 -750 -1000 2005 2006 2007 2008 2009 2010 2011 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

  7. US production of caustic soda Production 14 100 Operating Rate 12 95 10 90 8 Production (M dmt) Operating rate (%) 6 85 4 80 2 0 75 2005 2006 2007 2008 2004 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

  8. 2000s 2008 Cap. (dkt/year) Share (%) Pre 70s 1970s Early 90s Late 90s Early 80s Mid 80s US chlorine producer consolidation 4011 (31%) DOW 93 (1%) ERCO VULCAN HOOKER D. SHAMROCK OXYCHEM 3285 (26%) OXYCHEM OXYCHEM 727 (6%) ICI FPC STAUFFER ICI PIONEER ICI PIONEER CIL ICIFP OLIN 1465 (11%) DUPONT OLIN OLIN NIACHLOR 77 (1%) DUPONT 1446 (11%) PPG 500 (4%) BAYER 408 (3%) GEORGIA PACIFIC GEORGIA GULF SHINTECH (part year) 200 (2%) 186 (1%) PENNWALT GOODRICH WESTLAKE 174 (1%) GE PLASTICS 73 (1%) EQUACHLOR 193 (2%) OTHERS TOTAL 12838

  9. US caustic soda balance 1990-2008 (M dmt) Apparent Consumption Imports Exports Production 15 10 5 0 5 10 15 2004 2005 2006 2007 2008 2003 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

  10. 404 5 401 164 71 186 1429 US imports and exports of caustic soda 2007 Imports 0.8 million dmt Exports 1.9 million dmt

  11. US exports, 2000-2008 (dmt) 2000000 Brazil 1500000 Jamaica Surinam Venezuela Chile Other Latin America 1000000 Canada Mexico Europe Australia 500000 Others 0 2000 2001 2002 2003 2004 2005 2006 2007 2008* * YTD – November 2008

  12. US imports from Europe/Asia, 2000-2008* (dmt) 500000 Europe China East Coast 400000 Taiwan East Coast 300000 Japan East Coast East Coast South Korea East Coast 200000 Other Asia East Coast 100000 0 100000 200000 Other Asia West Coast 300000 West Coast South Korea West Coast Japan West Coast 400000 Taiwan West Coast China West Coast 500000 * YTD – November 2008 2000 2001 2002 2003 2004 2005 2006 2007 2008*

  13. US caustic soda market structure/terminals

  14. Inorganics Inorganics 9% 10% Organics 4% Organics 11% Vinyl/EDC 20% Pulp and paper 8% Alumina C1s, C2s, Arom. 7% 4% Isocyanates Detergents 3% 3% Propylene oxide Textiles 3% CHLORINE CAUSTIC SODA Others 4% Others 6% 8% ECU demand by end use

  15. 56 26 13 13 2 2 1 <1 Regional chlorine demand 100% 90% 80% 70% 60% Vinyls/EDC 50% Inorganics Organics 40% C1s, C2s, Arom. 30% Isocyanates Propylene oxide 20% Others 10% 0% Asia Africa Europe Oceania WORLD Middle East Latin America North America

  16. 60 27 13 13 4 1 1 2 Regional caustic soda demand 100% 90% 80% 70% 60% Organics 50% Inorganics 40% Pulp & paper Alumina 30% Textiles/rayon 20% Soaps/detergents Others 10% 0% Asia Africa Europe WORLD Oceania Middle East Latin America North America

  17. US ECU production costs Electricity 55% Fixed Salt 20% 10% Steam Other 8% 7% Electricity usage factor = 2.6-2.7 MWh/ECU Salt usage factor = 1.70-1.75t/ECU

  18. US contract/export caustic soda prices 1000 Export, Diaphragm, Spot $/dmt fob USG 750 Contract $/dst 500 250 0 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

  19. US regional caustic soda prices ($/dst) 1200 1000 West Coast Mid West 800 North East South East Gulf 600 400 200 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

  20. Asian caustic soda prices 600 500 Asia, Spot, $/dmt cfr Asia, Export, Spot, $/dmt fob 400 300 200 100 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

  21. External issues • A global industry • How isolated is the US chlor-alkali industry? • Influence of regional imbalances • Fragmentation of the US market • Lowest common denominator

  22. European caustic soda balance 1990-2007 (Mdmt) Eastern Europe Production Eastern Europe Apparent Consumption Western Europe Production Western Europe Apparent Consumption Eastern Europe Net Trade Western Europe Net Trade Europe Net Trade 15 10 5 0 5 10 15 2003 2004 2005 2006 2007 2002 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

  23. China caustic soda balance 1990-2007 (M dmt) 20 Exports 15 Apparent Consumption Imports Production 10 5 0 5 10 15 20 2002 2003 2004 2005 2006 2007 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

  24. Latin America balance 1990-2007 (M dmt) 2 1 0 1 2 3 Apparent Consumption Production Net Trade 4 2003 2004 2005 2006 2007 2002 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

  25. Market outlook • Operating rates to remain low – determined by chlorine • Acceleration in drop in caustic soda demand • Power costs less of an issue • Ready availability of imports • Constraints on ability to export chlorine • Investment prospects

  26. Chlorine in construction:North America PVC output 8 100 Production Capacity 7 Operating rate 95 6 5 90 Capacity, Production (M mt) 4 Operating rate (%) 85 3 2 80 1 0 75 2005 2006 2007 2008 2004 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

  27. In summary • No short term relief from the recession • ECU demand is falling with some permanent loss • Revival in ECU supply will be a function of improved PVC demand • Consolidation • Chlorine transportation issues • Mercury cell closures

  28. US chlorine packagers

  29. Any Questions?

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