Déjà Vu or New Horizon?Déjà Vu or New Horizon?ISM 2009ISM 2009

Stephen HarrimanStephen HarrimanHarriman Chemsult, LondonHarriman Chemsult, London

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.

Who are we?Who are we?

The current market positionThe current market position

Demand determined by recessionDemand determined by recession

Initially greater impact on chlorine and derivativesInitially greater impact on chlorine and derivatives

Reduced operating rates at chlor-alkali plantsReduced operating rates at chlor-alkali plants

Lagged decline in caustic soda demandLagged decline in caustic soda demand

Falling ECU demandFalling ECU demand

Divergent regional caustic soda price trendsDivergent regional caustic soda price trends

The road to the current market position IThe road to the current market position I

Rising caustic soda prices since mid 2004Rising caustic soda prices since mid 2004

Higher power costsHigher power costs

Consolidation of suppliersConsolidation of suppliers

Plant closuresPlant closures

Caustic soda export opportunities in Latin AmericaCaustic soda export opportunities in Latin America

The road to the current market position IIThe road to the current market position II (million st/%)(million st/%)

0

5

10

15

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Chlorine gas productionLiquid chlorine shipped

52

25

52

51

The road to the current market position IIIThe road to the current market position III

-1000

-750

-500

-250

0

250

500

750

1000

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Additions

Removals

Net change

Increases: ~4.4 million mtDecreases: ~3.3 million mtNet change: ~1.0 million mt

US production of caustic sodaUS production of caustic soda

0

2

4

6

8

10

12

1419

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Pro

duct

ion

(M d

mt)

75

80

85

90

95

100

Operating rate (%

)

ProductionOperating Rate

US chlorine producer consolidationUS chlorine producer consolidationPre 70s Early 80s Mid 80s Early 90s Late 90s 2008

Cap. (dkt/year) Share (%)

2000s1970s

4011 (31%)DOW

VULCANHOOKERD. SHAMROCK

OXYCHEM3285 (26%)OXYCHEM OXYCHEM

ERCO 93 (1%)

1446 (11%)PPG

STAUFFERPIONEER

CIL ICIFPPIONEERICI

DUPONT

OLIN OLIN

NIACHLOR

DUPONT

OLIN 1465 (11%)

ICI

77 (1%)

500 (4%)BAYER

ICI FPC 727 (6%)

GEORGIA PACIFIC GEORGIA GULF 408 (3%)

12838TOTAL

SHINTECH (part year) 200 (2%)

193 (2%)OTHERS

PENNWALT GOODRICH 186 (1%)WESTLAKE

174 (1%)GE PLASTICS

73 (1%)EQUACHLOR

US caustic soda balance 1990-2008 (M dmt)US caustic soda balance 1990-2008 (M dmt)

15

10

5

0

5

10

15

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Apparent ConsumptionExports

ImportsProduction

US imports and exports of caustic soda 2007US imports and exports of caustic soda 2007

Imports 0.8 million dmtExports 1.9 million dmt

1429

401 164

186

404

571

US exports, 2000-2008 (dmt)US exports, 2000-2008 (dmt)

0

500000

1000000

1500000

2000000

2000 2001 2002 2003 2004 2005 2006 2007 2008*

BrazilJamaicaSurinamVenezuelaChileOther Latin AmericaCanadaMexicoEuropeAustraliaOthers

* YTD – November 2008

US imports from Europe/Asia, 2000-2008* US imports from Europe/Asia, 2000-2008* (dmt)(dmt)

500000

400000

300000

200000

100000

0

100000

200000

300000

400000

500000

2000 2001 2002 2003 2004 2005 2006 2007 2008*

Europe

China East Coast

Taiwan East Coast

Japan East Coast

South Korea East Coast

Other Asia East Coast

Other Asia West Coast

South Korea West Coast

Japan West Coast

Taiwan West Coast

China West Coast* YTD – November 2008

Ea

st C

oa

stW

est

Co

ast

US caustic soda market structure/terminalsUS caustic soda market structure/terminals

