Precios del Benceno y Otros aromaticos en el mercado

EUROPEAN MARKET REPORT - AROMATICS February 22nd, 2008

Issue No. 238

CONTENTS

Page

Current Prices Price Forecasts-Benzene Price Forecast- Xylenes Gasoline/Naphtha Toluene Benzene Cumene/Phenol Cyclohexane Styrene Polystyrene ESP Mixed Xylene Orthoxylene Paraxylene PTA/PET

2 3 4 5 6 8 10 12 13 15 16 17 18 19 22

CMAI Europe Ltd Dubai ◆ Dusseldorf ◆ Houston ◆ London New York ◆ Shanghai ◆ Singapore

MARKET SUMMARY West Europe Benzene Derivatives Overview Dollars per Ton 2000 Forecast

1600

1200

800

400

0 Jan-07

Jul-07 Benzene Spot

Jan-08 Styrene Spot

Jul-08

Jan-09

Jul-09

Phenol Domestic Contract

~

How things have changed in the last month. All aromatics prices are on

1st Floor, 14 Waterloo Place the rise led by the sharp increase in benzene. In one month, benzene prices Pall Mall, London, SW1Y 4AR have increased by $170 per ton and it is now hanging around $1200 per ton Telephone: +44 (020) 7930-9818 which is close to its previous record set last May. Energy has been partly Fax: +44 (020) 7930-9819

INTERNET ACCESS www.cmaiglobal.com [email protected]

CONSULTANTS Alex Lidback - Benzene/Toluene/ Cumene/Phenol [email protected] Caroline Duggan- Benzene/ Toluene/Styrene [email protected] Matthew Thoelke - Styrene/ Polystyrene/EPS/ABS [email protected] Barry Davies- Cyclohexane [email protected]

responsible for theCUMENE increase in/ aromatics PHENOLpricing but supply issues have also aided the rise. The increase in prices is not too surprising for this time of year. However, the extent of the increase and the speed are. We believe energy will stay high in the near term and coupled with seasonal consideration from the gasoline side, prices for aromatics should remain high well into the second quarter before easing. On top of this, the markets should tighten in the coming months as downstream demand shows its normal seasonal increase and upstream shutdowns limit feedstock availability. How much demand improves will depend on how the fragile economies behave. Toluene, Mixed Xylenes & Paraxylene Overview Dollars Per Ton 1400 Forecast 1200 1000 800

Simon Moorhouse- Paraxylene/ PTA/PET [email protected]

600 400

Brian Cooke- Mixed Xylene/ Orthoxylene [email protected] Gemma Bellante - Publishing & Report Distribution [email protected]

200 0 Jan-07

Jul-07

Jan-08

Toluene Blend Value PX Spot

Jul-08

Jan-09

Jul-09

MX Spot Toluene Nitration Grade

~

This report is for the exclusive use of the client company. Distribution outside of the client company is strictly prohibited without the prior wirtten 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. ©Copyright CMAI 2008 All Rights Reserved

European Market Report - Aromatics

CURRENT PRICE PAGE

Current Prices Assumptions W Europe Crude Oil $/bbl

W Europe Naphtha $/t

6. Brent

6. CIF

07 Oct Nov Dec 08 Jan Feb

82.4 92.4 91.3 92.2 92.6

746 825 838 829 817

07 Q1 Q2 Q3 Q4

58.2 68.7 68.7 88.7

555 670 670 803

Notes

$/€

W Europe Toluene $/t

6. Regular

6

6. blend value

746 842 814 816 829

723 832 805 805 824

1.42 1.47 1.46 1.47 1.47

798 856 815 834 811

566 754 754 801

541 712 712 786

1.31 1.35 1.35 1.45

648 895 895 823

$/t

$/t

6. Premium CIF

Base Aromatics Toluene

Benzene W Europe Contract €/t Notes

07 Oct Nov Dec 08 Jan Feb

Spot $/t

Exchange Rate

W Europe Gasoline

US Contract Spot Cts/Gal Cts/Gal

Mixed Xylenes

W Europe Spot $/t

US Spot Cts/Gal

W Europe Spot $/t

U.S. Spot Cts/Gal

Monthly

6

6

6. Nitration

6. Nitration

6

6

713 722 694 702 737

1031 1035 970 1035 1135

349 348 335 345 354

349 342 324 348 388

775 877 853 886 890

280 294 278 294 307

851 914 884 942 940

273 296 294 307 302

1013 1135 1135 1012

353 395 395 344

350 391 391 338

765 860 860 835

259 298 298 284

853 959 959 883

281 321 321 288

Averaged

776 851 851 710

07 Q1 Q2 Q3 Q4

W Europe Contract Delta €/t €/t Notes

07 Oct Nov Dec 08 Jan Feb 07 Q1 Q2 Q3 Q4

Benzene Derivatives Styrene

Phenol

Cyclohexane

W Europe Monthly Ave. Acquisition €/t €/t

W Europe

to Benzene Distribution

848 857 829 847 882 Averaged 916 989 989 845

135 135 135 145 145

1075 1085 1053 1070 1105

970 979 950 977 1012

140 138 138 135

1130 1213 1213 1071

1030 1108 1108 966

Paraxylene W Europe Contract Spot €/t $/t Notes

PTA US Spot Cts/lb

W Europe Contract €/t

Polystyrene

EPS W Europe Contract €/t

Contract €/t

Spot $/t

W Europe Contract €/t

Monthly

6. FOB

GP Crystal

1033 1008 982 1021 1058 Averaged 1067 1150 1150 1007

1284 1282 1266 1348 1436

1280 1260 1255 1280 1300

1310 1275 1270 1285 1335

1215 1409 1409 1277

1280 1355 1355 1265

1607 1583 1583 1285

Xylenes Derivatives DMT PET

Orthoxylene

W Europe W Europe Contract Contract Spot €/t €/t $/t

W Europe Contract Spot €/t $/t

PAN W Europe Contract Spot €/t €/t

6

6

6

6

6

6

Monthly

6

07 Oct Nov Dec 08 Jan Feb

760 760 772 793 785

1005 1058 1035 1061 1060

45.4 49.2 48.2 48.7 47.5

904 902 910 915 902

823 823 831 890 884

1147 1146 1171 1161 1102

975 975 998 988 935

735 720 720 760 750

990 1014 960 0 0

1030 1030 1030 1060 1050

1185 1100 1080 1050 707

6

07 Q1 Q2 Q3 Q4

827 893 893 764

1059 1178 1178 1033

48.2 53.5 53.5 47.6

912 991 991 905

884 861 861 826

1114 1165 1165 1155

949 975 975 983

1027 1139 1139 988

1027 1167 1167 1030

1223 1358 1358 1122

5. Averaged

General Notes: 1. 2. 3. 4. 5. 6.

All contract prices are on a delivered basis before discounts. Where necessary historical DM contract prices are exchanged into € using 1.95583DM per €. CMAI does not normally publish contract prices when discussions are actively in progress. Prices relate to West European markets. Since Q1 2006, the OX quarterly price is the average of the three monthly prices. Prices have not yet settled as of the time of writing and are therefore subject to change. The decision to publish or not to publish is solely at the discretion of CMAI staff.

