Chemical Cycles and the Outlook for 2006 ISM Chemical Group Mid-Winter Conference, Las Vegas February 24, 2006 Joseph Chang Editor

Forecasts from February 2005 Verdict:Forecasts: Cycle upturn will continue in full swing Mostly true Further profit gains for commodity group, but easy money’s been made in stocks On the money! Specialty chemicals are next to advance—both in profitability and stock prices 20-to-life!

Bullish Case The Best is Yet to Come!  Supply/demand to stay tight after years of underinvestment  Steady demand growth with consensus US GDP forecasts of 3.4% for 2006  Gulf Coast rebuilding  Fed rate hikes to halt  Energy prices to stabilize or fall  Low inventories  Middle East capacity delays  Large number of planned maintenance outages

Bearish Case The Party’s Over!  New global capacity coming on in 2006 in China and Iran  Capacity creep to take advantage of high prices  Large price gap between US and Asian spot prices  Shifting global trade balance to topple upcycle  Declining US exports, increasing imports  US supply/demand to normalize after Hurricane- related disruptions

Wall Street Crystal Ball E2006% ChangeStock price*P/E** Dow Chemical $5.3822%$ x Lyondell$4.0340%$ x Huntsman$2.9233%$ x Nova$ %$ x Eastman$5.76-7%$ x Celanese$2.6824%$ x Georgia Gulf $4.0040%$ x DuPont$2.8919%$ x Rohm and Haas $3.087%$ x Hercules$1.0422%$ x Chemtura$0.9752%$ x Albemarle$2.5419%$ x Source: First Call *Prices as of close of Jan 12, 2006 **Based on estimated 2006 EPS

Psychology is Key to Predicting Cycles  Cycles derived from human nature (FEAR vs. GREED)  Contrarian approach needed

Prior Projections in 2000 Why the Peak Never Came peak to occur in 2002 or 2003, and be predominantly monomer driver. By this time NOVA Chemicals will have approximately 2.5 times the polymer production capacity we had in construction and acquisition, has been timed to take full advantage of the expected Many analysts expect the next Our growth, through peak in the earnings cycle. Source: Nova Chemicals

Psychological Profile 2003 Harbinger of the peak to come!  Much less talk about the coming peak  WALL STREET CUTS PEAK FORECASTS  High oil and natural gas costs  Companies struggling financially  Lack of North American projects in the works, low level of capital expenditures (Slide from CMR Speech 9/3/03) Contrasting 2003 with 2000

Capital Spending as % of Depreciation Major/Commodity Chemicals Source: CMR

Steel Industry CAPX as % of Depreciation

US Steel (X) Source: Yahoo! Finance

Dour Mood in Mid-2003 “In the previous ethylene trough of 1991 to 1992 and the peak of 1995 to 1996, US chemicals have been fortunate enough to enjoy a favorable oil to natural gas price ratio. Those lucky days seem to have gone. Higher ethylene feedstocks could mean that cash margins at the next cyclical peak are lower than in previous peaks.” June 2003 “In the previous ethylene trough of 1991 to 1992 and the peak of 1995 to 1996, US chemicals have been fortunate enough to enjoy a favorable oil to natural gas price ratio. Those lucky days seem to have gone. Higher ethylene feedstocks could mean that cash margins at the next cyclical peak are lower than in previous peaks.” June 2003 “The US is the highest cost ethylene producing region in the world at current natural gas price levels. Directionally, we expect the North American petrochemicals industry to become a high-cost globally uncompetitive producer serving a large local market.” June 2003 Source: CMR

Nova Chemicals (NCX) Source: Yahoo! Finance Bearish Forecasts Jun 2003 Bearish Forecasts Jun 2003

Early 2005: LONGER AND STRONGER “We continue to believe that staggered ethylene/chlor- alkali/styrenic cycles will create a LONGER, STRONGER peak.” January 28, 2005 “We expect the coming peak to be LONGER and STRONGER, reminiscent of the peak.” January 6, 2005 “We expect the coming peak to be LONGER and STRONGER, reminiscent of the peak.” January 6, 2005 “We see a LONGER, STRONGER ethylene peak extending into 2007.” December 10, 2004 Source: CMR

Nova Chemicals (NCX) Source: Yahoo! Finance Bullish Forecasts Dec-Jan 2005 Bullish Forecasts Dec-Jan 2005

Conclusion: Upcycle Intact!  Wall Street bulls and bears battle it out  Investors skeptical  Valuations appear low  Companies positive, BUT CAPX REMAINS LOW  Healthy amount of fear  Specialty chemical prices and stocks to move higher along with commodities

Thank You! Joseph Chang Editor ICIS – Chemical Market Reporter 360 Park Avenue South, 12 th Floor New York, NY T: E: