ACETONE MARKET REPORT

January - SUMMARY
January 31, 2008 Issue: 98
CMAI - HOUSTON Adrian Beale/Marc Laughlin Tel: 281-531-4660
[email protected] [email protected]

CMAI - EUROPE Alex Lidback/Brian Cooke Tel: 44-207-930-9818

[email protected] [email protected]

CMAI - SINGAPORE Tel: 65-6-226-5363

Copyright CMAI 2008 All Rights Reserved
SPOT

Prices for Period Ending: 2H-January

Cents/Lb.
47.50 55.00 47.50 60.00

CONTRACT $/Ton
1047.2 - 1047.2 1212.5 - 1322.8

/Ton
708 820 708 895

Cents/Lb.

$/Ton

United States

Large Buyer (1, 3, 6) Q4 2007 Small-Medium Buyer (1, 2, 6) 2H January Export, USGC (5)

42.00 - 44.00

925.9

970.0

West Europe, ($1.478/Euro)

Large Buyer (1, 3, 6) Distribution Market (1, 2, 6) Export, ARA (5)

62.4 45.9

62.4 48.6

1374.7 - 1374.7 1012.6 - 1071.7

930 685

930 725

37.9 59.0 46.2 44.9

40.8 59.4 46.6 45.8

835.0

900.0

Asia

China, Domestic (1), (RMB7.191/US$) China, Domestic (Import Equivalent) China, Main Port (4)

1300.2 - 1310.6 1019.6 - 1028.0 990.0 - 1010.0

PROPYLENE INDICES (Acetone*/Propylene)

(e.g. 20.0 cpp acetone/15.0 cpp propylene = 1.33)

*Large Buyer Price

Refinery (Spot) Chemical (Spot) Polymer (Spot)

Contract 0.85 1.01 0.79

United States

Export 0.75 0.89 0.70

Contract 1.17 1.07

West Europe

Distribution 0.86 0.79

China 0.73 0.78

Asia

NEA #N/A #N/A

SPOT TRADE PRESSURE CALCULATION (positive values suggest profit incentive to move product) all units are $/ton to: United States West Europe Asia from: 105 120 Freight

United States
Pressure -185 -68

Freight 85 110

West Europe
Pressure -99 23

Freight Pressure 115 -262 110 -243

Asia

Pricing Notes

Not settled, previous or quarterly price posted All Prices are FOB Unless Notes Indicate Otherwise. Price Range Covers From First Day of Month Through This Report's Date. Prices Are For The Current Month Unless Noted. (1) Delivered or minimum freight allowed (3) Barge delivery (2) Truck/Rail delivery (4) CFR

n - Notional price range, no transactions

Changes from last report prices moved lower prices moved higher - prices are unchanged (5) FOB (6) Excludes Discounts

QUARTERLY PRICE FORECAST

Current Prices

United States

Qtr-2
50.00 55.75 0.92 0.84 960 737 1.06 1.03 1.47 990 0.78

Qtr-3
49.00 54.75 0.98 0.89 905 703 1.03 0.99 1.46 843 0.76

2008

Qtr-4
46.00 51.75 0.98 0.89 855 664 1.04 1.01 1.43 770 0.75

Qtr-1
49.67 55.42 1.10 1.00 815 640 1.06 1.02 1.40 760 0.76

2009

West Europe

Large Buyer (1, 3, 6) cents per pound Small-Medium Buyer (1, 2, 6) cents per pound ratio to propylene, refinery spot ratio to propylene, chemical CP Large Buyer (1, 3, 6) Euro per ton Distribution Market (1, 2, 6) Euro per ton ratio to propylene, chemical spot ratio to propylene, polymer CP Exchange Rate US$ per Euro China, Main Port (4) US$ per ton ratio to propylene, polymer spot

47.50 55.00 0.9 1.0 930 685 1.0 0.8 1.48 990 0.8

47.50 60.00

930 725

Asia

1010

The forecasts are the opinion of the ACMR and based solely on information in the public sector and assessments of CMAI. There is no guarantee as to their use.

This report is for the exclusive use of the client company. Distribution outside of the client company is strictly prohibited without the prior written consent of Chemical Market Associates, Inc. (CMAI). The prices presented herein are strictly the opinion of CMAI and are based on information collected within the public sector and on assessments by CMAI staff. CMAI MAKES NO GUARANTEE OR WARRANTY AND ASSUMES NO LIABILITY AS TO THEIR USE.

Acetone Market Report

UNITED STATES The large buyer contract discussions for Q1 2008 are off a slow start with no real price discussion range in the public domain. A few operational issues on both sides of the table have not been helping the matter. As mentioned in previous reports, a major phenol/ acetone producer had experienced operational issues after their planned maintenance outage of 3 weeks that led to them taking another unplanned outage of approximately 7 days. Now a major buyer is experiencing issues at one of its facilities; this just ahead of their planned 20 day maintenance outage in February. It is our understanding that this major acetone buyer has reduced their acetone consumption so far for January and February by a total of approximately 6,000 metric tons. A major phenol/acetone producer is still planning to go forward with private and confidential monthly contract pricing in the larger buyer market segment; however, no large buyer has confirmed that they have agreed to this and clearly there is some resistance. We will monitor the situation closely and comment on it as it becomes clearer.
Cents Per Pound 70 60 50 40 30 20 10 0 Jan-02

U.S. Acetone Raw Materials

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Large Buyer CP Chem Propylene, CP

Refinery Propylene, Spot

U.S. Acetone to Propylene Ratio

Ratio 1.8 1.6 1.4 1.2 1.0 0.8 0.6 Acetone/Spot Refinery Grade Propylene 0.4 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08

The small to medium buyer market has continued to diverge. We are seeing a bit of price softening from the beginning of the month with some producers reducing their January 1st price increase mid month and there is some competitively priced material in a few spots throughout the country around 55 cents per pound. It should be noted that a few producers are keeping their prices firm on the upper end of the range of 58-60 cents per pound. Supplies are understood to be readily available and for some demand seems to be a bit weaker than this time last year while others are experiencing better business than they had expected.

Acetone Delivered

cts/lb US$/MT

1H-December 55.00 58.00 1213 1279

U.S. Small-Medium Buyer Market Price History

2H-December 56.00 60.00 1235 1323

1H-January 56.00 60.00 1235 1323

2H-January 55.00 60.00 1213 1323

January 31, 2008/Issue No. 98

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Acetone Market Report

On trade, we continue to see weak imports and decent exports. The per month average imports for the months of January thru November (the latest trade data available) for 2005, 2006 and 2007 are 6.2, 3.7 and 3.4 metric tons, respectively. In likewise fashion, exports for those years are 27.4, 23.5 and 25.6 metric tons, again respectively. EUROPE There has been little to no progress on the first quarter acetone price settlement. The two sides remain very far apart and it appears that negotiations will continue to linger well into the first quarter. As you may recall, producers would like to increase prices in conjunction with the 57 per ton increase for the Q1 propylene price. Buyers, conversely, would like to press for a rollover to only a marginal increase - hence, the stalemate. Both sides are adamant about their position. Lets start with the production side. Producers have struggled to keep pace with propylene throughout 2007, despite all the acetone outages, which has made acetones contribution detrimental to the phenol/acetone business. Depending on where negotiations settle out in the first quarter, the industry is looking at one of the lowest, if not the lowest acetone to propylene ratio in history. Please consider that is based on applying a net price assuming known discounts on the quarterly price which tend to be quite generous.
West Europe Acetone and Propylene Ratio
Euro per Ton 1000 900 800 700 600 500 400 300 200 100 0 Jan-02 Ratio Acetone to Poly C3 Jan-03 Jan-04 Large Buyer Jan-05 Jan-06 Jan-07 Jan-08 1.0 0.9 Forecast 1.4 1.3 1.2 1.1 Ratio 1.6 1.5

Ratio Acetone to Propylene

1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Jan-02

U.S. Large Buyer Europe Large Buyer NE Asia

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

The buy side position, on the other hand, is pushing for little to no increase. They point to various dynamics. The spot price has shown little change relative to December partly because demand in January has yet to show the full seasonal upswing. In addition, MMA producers are trying to increase Q1 prices and they are struggling to do so. Therefore, they are pushing back because of the large increase they absorbed because of methanol. Yes, producers say that has nothing to do with acetone but it has created a large incentive to push back where possible. Furthermore, buyers feel that time is on their side as more capacity is scheduled to come on line in

Acetone Delivered Exchange rate:

cts/lb /Ton

1H-December 44.5 47.1 680 720 $1.443/Euro

West Europe Distribution Market Price History

2H-December 45.5 48.1 680 720 $1.474/Euro

1H-January 45.9 48.6 680 720 $1.488/Euro

2H-January 45.9 48.6 685 725 $1.478/Euro

January 31, 2008/Issue No. 98

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Acetone Market Report

the first quarter (see below) suggesting there is little incentive to settle early. One of the questions arising from such a stalemate is how to handle invoicing? What are the alternative mechanisms in contracts? All of these issues are being closely analyzed. In operational news, earlier in the month Ineos Phenol successfully started its number one unit at Antwerp. The second unit, which recently was scheduled to restart on January 21, has been pushed back to sometime in the middle of February. As you may recall, the second unit will come on stream with an additional 130,000 tons of acetone capacity which is a reason why some buyers feel time is on their side. This will clearly help their balances but they will begin efforts to prepare for their turnaround in April at Gladbeck. At this point, there have been no announced changes to the force majeure and the sales allocation of 70 per cent of previous volumes remains in place.
Dollars per Ton 1,600
1,400 1,200 1,000 800 600 400 200 0 Jan-02

Regional Acetone Prices

U.S. Large Buyer Europe Large Buyer NE Asia

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

China Acetone vs Propylene

Dollars Per Metric Ton 1400
1200 1000 800

In the distribution market, demand has started the New Year fairly slowly making it difficult 600 to raise prices. Consequently and as noted 400 above, increases have been marginal, on average, around 5 per ton to 685-725 per ton 200 delivered. Within this range, the lower prices have generally been for direct producer-to0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 consumer deliveries. Most distributor busiPG Propylene NEA Spot Acetone CFR China ~ ness has been at the higher end of the range delivered Germany or France. At the end of the day, demand needs to improve to see more upward price pressure. One should expect sellers to be even more aggressive as in their eyes they have catching up to do on margins as they absorbed the entire propylene increase with only minimal increases for acetone. Europes acetone export market is rather difficult these days as prices in Asia have been rather stable and low. In addition, the market has been quiet. The effect from this is that the netbacks are very, very low and not attractive to sellers. Therefore, the spot market is fairly quiet.