February 22nd, 2008 / Issue No. 238

Page 2

777 880 880 725

European Market Report - Aromatics

PRICE FORECAST

West Europe Price Forecast - Benzene and Derivatives Assumptions Crude Oil $/bbl $/bbl

Gasoline

Naphtha $/t

$/t

$/t

Toluene Blend Value $/t

Notes

Brent

Dubai

CIF

Premium

Regular

Based on 91 and 95 RON gasoline

08 Q1 Q2 Q3 Q4 09 Q1 Q2 2005 2006 2007 2008 2009 2010 2011 2012

92.5 91.2 84.9 82.2 79.1 78.2 54.7 65.7 72.6 87.7 77.5 67.7 63.2 62.3

87.8 86.2 80.6 77.8 74.0 74.2 49.3 61.5 68.4 83.1 73.4 64.2 59.6 58.6

825 826 776 755 721 707 476 565 676 796 703 608 563 555

836 901 805 742 718 779 536 632 710 821 728 639 596 586

822 853 776 722 693 738 498 588 678 793 700 618 576 567

859 1053 885 788 795 944 666 784 809 896 823 698 649 636

HDA

Benzene Contract €/t Notes

08 Feb Mar Apr May Jun Jul 2005 2006 2007 2008 2009 2010 2011 2012

Spot $/t

Margin €/t

1135 1178 1163 1136 1076 1028 848 955 1047 1070 971 836 777 760

Margin $/t

958 1025 905 926 882 928 698 882 896 954 873 792 755 769

41 -85 -31 90 37 -68 -5 55 44 4 0 46 60 88

Notes

08 Q1 Q2 Q3 Q4 09 Q1 Q2 2005 2006 2007 2008 2009 2010 2011 2012

1. 2. 3. 4.

Cyclohexane

Phenol

Spot $/t

Contract €/t

Hydrogen €/t

Spot €/t

1

2

Nitration

Monthly

3. On-purpose

Distribution

123 53 -19 -105 -132 -63 22 0 53 6 -9 3 2 2

-17 19 46 80 92 48 116 130 79 31 69 27 21 18

890 936 957 954 942 819 636 775 812 879 822 776 725 712

882 946 939 921 880 837 781 885 911 872 847 777 742 759

1562 1631 1666 1648 1593 1524 1100 1239 1312 1548 1423 1419 1421 1472

1105 1170 1150 1130 1080 1040 973 1018 1134 1078 988 1011 987 1023

Mixed Xylenes Spot $/t

1.470 1.470 1.461 1.433 1.405 1.376 1.248 1.256 1.370 1.459 1.362 1.300 1.250 1.200

Margin €/t

Monthly

737 801 791 773 732 699 671 741 774 730 713 643 622 633

Pygas Toluene

Exchange Rates $/€

Styrene Contract €/t

Polystyrene

Margin €/t

Monthly

5,6

1063 1122 1044 1016 1021 1047 950 1051 1078 1061 1021 934 931 982

-43 -6 -6 -6 3 3 46 39 -5 -15 3 2 21 43

Monthly €/t

Margin €/t

1303 1333 1257 1230 1223 1247 1143 1188 1307 1281 1227 1130 1130 1180

140 117 114 113 103 101 69 6 130 121 103 77 72 73

Page 3

Margin €/t

1012 1077 1063 1044 1000 965 933 980 1030 998 952 980 950 960

202 208 197 199 190 188 255 178 238 189 125 204 214 233

4

EPS Contract €/t

Margin €/t

1333 1427 1393 1360 1340 1380 1223 1435 1475 1378 1363 1240 1310 1350

83 125 163 153 127 143 42 161 206 131 145 85 146 134

6

6

HDA economics are based on benzene at spot. Pygas extraction economics are based on benzene only at contract value. Pygas valued using formula. Cash cost of hydrogen production based on steam reforming of natural gas. Phenol margin is based on distribution market business.

February 22nd, 2008 / Issue No. 238

Ave. Acq. €/t

European Market Report - Aromatics

PRICE FORECAST

West Europe Price Forecast - Xylenes and Derivatives Assumptions Crude Oil $/bbl $/bbl

Naphtha $/t

$/t

$/t

Toluene Blend Value $/t

Gasoline

Notes

Brent

Dubai

CIF

Premium

Regular

Based on 91 and 95 RON gasoline

08 Q1 Q2 Q3 Q4 09 Q1 Q2 2005 2006 2007 2008 2009 2010 2011 2012

92.5 91.2 84.9 82.2 79.1 78.2 54.7 65.7 72.6 87.7 77.5 67.7 63.2 62.3

87.8 86.2 80.6 77.8 74.0 74.2 49.3 61.5 68.4 83.1 73.4 64.2 59.6 58.6

825 826 776 755 721 707 476 565 676 796 703 608 563 555

836 901 805 742 718 779 536 632 710 821 728 639 596 586

822 853 776 722 693 738 498 588 678 793 700 618 576 567

859 1053 885 788 795 944 666 784 809 896 823 698 649 636

Paraxylene

PTA

PET

Mixed Xylenes Spot $/t

Exchange Rates $/€ 1.470 1.470 1.461 1.433 1.405 1.376 1.248 1.256 1.370 1.459 1.362 1.300 1.250 1.200

Orthoxylene

Margin Contract Margin Contract Margin Contract Margin $/t €/t €/t €/t €/t €/t €/t

Notes

Contract €/t

MEG

Margin €/t

Contract €/t

Margin €/t

-58 -141 -59 14 -45 -147 -41 -17 18 -61 -92 -29 -23 30

1048 926 842 758 712 700 843 818 898 894 692 650 610 690

487 372 297 194 155 156 416 342 389 338 127 116 82 146

7

9. Averaged

08 Q1 Q2 Q3 Q4 09 Q1 Q2 2005 2006 2007 2008 2009 2010 2011 2012

958 1025 905 926 882 928 698 882 896 954 873 792 755 769

41 -85 -31 90 37 -68 -5 55 44 4 0 46 60 88

798 859 828 846 793 811 745 895 830 833 787 731 734 752

-122 -194 -86 -28 -84 -191 -64 -40 -55 -108 -134 -74 -64 -70

915 972 961 952 905 923 845 959 944 950 904 814 849 919

52 63 66 57 67 68 96 40 70 59 67 27 49 87

1122 1173 1147 1129 1095 1112 1132 1154 1137 1143 1114 1050 1075 1175

-58 -11 2 14 24 30 -7 -31 -17 -13 47 50 52 69

760 805 759 783 729 746 670 801 811 777 721 718 707 781

7. MEG margin is for fibre grade on an integrated basis 8. Margins are on a cash cost before tax basis 9. Since Q1 2006, the OX quarterly price is the average of the three monthly prices. These price forecasts are stricly the opinion of the staff of CMAI, and are based on information in the public sector. CMAI makes no warantee or guarantee as to their use. CMAI does not normally publish price forecasts when discussions are in progress. The decision to publish or not to publish is solely at the discretion of CMAI personnel.