ECU demand by end useECU demand by end use

Others6%

Propylene oxide3%

Isocyanates3%

C1s, C2s, Arom.4%

Vinyl/EDC20%

Organics4%

Inorganics9%

CHLORINE

Inorganics10%

Organics11%

Pulp and paper8%

Alumina7%

Detergents3%Textiles

4%Others8%

CAUSTIC SODA

Regional chlorine demandRegional chlorine demand

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%W

OR

LD

Asi

a

Eu

rop

e

No

rth

Am

eri

ca

La

tin A

me

rica

Mid

dle

Ea

st

Afr

ica

Oce

an

ia

Vinyls/EDCInorganicsOrganicsC1s, C2s, Arom.IsocyanatesPropylene oxideOthers

56 26 13 13 2 2 1 <1

Regional caustic soda demandRegional caustic soda demand

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%W

OR

LD

Asi

a

Eur

ope

Nor

th A

mer

ica

Latin

Am

eric

a

Mid

dle

Eas

t

Afr

ica

Oce

ania

OrganicsInorganicsPulp & paperAluminaTextiles/rayonSoaps/detergentsOthers

60 27 13 13 4 1 1 2

US ECU production costsUS ECU production costs

Electricity55%

Salt10%

Steam8%

Other7%

Fixed20%

Electricity usage factor = 2.6-2.7 MWh/ECUSalt usage factor = 1.70-1.75t/ECU

US contract/export caustic soda pricesUS contract/export caustic soda prices

0

250

500

750

1000

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 0809

Export, Diaphragm, Spot $/dmt fob USG

Contract $/dst

US regional caustic soda prices ($/dst)US regional caustic soda prices ($/dst)

0

200

400

600

800

1000

1200

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

West CoastMid WestNorth EastSouth EastGulf

Asian caustic soda pricesAsian caustic soda prices

0

100

200

300

400

500

600

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

Asia, Spot, $/dmt cfrAsia, Export, Spot, $/dmt fob

External issuesExternal issues

A global industryA global industry

How isolated is the US chlor-alkali industry?How isolated is the US chlor-alkali industry?

Influence of regional imbalancesInfluence of regional imbalances

Fragmentation of the US marketFragmentation of the US market

Lowest common denominatorLowest common denominator

European caustic soda balance 1990-2007 (European caustic soda balance 1990-2007 (MdmtMdmt))

15

10

5

0

5

10

15

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Eastern Europe Production Eastern Europe Apparent ConsumptionWestern Europe Production Western Europe Apparent ConsumptionEastern Europe Net Trade Western Europe Net TradeEurope Net Trade

China caustic soda balance 1990-2007 (M dmt)China caustic soda balance 1990-2007 (M dmt)

20

15

10

5

0

5

10

15

20

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

Exports

Apparent Consumption

Imports

Production

Latin America balance 1990-2007 (M dmt)Latin America balance 1990-2007 (M dmt)

4

3

2

1

0

1

2

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Apparent ConsumptionProductionNet Trade

Market outlookMarket outlook

Operating rates to remain low – determined by chlorine Operating rates to remain low – determined by chlorine

Acceleration in drop in caustic soda demandAcceleration in drop in caustic soda demand

Power costs less of an issuePower costs less of an issue

Ready availability of importsReady availability of imports

Constraints on ability to export chlorineConstraints on ability to export chlorine

Investment prospectsInvestment prospects

Chlorine in construction:Chlorine in construction:North America PVC outputNorth America PVC output

0

1

2

3

4

5

6

7

8

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Cap

acity

, Pro

duct

ion

(M m

t)

75

80

85

90

95

100

Operating rate (%

)

ProductionCapacityOperating rate

In summaryIn summary

No short term relief from the recessionNo short term relief from the recession

ECU demand is falling with some permanent lossECU demand is falling with some permanent loss

Revival in ECU supply will be a function of improved Revival in ECU supply will be a function of improved PVC demand PVC demand

ConsolidationConsolidation

Chlorine transportation issuesChlorine transportation issues

Mercury cell closuresMercury cell closures

US chlorine packagersUS chlorine packagers

Any Questions?Any Questions?