cts/lb US$/MT n = notional posting

Acetone CFR China

9-Jan-08 43.54 44.45 960 980

China Price History

n n 43.54 960 16-Jan-08 45.36 1000 44.45 980

23-Jan-08 45.36 1000

n n

45.36 1000

30-Jan-08 46.27 1020

January 31, 2008/Issue No. 98

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Acetone Market Report

ASIA Aided by the increases in import prices, domestic sellers continued with their efforts to keep their price levels up. Lower market inventories are also helping. On the other hand, Chinese demand remains gloomy due to more extensive shutdowns taking place in the derivative sectors ahead of the Lunar New Year holidays. In East China, the mainstream spot transactions improved slightly to RMB9,350-RMB9,450 per ton depending on location. Current notional spot prices are estimated in a range of $1,000-$1,030 per ton CFR. FORECAST U.S. Price Forecast Concerning acetone demand, a major MMA producer has a turnaround scheduled for approximately 20 days in February at one of its units; however they are currently experiencing operational issues. In the near term we expect that acetone prices will remain flat due to feedstock costs, but offset a bit by the aforementioned demand dynamics. Further out we expect acetone prices to decline due to a more well supplied global acetone market. In January, CMAI began reporting a new propylene marker entitled Refinery Grade Propylene Weighted Average Acquisition, following the demise of the Refinery Grade Propylene (RGP) contract price. This price is the weighted combination of spot and contract RGP transactions for the current month. The CMAI 1st half January Weighted Average Acquisition price for RGP is 56.64 cents per pound. As previously advised, for January we will still use the start-month spot weighted average RGP price for our cumene contract price, but we will consider which RGP price to use in future calculations based on how the industry adopts the new marker prices. European Price Forecast CMAIs price forecast for acetone contract prices in Europe is based on our forecasts for propylene price developments. Therefore our forecast calls for gross acetone contract prices to roughly follow propylene price developments over time. However, it appears acetone prices in the first quarter will separate themselves from propylene to historical levels, on the low end. Obviously this is not good news for producers but it shows the global glut of acetone. Our forecast calls for net acetone prices be slightly under 80 percent of the value of propylene for the near future. Please note that CMAI is applying a heavily discounted acetone price to correctly represent market conditions. We expect this ratio to hover around this level in the near term and we believe it will remain slightly under 80 percent due to global length and as new capacity enters the market. The possibility exists for it to fall further if propylene prices rise and domestic and export phenol demand is exceptionally strong. It will be interesting if phenol exports are strong but sellers are reluctant to ramp up rates due to the acetone market. From a phenol producers point of view, acetone has been the culprit for the poor margins despite a tightly balanced phenol market. It is worth noting that efforts to increase phenol prices relative to benzene to help overall profitability have seen some success. There are players in the acetone market who would like to see the current acetone pricing structure completely overhauled as discounts have grown dramatically in recent years creating a disparity between gross and net contract levels. This suggests that a possible rebasing may be launched by a player but at this point there is no clear indication whether this will be tackled soon. CMAI is considering all avenues to better reflect the market in the coming months and we would welcome your comments.

January 31, 2008/Issue No. 98

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Acetone Market Report

Company
Dow

Location
Institute Oyster Creek Kingsport Plaquemine Bayport Mobile Blue Island Bayport Mount Vernon Deer Park Deer Park Frankford Frankford Haverhill Haverhill

Process

2008 United States Acetone Operating Schedule (000 Metric Tons) Annual Capacity
Capacity
77 183 11 141 7 335 28 30 217 162 210 220 127 78 109 1,935

Revised: January 31, 2008

Jan
3 3 4 10

Feb
-

Mar
6 4 10

Apr
-

May
-

Jun
-

Jul
-

Aug
-

Sep
-

Oct
1 1

Nov
-

Dec
-

UNITED STATES

Eastman Georgia Gulf Goodyear Ineos Phenol JLM Industries Lyondell MtVernon Phenol Shell Chemical Sunoco

IPA dehydro Phenol co-product Other Phenol co-product Other Phenol co-product Phenol co-product Other Phenol co-product Phenol co-product Phenol co-product Phenol co-product Phenol co-product Phenol co-product Phenol co-product

Total U.S.

North American Capacity North American Capacity Lost North American Capacity Lost: Others/Estimates North American % Capacity Lost
Where necessary CMAI has estimated operations.

1,935 20 1.0%

164 10 6%

153 0%

164 10 6%

159 0%

164 0%

159 0%

164 0%

164 0%

159 0%

164 1 0%

159 0%

164 0%

Capacities are prorated for new plants/expansions.