February 22nd, 2008 / Issue No. 238

Page 4

European Market Report - Aromatics

GASOLINE / NAPHTHA

West European Crude Oil and Gasoline Prices $ Per Barrel 100

West European Crude Oil and Naphtha Prices $ Per Ton 1000

$ Per Ton 900

Forecast

Forecast

90

800

80

800

700

70 600

60

600 500

50 40

400

30

400 300

20

200

200

10 100

0 Jan-07

0 Jul-07

Jan-08

Crude Oil Brent

Jul-08

Jan-09

Gasoline Premium

Jul-09

0 Jan-07

Gasoline Regular

~

Source: Purvin & Gertz

West European Naphtha Less Brent Crude Oil $ Per Ton 250

$ Per Ton 350

Forecast

Jul-07

Source: Purvin & Gertz

Jan-08

Jul-08

Crude Oil Brent

Jan-09

Jul-09

~

Naphtha cif

West European Premium Gasoline Less Brent Crude Oil Forecast

300

200

250 150

200 150

100

100 50

50 0 Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

~

Source: Purvin & Gertz

$ Per Ton

West European Premium Gasoline Less Naphtha

0 Jan-07

$ Per Ton 70

120 Forecast 100

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

~

Source: Purvin & Gertz

West European Premium Less Regular Gasoline Forecast

60

80 50

60 40

40 30

20 20

0

10

-20 -40 Jan-07

Jul-07

Jan-08

Jul-08

Source: Purvin & Gertz

February 22nd, 2008 / Issue No. 238

Jan-09

0 Jan-07

Jul-09

~

Jul-07

Source: Purvin & Gertz

Page 5

Jan-08

Jul-08

Jan-09

Jul-09

~

European Market Report - Aromatics

TOLUENE

TOLUENE Toluene Prices

• The spot market has seen a few ups and downs over the course of the month due to the recent Forecast volatile movements in energy, but overall toluene 1000 80 values have strengthened. Having climbed back up to over $900 per ton, following a decline last 800 60 month to the low $800’s, toluene spot continues to increase presently reaching the mid $900’s. 40 600 • Crude once again achieved record highs as Brent crossed over $97 per barrel and as a result Euro400 20 pean gasoline values topped a new record high 200 0 as premium unleaded gasoline reached the high $800’s per ton. 0 -20 • Market activity has been fairly sluggish as prices Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 continue to move in tandem with energy. Febru~ NAM - WEP Price Delta NAM WEP ary business was concluded within a range of $865-$880 whilst March traded within the $890-$925 per ton range. Various contract price settlements were agreed within the $890-$910 per ton range, reflecting current market levels at the time. NAM - WEP Dollars Per Ton 100

Dollars Per Ton 1200

• We believe toluene prices will continue to rise well into the second quarter before sliding south 1.6 in the summer months due to gasoline consideraForecast 1.5 tions. Longer term, CMAI’s forecast is for toluene to remain expensive due to energy, not supply/ 1.4 demand or octane demand. The graph shows the 1.3 delta to the U.S. and we believe this will disappear in the middle of 2009 when ExxonMobil 1.2 expands its paraxylene capacity using toluene as 1.1 its feestock. At that point Europe will move from a slight net export position to balanced. 1.0 • Gasoline values have jumped up significantly 0.9 throughout the month, an increase of almost $100 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 since the end of January and the ratio to toluene Source: CMAI, Purvin & Gertz ~ has contracted downwards after having touched 1.1 at the start of the month. The ratio is expected to decrease over the next 6 months as gasoline levels increase at a much faster pace compared to toluene. The bottom should be in reached in July before rebounding once again. In 2009, we expect a fairly flat ratio as the toluene prices relative to the U.S. is projected to transition to parity. West European Toluene to Premium Gasoline Ratio

Dollars per Ton 1200

West Europe Toluene Netback Values

Benzene at contract price

1100 1000 900 800 700 600 500 400 Jan-06

Jul-06 Toluene spot

Jan-07 Octane

HDA

February 22nd, 2008 / Issue No. 238

Jul-07 TDP

Jan-08 STDP

~

Page 6

• The attached graph shows the netback value of toluene into a variety of end uses. In the last few weeks toluene spot prices have increased again trailing both crude and gasoline, after having declined last month. • Netback values into TDP, STDP and HDA have all increased this month in line with toluene prices. HDA margins have seen a significant improvement since the beginning of the year also taking into account the widening spread between benzene and toluene values, which currently stands at around $300 per ton. Despite positive margins, it is our understanding that HDA units are not running taking into account impending turnarounds.

European Market Report - Aromatics West Europe Reformer & BTX Index

INDEX 190 180 170 160 150 140 130 120 110 100 90 80 Jan-06

Jul-06

Jan-07

Octane blending value BTX extract octane

$ Per Ton 1200

Jul-07

Jan-08

BTX extract naphtha Cash cost

~

800 600 400 200 0 -200 Incremental calculated between 95 and 98 RON unleaded gasoline

Jul-05

Jan-06

Spot less Inc. BV Blend Value

Jul-06 Spot less BV Inc. Blend Value

Jan-07 Spot

Jul-07

• For some time now the profitability of the reformer for octane has been at either breakeven or negative, for the last few months it has remained negative as the graph shows. • BTX at blend values have increased significantly this month. BTX values relative to both octane and naphtha have declined. (Naphtha price levels have been reaching record highs of late). • We do expect that seasonality will come into place. As evident by the graph there is an upward trend relative to blend values. What is also evident in the graph is the downward trend of BTX extraction over the last year. If the reformers are having such a difficult time it will be interesting to see how companies react but we should expect a rebound in the coming months. • The toluene market in Europe is fairly wellbalanced, despite some supply limitations. For the next few months toluene demand will be strong as gasoline blenders start to build stocks for the U.S. driving season and therefore the market will remain balanced. As a result we expect toluene prices to continue rising in the coming months hovering around record levels on the back of crude entertaining itself around $100 per barrel. • We anticipate that toluene will flow to the U.S. in Q1 and prices will remain lower than those in the U.S.

West European Toluene Values - Spot and Blend Value

1000

-400 Jan-05

TOLUENE

Jan-08

~

• Of late, activity has been primarily from trade with little interest from both producers and consumers as arbitrage opportunities have resurfaced. Not that long ago we saw a flow of product leave Europe for Asia as well as India and the Middle East, but now we are on the verge of seeing the arbitrage open up from Europe to the USG. With the recent market movements tracking crude it almost looked as though this arbitrage opportunity would be short-lived; however, U.S. values have only just recently surged sharply upwards. • The market at the moment appears to be fairly well balanced although on the supply side product availability has been fairly limited partly due to reduced production and this is likely to remain so in the run up to forthcoming turnarounds.

February 22nd, 2008 / Issue No. 238

Page 7

European Market Report - Aromatics

BENZENE

BENZENE • February benzene contract prices settled at €737 per ton based on a U.S. dollar price of $1092 per ton, an increase of €35/$59 per ton from the January benzene contract price of €702/$1033 per ton. • Over the last few months we maintained that benzene prices relative to energy and naphtha were fairly low. Therefore, we were expecting for prices to increase but what has transpired over the past month has been faster and higher than expected. Recently, spot benzene prices have been hovering around $1,200 per ton. To sum things up, in one month spot benzene prices have increased by $170 per ton and the benzene to naphtha spread rose by $100 per ton to $335 per ton. • The increase in naphtha spreads indicate that this increase has to do with energy. There are a number of reasons. There was talk of pygas tightness due to some cracker operating issues as well as a shift to butane. However, we believe this was not a major issue. We do believe some other production issues have been taking place. In the end, there were many bullish factors and no one was bucking the trend as the old cliché the “trend is your friend” appears to have reared its head…once again. Hence, we are now near a record price which was set at $1225 per ton in May 2007. Entering March contract price negotiations, we should expect a hefty increase. •

