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

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

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

The road to the current market position II (million st/%) Chlorine gas production Liquid chlorine shipped

The road to the current market position III Additions Removals Net change Increases: ~4.4 million mt Decreases: ~3.3 million mt Net change: ~1.0 million mt

US production of caustic soda Production (M dmt) Operating rate (%) Production Operating Rate

US chlorine producer consolidation Pre 70s Early 80sMid 80s Early 90sLate 90s 2008 Cap. (dkt/year) Share (%) 2000s 1970s 4011 (31%) DOW VULCAN HOOKER D. SHAMROCK OXYCHEM 3285 (26%) OXYCHEM ERCO 93 (1%) 1446 (11%) PPG STAUFFER PIONEER CILICIFP PIONEER ICI DUPONT OLIN NIACHLOR DUPONT OLIN1465 (11%) ICI 77 (1%) 500 (4%) BAYER ICIFPC 727 (6%) GEORGIA PACIFICGEORGIA GULF 408 (3%) 12838TOTAL SHINTECH (part year) 200 (2%) 193 (2%) OTHERS PENNWALTGOODRICH 186 (1%) WESTLAKE 174 (1%) GE PLASTICS 73 (1%) EQUACHLOR

US caustic soda balance (M dmt) Apparent Consumption Exports Imports Production

US imports and exports of caustic soda 2007 Imports 0.8 million dmt Exports 1.9 million dmt

US exports, (dmt) * Brazil Jamaica Surinam Venezuela Chile Other Latin America Canada Mexico Europe Australia Others * YTD – November 2008

US imports from Europe/Asia, * (dmt) * 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 East Coast West Coast

US caustic soda market structure/terminals

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

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

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

US ECU production costs Electricity 55% Salt 10% Steam 8% Other 7% Fixed 20% Electricity usage factor = MWh/ECU Salt usage factor = t/ECU

US contract/export caustic soda prices Export, Diaphragm, Spot $/dmt fob USG Contract $/dst

US regional caustic soda prices ($/dst) West Coast Mid West North East South East Gulf

Asian caustic soda prices Asia, Spot, $/dmt cfr Asia, Export, Spot, $/dmt fob

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

European caustic soda balance ( Mdmt ) Eastern Europe ProductionEastern Europe Apparent Consumption Western Europe ProductionWestern Europe Apparent Consumption Eastern Europe Net TradeWestern Europe Net Trade Europe Net Trade

China caustic soda balance (M dmt) Exports Apparent Consumption Imports Production

Latin America balance (M dmt) Apparent Consumption Production Net Trade

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

Chlorine in construction: North America PVC output Capacity, Production (M mt) Operating rate (%) Production Capacity Operating rate

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

US chlorine packagers

Any Questions?