Company
Ineos Phenol Total Belgium Borealis Poly Total Finland NOVACAP Total France

Location
Antwerp Antwerp

Process

2008 West Europe Acetone Operating Schedule (000 Metric Tons) Annual Capacity
Capacity
146 265 411 118 118 78 19 97 47 47 409 503 186 112 298 150 150 130 99 125 9 363 -

Revised: January 28, 2008

Jan
4 15 19 -

Feb
-

Mar
-

Apr
34 34 -

May
-

Jun
-

Jul
-

Aug
2 1 3 -

Sep
-

Oct
-

Nov
-

Dec
-

Belgium

Phenol co-product Phenol co-product

Finland

Porvoo

Phenol co-product

France

Roussillon Roussillon

Phenol co-product Phenol co-product

DOMO Chemicals Leuna Leuna Ineos Phenol Gladbeck Total Germany Polimeri Europa Syndial Total Italy

Germany

Phenol co-product Phenol co-product Phenol co-product

Italy

Mantova Porto Torres

Phenol co-product Phenol co-product

Shell Chem Neth Pernis Total Netherlands Ertisa

Netherlands

IPA dehydro

Spain

IQA Total Spain

Huelva, HL Huelva, HL Huelva, HL Tarragona, TG

Phenol co-product Phenol co-product Phenol co-product IPA dehydro

Total United Kingdom

United Kingdom

West Europe Capacity West Europe Lost West Europe % Capacity Lost
Where necessary CMAI has estimated operations.

1,940 56 2.9%

164 19 12%

154 0%

164 0%

159 34 21%

164 0%

159 0%

164 0%

164 3 2%

159 0%

164 0%

159 0%

164 0%

Capacities are prorated for new plants/expansions.

January 31, 2008/Issue No. 98

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Acetone Market Report

Company
Blue Star Jilin Chemical Kingboard Shanghai Pac Sinopec Gao Qiao

Location

Process

2008 Asia Acetone Operating Schedule (000 Metric Tons) Annual Capacity
Capacity
75 47 77 5 78 22 24 3 31 62 122 143 155 118 124 12 552 62 19 120 123 324 124 124 124 30 138 540 186 186

Revised: January 28, 2008

Jan
-

Feb
-

Mar
12 12 10 10 20 -

Apr
2 2 3 3 7 -

May
4 4 -

Jun
13 10 23 9 9 11 11

Jul
2 2 -

Aug
-

Sep
-

Oct
-

Nov
10 10 -

Dec
2 2 -

Harbin, Heilong. Phenol co-product Jilin, Jilin Phenol co-product Huizhou, GuangdonPhenol co-product Caojing, Shanghai Other Caojing, Shanghai Phenol co-product Gaoqiao, Shanghai Phenol co-product Gaoqiao, Shanghai Phenol co-product Tongliao Chemical Shanghai, ShanghaOther Yanshan PC Fangshan, Beijing Phenol co-product Fangshan, Beijing Phenol co-product Total China Chiba Phenol Chiba, Mitsub. Chemical Kashima, Mitsui Chemicals Chiba, Sakai, Sumitomo Chem. Oita, Total Japan Kumho P&B LG Chemical Total Korea Chang Chun PC FCFC

CHINA

JAPAN

Phenol co-product Phenol co-product Phenol co-product Phenol co-product Other

KOREA

Yeosu, Yeosu, Yeosu, Yeosu,

Phenol co-product Phenol co-product Phenol co-product Phenol co-product

TAIWAN

Lee Chang Yung Tai Prosperity Total Taiwan Mitsui Phenols Total Singapore

Kaohsiung, Phenol co-product Mai Liao, Phenol co-product Mai Liao, Phenol co-product Lin Yuan, Kaohsiun IPA dehydro Lin Yuan, Kaohsiun Phenol co-product

SINGAPORE

Pulau Sakra,

Phenol co-product

ASIA Capacity ASIA Capacity Lost ASIA Capacity Lost: Others/Estimates ASIA % Capacity Lost
Where necessary CMAI has estimated operations.

2,079 101 4.9%

168 0%

157 0%

168 32 19%

162 9 5%

168 4 3%

162 43 26%

176 2 1%

186 0%

180 0%

186 0%

180 10 5%

186 2 1%

Capacities are prorated for new plants/expansions.

January 31, 2008/Issue No. 98

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