There was improvement in demand with the return of Ineos Phenol’s number one unit in January. More recently the second unit is in 14% startup mode. Furthermore, BASF’s styrene 100 12% unit at Antwerp remains off line. Benzene 80 supply is being added in the form of styrene 10% as fairly large volumes of styrene are entering 60 8% the region from the U.S. Seasonally, demand 6% should continue to improve but there are many 40 signs of a soft economy that would have a nega4% tive impact on downstream demand. 20 2% • It is our understanding that only limited capacity 0 0% was offline but it was enough to trigger the price Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 run. Some were caught short and were forced ~ Lost Capacity % Lost Capacity to enter the market. $170 per ton later and the market is at near record levels. Production issues must be more serious than confirmed. • We expect to see some significant amount of downtime in Q2 with capacity loss of around 10-15% and as is normally the case, we should expect more downtime than is currently confirmed. It is worth noting that large levels of styrene capacity will be off line in the coming months. West Europe Benzene Capacity Outages

Thousand Tons 120

% Lost Capacity 16% Forecast

• This graph shows what major derivatives are capable of paying and yet breakeven and it 1200 Forecast highlights our benzene price forecast (bars). 1000 • CMAI expects derivatives to move up and down with benzene and absolute prices are at 800 the mercy of benzene, suggesting derivatives will struggle to see any margin appreciation. 600 • Projected benzene prices in the near term are expected to remain very high. The combination 400 of near record energy prices and the current 200 run for varying reasons will not dissipate anytime soon. At this point, there is a reluctance 0 to short the market, even at such high prices, Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 suggesting there is little interest to see a major Benzene Contract SM Spot SM Phenol ~ correction. • The longer term forecast also indicates that benzene prices will remain expensive through the end of 2009. This is partly due to energy prices remaining high, not due to lack of benzene. We believe that globally benzene supply is only going to grow. West Europe Benzene Netback Values

Euro per Ton

February 22nd, 2008 / Issue No. 238

Page 8

European Market Report - Aromatics

BENZENE

• The benzene to naphtha spread has increased considerably over the past month. Only two months 1400 Forecast ago the spread was at around $100 per ton or 1200 lower, falling to levels not seen since early 2002. We knew this was not sustainable and an increase 1000 was imminent. A month ago, the spread was $230 800 and is now at around $335 per ton. • CMAI’s forecast in the near term is that there is 600 too much momentum in the market and the spread 400 will remain above $300 per ton until June. The increase can also be attributed to a seasonal up200 swing from gasoline values. Benzene availability 0 will continue to improve as more benzene enters Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 the market. Demand growth is expected to be ~ Delta Benzene Spot Naphtha capped by recent economic woes. • We do not believe spreads starting in June will recover to over $300 per ton throughout the forecast period, which has now graphically been extended through 2009. The reason: more and more benzene availability. West Europe Benzene and Naphtha Delta

Dollars per Ton

• During February octane values took a hit while benzene prices began to run. Consequently, HDA units have been able to generate some very healthy Forecast returns, which are in fact the highest in about one 300 year. We believe that through April HDA units 200 will show a positive return but by April margins 100 should be only barely positive. In the midst of the driving season we believe HDA margins will once 0 again go negative forcing companies to analyze -100 their operations. • The difficulty for these units is that the gasoline -200 season will give a boost to toluene prices and blend -300 values which will keep pressure on these facilities. Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Therefore, we do not believe HDA margins will Blend Value Spot T / X Stream ~ move into the black until the middle of the year. • For 2008 and 2009, we do not expect HDA variable margins to be all that attractive considering the growing length in the global benzene market – although, yet not felt. HDA should continue to be a key price marginal indicator for the foreseeable future as it will tend to be a key market balancing benzene route. These types of dynamics are not surprising considering these types of facilities have alternatives for their feedstocks into a large gasoline pool. West Europe HDA Variable Margins Toluene at Spot, Blend Value and T/X Stream

Dollars per Ton 400

•

Reformer margins have been struggling since October. This should not be too surprising conEuro per Ton sidering the time of year but both gasoline and 150 Forecast aromatics had been struggling until recently. We 125 believe that reformer margins will be positive 100 starting in March and remain as such through 75 the summer driving season. 50 • Beyond the summer, we believe that seasonality will have a negative impact on reformer mar25 gins, once again all negative. Contribution from 0 aromatics over the life of this graph is expected -25 to be tested as more and more aromatics enter -50 the market. In addition, octane availability is Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 quickly improving suggesting blend values will Octane Values Extraction Values ~ have a ceiling. • It is important to remember that the gasoline industry is going through major changes as more and more ethanol enters the market. Influences into the aromatics market will be interesting to watch. West Reformer Cash Cost Margins

Benzene at Contract and Toluene & Mixed Xylenes at Spot

February 22nd, 2008 / Issue No. 238

Page 9

European Market Report - Aromatics

CUMENE / PHENOL

CUMENE / PHENOL • The supply side continues to show signs of improvement. Ineos Phenol at Antwerp as in restart mode on its second unit. The supply side continues to 100 dominate. All local producers are selling everything they make. Last year, imports, primarily from the 80 U.S., helped balance the system, which allowed the market to barely keep its snorkel above the water 60 line. With a soft U.S. economy, partly due to a weak 40 construction market, there has been ample product to ship to Europe. In the end, inventories remain 20 low and balances are tight • For 2008, once all the capacity returns a portion 0 06 Q2 Q3 Q4 07 Q2 Q3 Q4 08 Q2 Q3 Q4 of the phenol imports will shift to cumene as the ~ Production Demand Effective Op Rate Effective Capacity additional phenol capacity from Ineos Phenol does not have corresponding cumene. The expectation for 2008 is for phenol availability to improve by the end of Q1. All issues will not be solved by then but it should be better. Another key will be demand. West Europe Phenol Supply/Demand

Thousand Tons 800 700 600 500 400 300 200 100 0

•

% Operating Rate 120 Forecast

• Domestic demand has been more than good enough to sustain the tight market. Most sectors report that demand continues handsomely along although more recently formaldehyde resins have seen a slowdown. The record high methanol levels are having a negative impact on production as margins are taking a hit. Seasonally, demand has yet to really pick up into this sector. The combination of the two has not seen phenol demand into this sector reach its potential. • Entering 2008, most would agree the economy 04 Q2 Q3 Q4 05 Q2 Q3 Q4 06 Q2 Q3 Q4 07 Q2 Q3 Q4 08 Q2 Q3 Q4 will slow and that should limit demand growth. Bisphenol A Nylon/Cyclohexanol Phenolic Resins ~ Having said that, we expect on the whole deOthers Net Exports Production mand in 2008 should be similar to 2007. With the additional capacity in place and no duty on European product destined for China, we expect net phenol exports to Asia to increase in 2008. Therefore, a fairly large portion of the new capacity will not be seen in the domestic market. West Europe Phenol Demand by End-Use

Thousand Tons 700 600 500 400 300 200 100 0 -100

•

West Europe Phenol Capacity Outages Thousand Tons 60

% Lost Capacity 25% Forecast

50

20%

40 15% 30 10% 20 5%

10

0

0%

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08

Lost Capacity

% Lost Capacity

February 22nd, 2008 / Issue No. 238

~

Page 10

• In operational news, Ineos Phenol’s number two unit at Antwerp is in start up mode. This has been one of the key points as to why the market has been so tight. At this point, Ineos Phenol has not changed its force majeure sales allocation of 70 per cent of previous volumes. As a reminder, the unit will have an expansion of 210,000 tons. • It is early to have all the scheduled outages for 2008 but Ineos Phenol who had a scheduled twoweek shutdown in April at Gladbeck has been pushed back to September. In addition, Ertisa has an outage scheduled in March on its number one unit in March, and in August NOVACAP in France has scheduled a short outage. Thus far, those are the only confirmed scheduled outages but we should expect further outages.

European Market Report - Aromatics Phenol Raw Material Costs Euro per Ton 1000

Forecast

900 800 700 600 500 400 300 200 100 0 Jan-07

Jul-07 BZ Contribution

•

Jan-08

Jul-08

C3 Contribution

Jan-09

Jul-09

Net Raw Material Costs

~

CUMENE / PHENOL • The graph shows the effects of benzene and propylene on cumene/phenol production costs. The line in the graph shows phenol raw material costs (not including variables and fixed costs) including an acetone credit. The acetone value is based on discounted prices. • The graph illustrates that raw materials are going strong. Propylene saw a sharp increase in the first quarter and benzene as of late is once again on one of its impressive runs with spot prices hovering around $1200 per ton. Therefore, costs will only increase in the near term before the expected relief in the second half of the year.

As you may recall from last month’s report, we believed that benzene prices had to rise as prices were too low relative to energy/naphtha. However, not this soon and this high. Please note that CMAI’s production economics analysis does not include corporate overhead or depreciation suggesting margins are lower than shown. One difficult issue is that producers continue to lag on the acetone versus propylene front. In the first quarter, propylene prices rose by €57 per ton while acetone only achieved a €15 per ton increase.

West Europe Integrated Cumene-Phenol Producer Net Margin, %

•

The February contract phenol price rose with benzene prices by €35 per ton in Febru35% Forecast ary, contract phenol prices rose by an equal 30% 1200 level to €1161 per ton. As you may recall from previous reports, CMAI has an aver1000 25% age acquisition price for phenol which is 20% 800 made up of a combination of benzene plus 15% 600 formula contract prices and monthly freely negotiated prices. This price in February 10% 400 also rose by €35 per ton to €1012 per ton. 5% 200 • While phenol prices on average in 2008 will 0% 0 be higher relative to benzene in 2007, the Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 first quarter points to no gain in margins as Cash Cost Avg. Acquisition Phenol Prices Net Margin % acetone prices in the first quarter only rose ~ a fraction of the propylene price increase. What is interesting or better yet a painful pill for producers to swallow is that the market has been extremely tight and yet margins continue to suffer. The phenol price increase relative to benzene is good news but most did not expect that any benefit would be lost so quickly. • For the balance of the year, we expect that acetone will continue to struggle relative to propylene as more acetone capacity comes on line. Even with the outages over the past five months, acetone has been amply supplied and hence, laboured relative to propylene. Therefore, we do not expect that returns will see an improvement in 2008. More time will be needed to change market dynamics for phenol/acetone margins to improve for producers.

Euro per Ton 1400

February 22nd, 2008 / Issue No. 238

Page 11

European Market Report - Aromatics

CYCLOHEXANE

CYCLOHEXANE • The West European cyclohexane market showed some tightness in the middle of the month as a result of some reported production difficulties at one supplier and some stock building in anticipation of future production constraints for two producers in March and later in Q2. • One supplier also suffered delivery problems as a result of a defective bridge in Hamburg. • However, there were no reports of any shortages in the market and at the end of the month spot lots were being offered by traders and imports were arriving from the U.S. and Argentina.

West Europe Cyclohexane / Caprolactam Prices Euro per Ton 2000

Forecast 1800 1600 1400 1200 1000 800 600 400 200 0 Jan-07

Jul-07

Jan-08

Jul-08

WEP CHX Contract WEP Capro Spot Export

Jan-09

Jul-09

Ammonia Margin over CHX + Amm

~

West Europe Benzene and Cylcohexane Prices

• European caprolactam production was hit in mid-February by production issues at three producers. Only one of these, however, used cyclohexane directly as feedstock and there appeared to be no significant impact on demand. • Later in the month, caprolactam became more freely available than recently, suggesting a slight easing in the tightness of that market. • Cyclohexanone also became more freely available, an indication of possibly weaker downstream demand for both adipic and caprolactam. • Adipic demand was less robust, globally.

Euro per Ton 1200 Forecast 1000

800

600

400

200

0 Jan-07

Jul-07

Jan-08

Delta

Jul-08

Benzene

Jan-09

Jul-09

~

Cyclohexane

•

West Europe Cyclohexane Delta, Hydrogen Values, Costs Euro per Ton 160

Forecast

140 120 100

•

80 60 40 20 0 Jan-07

• Jul-07 H2 Fuel Value

Jan-08

Jul-08

Jan-09

H2 Production Cash Cost + 10% ROI

February 22nd, 2008 / Issue No. 238

Jul-09 CHX Delta

~

Page 12

A settlement of €145 per ton was eventually assumed for the Q1 delta, this being the price openly confirmed between a number of producers and buyers. Two consumers had apparently been able to negotiate a lower figure of €140 with an unidentified supplier, but this remained unconfirmed from the production side. With contract benzene rising sharply by €35 per ton in February to €737, the delta-based contract price for CHX came in at €882 per ton. Benzene prices are continuing to rise through late February, but CMAI still expects both benzene and the CHX delta to peak in Q2, drifting down slowly for the rest of 2008.

European Market Report - Aromatics

STYRENE

STYRENE West European Styrene Supply/Demand Thousand Tons

% Oper. Rate 95%

1800 1600 1400

90%

1200 1000 85%

800 600 80%

400 200 0

75%

07

Q2

Production

Q3

Q4

08

Demand

Q2

Q3

Capacity

Q4

09

Nameplate

Q2

Q3

Effective

Q4

~

West Europe Styrene Capacity Outages Thousand Tons 80

% Lost Capacity 16% Forecast

70

14%

60

12%

50

10%

40

8%

30

6%

20

4%

10

2%

0

0%

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08

Lost Capacity

% Lost Capacity

• Supply-demand in Europe remains in balance with much of the POSM operations running at reduced rates reflecting weaker demand into propylene oxide. The BASF outage continues to limit supply in Antwerp. • Demand has not seen any improvement in February. Despite the improvement in EPS demand and therefore production, PS demand has not seen the usual seasonal upswing and remains disappointing. • The outlook for the remainder of the year is for continued issues with supply based on weaker PO demand. Also, the on-going macroeconomic concerns are unlikely to support significant derivative growth. • March and April will see the biggest impact on styrene availability based on planned outages for 2008. There may be other turnarounds later in the year, as well as the risk of unplanned outages, which are not yet known or finalised. • The overall picture for the year is no different from usual, although the impact of outages is never as significant in a fundamentally oversupplied market. • The current level of imports will allow the market to handle the planned outages with relatively little impact.

~

• There has been significant variation in price levels between regions in the past months with Current Spot Prices and Trade Opportunities European prices in particular moving out of line with the other regions. The fact that there currently exists a significant incentive to move volume from the U.S. and Asia into Europe is not necessarily stimulating the volumes $1433 per ton $1471 per ton required as there continues to be concerns $1384 per ton over the sustainability of the European spot 1600 markets. 1500 1400 • The volume of styrene currently shipped or 1300 that is planned to ship to Europe from the U.S. 1200 does not appear to have been sold, which may Jan 30 Feb 06 Feb 13 Feb 20 Europe Asia U.S. result in weaker sentiment in the styrene spot markets. • Spot prices in Europe have moved up significantly on the back on higher benzene prices and high energy costs. The forward markets continue to see elevated pricing in anticipation of the turnaround season. Nevertheless, activity has been limited except for the first week of February.

Global Styrene Spot Markets

US dollars per ton

February 22nd, 2008 / Issue No. 238

Page 13

European Market Report - Aromatics

STYRENE •

WEP Styrene Economics Euro per Ton 1200 Forecast 1000 800 600 400 200

•

0 -200 Jan-07

Jul-07

Jan-08

R.M. Cost Margin

Jul-08

Jan-09

Variable Cost Average Acquisition

Jul-09

Fixed Cost European Spot Price

~

•

WEP Styrene Chain Margins (In Terms of Styrene, net of typical discounts) Euro per Ton 300 Forecast

250 200 150 100

•

50 0 -50 -100 06

Q2

Q3

Q4

07

Ethylene

Q2

Q3

Benzene

Q4

08

Styrene

Q2

Q3

Q4

09

Q2

Q3

Q4

Total Margin

~

Does not include corporate overhead, depreciation, return on capital

•

West European Styrene Chain Analysis - ROI ROI 30%

Forecast 25% 20% 15%

•

10% 5% 0% -5% -10% -15% Jan-07

Jul-07

Jan-08

Styrene Conventional

Jul-08 PSE

Jan-09 EPS

ROI does not include allowance for depreciation or coporate overheads.

February 22nd, 2008 / Issue No. 238

Jul-09 ABS

~

Page 14

The CMAI average acquisition price for European styrene in February has increased from January’s level of €925 per ton to €972 per ton. There has been a slight improvement on industry profitability; however, conventional styrene units have been losing money for the last several months. The increase in spot prices has supported a higher value against feedstock. Contractual prices for January settled in the first couple of weeks of the month at €1038, €1070 and €1075 per ton on an FD basis. The FCA price concluded at €1070 per ton, equivalent to €1077 per ton FD, giving a monthly CMAI range of €1057.5-€1082.5 per ton FD (barge-railcar delivery), which constitutes an increase of €36.5 per ton. The uplift in benzene values versus naphtha for February, which were even more noticeable in the spot markets, has resulted in an improved integrated margin picture for styrene production. However, higher naphtha prices are impacting steam cracker economics and resulting in a reduced margin for ethylene production compared to January. Styrene margins are forecast to improve in Q2 and for the remainder of 2008 versus Q1 levels; however, the loss of margin in benzene production and steam cracker operations will continue to leave integrated economics unattractive, although not negative

Upward price movement in the derivatives has not been sufficient enough to cover the increase in feedstock costs; therefore, there is a decline in margin profitability for integrated producers, particularly if the monthly contract price levels are used as a benchmark. EPS profitability is anticipated to improve later in 2008 whilst PS profitability will decline. ABS has shifted to a positive position versus early 2007, although all derivatives are being negatively impacted by high styrene costs in Europe versus the other regions.

European Market Report - Aromatics

POLYSTYRENE

POLYSTYRENE West Europe Polystyrene Supply/Demand Thousand Tons 700

% Oper. Rate 100%

600 90% 500 80%

400 300

70%

200 60% 100 0

50% 07

Q2

Q3

Q4

Production

Euro per Ton 1600

08

Q2

Demand

Q3 Capacity

Q4

09

Q2

Q3

% Operating Rate

Q4

~

Polystyrene, Polypropylene, PET West Europe Domestic Prices Forecast

1400

1200

1000

800

600

400 Jan-07

Jul-07

Jan-08 PS

Jul-08 PP

Jan-09 PET

Jul-09

~

• Polystyrene demand weakened in February versus January, although neither month has been particularly robust with respect to demand. The impact of growing uncertainty over the economic situation in the U.S. and the risk of negative sentiment spreading further afield is taking its toll on the European and global polymer markets. • The fact that the polyethylene, polypropylene and PVC markets are also seeing some weakness is little consolation to PS producers in Europe, although there is some comfort in the fact that a return to the 2004-2006 situation is likely with operating rates at healthy levels. • The demand outlook suggests that Europe will see further growth following the strong year in 2007, although broader economic woes would take its toll. • Polymer substation has been a major concern for polystyrene producers over the past few years, with possibilities of substation into polypropylene, PET and ABS depending on the application. The loss of demand in 2004-2006 can be, in part, associated with an uncompetitive PS price. In 2007 price differentials favoured polystyrene and growth returned. • Polystyrene prices have looked competitive over the past few months, although increasing benzene costs are driving price levels up relative to the competition. The forecast suggests that the summer months may result in a great struggle; however, the bigger issue will be the decline in polypropylene prices into 2009.

• The January price range for PS in Europe has been revised downwards by €10 per ton to take 1600 Forecast into account the end-month activity, resulting 1400 in a range of €1240-€1320 per ton. 1200 • The price levels moved up in February to reflect 1000 higher feedstock costs. However, in a relatively weak market producers have struggled to pass 800 on the full increase, so price levels are expected 600 to increase by €20-€30 per ton, although end400 month agreements may be above this level if 200 convertors look to pre-buy ahead of the increases in March. This results in a price range 0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 of €1260-€1340 per for February. Raw Materials Variable Costs ~ • The result for margins is negative. Styrene Fixed Costs Contract Price prices have risen ahead of polystyrene and producers were required to reduce margins. Nevertheless, the margin position built up during the second half of 2007 allowing them to do this whilst still maintaining a profitable position. WEP Polystyrene Economics

Euro per Ton

February 22nd, 2008 / Issue No. 238

Page 15

European Market Report - Aromatics

EPS

EPS • The uncertainty in the EPS markets during January, with some producers seeing an improved demand picture whilst others were seeing ongoing struggles in their markets, has resolved 90% itself with widespread improved demand for European product. 80% • The traditional seasonality in demand, particularly in central and eastern European markets, 70% continues to keep some customers away, although for most western European producers 60% demand is picking up ahead of the spring building season. 50% • Strong demand in February can be part explained 07 Q2 Q3 Q4 08 Q2 Q3 Q4 09 Q2 Q3 Q4 by another mild winter; however, some inven~ Production Demand Capacity % Operating Rate tory build is likely. Stocks downstream from producers will have been run down in the second half of 2007as prices declined – they will need to be partially replenished ahead of the spring and summer. West Europe EPS Supply/Demand

Thousand Tons 400 350 300 250 200 150 100 50 0

% Oper. Rate 100%

EPS WEST EUROPE IMPORTS EPS EXPORT DATA TO WEST EUROPE EXPORTS FROM:

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07

South Korea

3.0

1.6

1.4

1.7

1.5

1.2

0.6

0.1

0.0

0.0

0.1

Taiwan

5.0

2.7

3.0

1.1

2.7

2.5

1.5

1.1

0.8

0.2

0.6

* *

China

6.8

5.5

6.5

5.6

6.4

4.5

4.0

1.5

0.5

0.4

0.3

0.3

Rest of World

0.4

0.7

0.6

0.3

0.7

0.4

1.1

-0.7

2.3

0.8

0.4

0.3

EPS IMPORT DATA INTO WEST EUROPE IMPORTS FROM:

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07

South Korea

2.6

2.1

1.8

1.7

1.3

1.2

1.3

0.7

0.2

0.2

*

Taiwan

3.9

5.6

2.1

5.3

1.5

3.0

1.9

1.9

0.7

0.6

*

* *

China

5.5

4.1

6.1

6.3

4.3

5.8

3.6

2.2

0.9

0.2

*

*

Rest of World

3.7

0.9

1.8

1.5

1.6

1.9

1.1

2.0

2.2

3.0

*

*

Total Imports

15.8

12.7

11.7

14.7

8.7

11.8

7.9

6.8

4.0

4.0

3.5

2.4

* Trade Data Not Available

Estimated Imports Based on Export Data

Typically Transit Time From Asia to the West Europe is 6-8 weeks.

•

• The sharp decline in EPS imports into Western Europe, as indicated in the table, has been a consequence of the much weakened market in Europe. The declines in Western Europe have been matched by similar declines in Central Europe. The inventory build that took place in 2006 and 2007 affected the whole market. • The likelihood of a return to the same level of imports seen in 2007 during 2008 is very low. European producers have seen the damage that imports can do to the market with what has now been six months of poor demand and high inventory and are less keen to ramp up prices to the levels seen this time a year ago.

Units: Thousand Metric Tons

Improved demand in Europe is stimulating some interest for Asia to export; however, the current price level makes exports unattractive for Asian producers despite a considerably lower styrene price. It is likely that as Europeans look to expand margins in Q2 Asian interest will increase, although there will need to be significant incentive to cover the risk of a market and price downturn. • Price levels for February have moved up versus January and producers have managed to secure an increase in margin, at least versus contract styrene. The price level for February is €1335-€1375 per ton, an increase of €50 per ton from January. • The improvement in demand, a little earlier than we had forecast, should allow producers to cover styrene increases expected in March and then further margin expansion during the second quarter. Price levels will remain at import parity until the wave of new capacity comes on line at the start of 2009.

WEP Expandable Polystyrene (EPS) Producer Euro per Ton 1800 Forecast

1600 1400 1200 1000 800 600 400 200 0 Jan 07

Jul 07

Jan 08

Raw Materials Contract Margin

Jul 08 Variable Costs Contract Price

February 22nd, 2008 / Issue No. 238

Jan 09 Fixed Costs

Jul 09

~

Page 16

European Market Report - Aromatics

MIXED XYLENES

MIXED XYLENES Mixed Xylene Spot Prices West Europe Less U.S. Dollars Per Ton 100 Forecast 80 60 40 20 0 -20 -40 -60 Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

~

• The chart shows that oil refiners had an improving price incentive in February to separate xylenes from reformate. • While xylene prices remained remarkably steady in February, blend values have generally decreased. The premium for xylene over blend value, therefore, increased from $102 per ton in January to $122 so far in February. • For March, this premium is expected to shrink to $35 per ton as higher xylene prices are outpaced by big increases for blend value ahead of the driving season.

West Europe Mixed Xylenes Alternative Values Dollars per Ton 1200

Forecast 1000

800

600

400

200

0

-200 Jan-07

Jul-07

Spot Price

1000

800

600

400

200

0

Jul-08

Spot / Blend Value delta

Jan-09

Jul-09

Blend Value

~

• The European spread between mixed xylene and naphtha has increased slightly to an average of $132 per ton so far in February. This is still low by historical standards but does suggest that, despite very high naphtha prices, reformer margins are improving somewhat. • For March, we forecast the spread will increase to $145 per ton and this improving trend towards more normal levels will continue until May. • In distribution markets, FCA xylene prices dipped in early February to €665 per ton ARA and €660 Germany but later recovered to €670-€680 J F M A M J J A S O N D ARA and €680 Germany. Delivered prices also Spot Value 2008 Naphtha 2008 MX Spot-Naphtha 2008 MX Spot-Naphtha 2007 ~ recovered from early-month at €650 per ton deMX Spot-Naphtha 2006 MX Spot-Naphtha 2005 livered Benelux to €670-€700 later in the month. In Germany, most delivered prices remained at €670-€700 per ton, little changed from January. Some low FCA prices at the start of February reflected a need to secure business at a time of uncertain demand.

Dollars per Ton 1200

Jan-08

• Europe’s spot xylene price has averaged $937 per ton FOB ARA so far in February compared to $942 per ton for the whole of January. Prices stopped sliding at the end of January and stabilised above $900 in early February with deals were done in the range of $930-$940 per ton FOB ARA. A labour strike at BP Geel had no market impact. Since then, offers have jumped up to $980 notional but with no bids. • Xylene supply into isomers has been steady ahead of PX/OX shutdowns in Q2. However, competition for molecules from gasoline has reduced availability for the spot market. • The chart shows that European xylene prices have been close to U.S. prices so far this month. Thus trans-Atlantic trade has not been significant.

West Europe Mixed Xylenes Spread Over Naphtha

February 22nd, 2008 / Issue No. 238

Page 17

European Market Report - Aromatics

ORTHOXYLENE

ORTHOXYLENE • The European February contract price was settled at €750 per ton free-delivered, a reduction 1400 Forecast of €10 per ton from January. In early February, 1200 any producer ambitions for an increase waned as crude prices dipped while the OX supply1000 demand balance weakened partly due to an 800 outage at Arkema. • The chart shows European producers retained 600 a reasonable price incentive to produce incre400 mental OX during February. The OX-MX ‘spread’ for February is expected to average 200 $162 per ton. 0 • We have increased our forecast for the March OX Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 contract price from a rollover to an increase of €20. ~ MX OX spread MX Spot OX Contract The change reflects current record-high prices for gasoline, which may provide upward price pressure in negotiations due next week. West Europe MX/OX Price Movement

Dollars per Ton

PX / OX Price Comparison Dollars per Ton 1400

300 Forecast 250

1200

200 1000 150 800

100

600

50 0

400 -50 200

-100

0 Jan-07

-150 Jul-07

Jan-08

PX-OX (RHS)

Jul-08

WEP OX

Jan-09

WEP PX

Jul-09

PX-OX average (RHS)

~

West Europe Phthalic Anhydride Economics Delivered Basis

Dollars per Ton 1400

Forecast 1200 1000 800 600 400 200 0 Q106

Q2

Q3

Q4

Q107

PAN Cash Cost

Q2

Q3

Q4

Q108

PAN Contract

February 22nd, 2008 / Issue No. 238

Q2

Q3

Q4

Q109

PAN Margin

Q2

Q3

Q4

~

Page 18

• The chart shows the PX-OX spread has remained at about $50 per ton, which is less than the historical average price delta between the two isomers. • Continuation of low spreads into January/ February suggests a possible return to the market conditions of 2007 when the delta was either very low or negative. Those conditions meant that isomer producers with operational and contractual flexibility had a considerable price incentive to increase OX recovery at the expense of PX. • For March, our forecasts call for the PX-OX delta to increase to $65 per ton. This increase would mean that PX has not actually regained its historical status as ‘the preferred’ isomer to produce. • The chart shows phthalic anhydride margins remained high for most of 2007. More than anything, this was due to demand consistently exceeding expectations. • Since December 2007, PA margins have fallen back towards more normal levels, especially as new annual contracts have been implemented. In particular, many annual 100% OX-related contracts have been replaced by ‘50% OXrelated and 50% market-related’ contracts. • For 2008, on balance we expect PA margins to be somewhat lower than 2007 as growth in demand is expected to ease. However, this forecast is already under review as import levels appear to be falling and more PA turnarounds are being scheduled for Q2/Q3.

European Market Report - Aromatics

PARAXYLENE

PARAXYLENE Asia vs WEP PX Contract Prices Dollars Per Ton 1400

WEP - Asia Net CP Dollars per Ton 60

Forecast 1300

50

1200

40

1100

30

1000

20

900

10

800

0

700

-10

• The February contract price has been agreed at €785 per ton which is €8 per ton below the January settlement. Neither buyers nor suppliers are happy with the price as it is $25 per ton higher than Asia on a net basis and producers continue to lose money. • The spot market has been very quiet in the last month with prices drifting downwards from $1092 per ton to the current levels of $1040 per ton. During this period there has been some end consumer buying as spot prices have been cheaper than net contract prices.

-20

600 Jan-07

Jul-07

Jan-08

WEP - Asia NET PX CP

Jul-08

Jan-09

WEP PX CP

Jul-09

ASIA PX CP

PX Spot Prices 2007/2008 Spot Price Dollars Per ton 1400

140

1200

120

1000

100

800

80

600

60

400

40

200

20

0 07-Feb 14-Mar 18-Apr 23-May 27-Jun 01-Aug 05-Sep 10-Oct 14-Nov 19-Dec 23-Jan Asia Spot - WEP Spot (RHS) CFR Taiwan Spot USGC

Asia Spot - US Spot (RHS) Spot WEP

0

~

W. Europe Brent/Naphtha /PX Price Movement Dollars per Ton 1400

Dollars per Barrel 100 Forecast

90 1200 80 1000

70 60

800

50 600

40 30

400

20 200 10 0 Jan-07

0 Jul-07

Jan-08

Jul-08

Naphtha PX Contract

February 22nd, 2008 / Issue No. 238

Jan-09 Naphtha PX spread Brent

• There have been no reported plant problems in the last month. A strike at a northwest European producer forced them to declare force majeure on mixed xylene and paraxylene imports to the site at the beginning of February. The strike was resolved within a couple of days. In Southern Europe a producer has postponed a scheduled turnaround from February into March because of the threat of industrial action. • Paraxylene demand has been weak in the last month as downstream bottle resin production remains seasonally weak.

Jul-09

~

Page 19

• In the last month we have seen Brent crude rise from $87.5 per barrel to the current level of $98.8 per barrel and gasoline rise over the same period from $778 per ton to $888 per ton. Whilst over the same period of time spot paraxylene prices in Asia have increased from a range of $1115-$1130 per ton to $1140-$1150 per ton. In Europe the spot price has actually fallen by $52 per ton.

European Market Report - Aromatics

PARAXYLENE

• For those paraxylene processes using mixed xylene as the feedstock margins improved Forecast between January and February where mixed 400 xylene is transferred at blend value but have remained static for those using market priced 200 mixed xylene, as the attached graph shows. Paraxylene and mixed xylene prices fell be0 tween the two months by $12 per ton and $2 per -200 ton, respectively. Whilst blend values, however, decreased by $15 per ton. At the same time -400 variable conversion costs also decreased by $6 per ton for the parex process and $10 per ton -600 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 for the crystallisation process. Margins have Mkt Xyl + Parex Mkt Xyl + Cryst Mkt Tol + STDP ~ Dist Xyl + Parex Dist Xyl + Cryst Ext Tol + STDP also improved for the STDP process between January and February. • Feedstock costs have increased by $4 per ton for toluene valued at market prices, but fallen by $29 per ton for toluene valued at blend between the two months. At the same time the average value of the co-products benzene and paraxylene increased from $989 per ton to $1007 per ton. PX Cash Margins By Technology Before Tax

Dollars per Ton

600

• Now that the Chinese New Year holidays are over downstream demand for fibre is expected to pick up during the course of March. At the same time bottle resin should experience a seasonal increase in demand in both Asia and Europe. • On the supply side approximately 4% of world capacity will be down in March with the bulk of it in Asia. At the same time several mixed xylene units will be down in the U.S., limiting feedstock availability.

West Europe Xylene Alternative Values Dollars per Ton 1400 Forecast 1200 1000 800 600 400 200 0 -200 Jan-07

Jul-07

Jan-08

MX

Jul-08

MX / Blend Value delta

Jan-09

Jul-09

Blend Value

PX

~

West Europe PX Production Cost Delivered Basis Dollars per Ton 1750

Forecast 1500 1250 1000 750 500 250 0 -250 -500 Q106

Q2

Q3

Q4

Q107

Avg Feedstock Avg Fixed Spot Price

Q2

Q3

Q4

Q108

Avg Variable PX Price

February 22nd, 2008 / Issue No. 238

Q2

Q3

Q4

Q109

Avg Delivery Margin

Q2

Q3

Q4

~

Page 20

• In the course of the next few months gasoline prices should start to rise as blenders in the U.S. to build stocks ahead of the driving season. The effect of this plus the mixed xylene shutdowns should push feedstock costs upwards. • In Asia Nippon Oil and Idemitsu have nominated $1190 per ton and $1200 per ton, respectively, as the contract price for March. This is an increase of $90-$100 per ton over the February contract price. Given that spot prices in Asia are $1140-$1150 per ton and demand is only slowly increasing, we are forecasting that the contract price will only increase by $50 per ton.

European Market Report - Aromatics

PARAXYLENE •

PX Reinvest Costs

In Europe as gasoline starts to rise in price relative to crude, paraxylene producers will Forecast be pressing for higher prices due to rising 2000 1750 feedstock costs and the need to improve profit1500 ability. At the same time buyers will want the 1250 differentials to Asia to come back to parity. 1000 In these first two months of the year we have 750 seen that net European prices have been on 500 average just over $25 per ton higher than the 250 net Asian price. In the coming months we are 0 -250 forecasting that the differential between net -500 European prices and net Asian prices will slip Q1-06 Q3 Q1-07 Q3 Q1-08 Q3 Q1-09 Q3 to $20 per ton. The differential will not slip to Wghtd AV BT margin TOL@BV/STDP/CRYST TAT@BV/Adsorp/ISOM MX@BV/Adsorp/ISOM ~ parity as paraxylene producers will have to bid Contract Price mixed xylene away from the gasoline pool. Although the differential may slip we do expect prices to increase in the coming months with the March price rising to €815 per ton. During the course of Q2 prices are forecast to continue rising reaching a peak in June of €870 per ton. Dollars per Ton 2250

A comprehensive study of the world xylenes & terephthalates industry to 2012

2008

WORLD XYLENES & TEREPHTHALATES ANALYSIS For information or to order your copy, contact CMAI at (281) 531-4660 or email [email protected].

~ CHEMICAL MARKET ASSOCIATES, INC.

Houston - New York - Dubai - Düsseldorf - London - Shanghai - Singapore

www.cmaiglobal.com Excellence & Experience in Consulting since 1979 Excellence & Experience in Petrochemical Consulting since 1979. Chemicals - Plastics - Fibers

February 22nd, 2008 / Issue No. 238

Page 21

European Market Report - Aromatics

PTA

PTA PTA Comparison After Discounts Dollars per Ton 1400 Forecast

1200 1000 800 600 400 200 0 Jan-07

Jul-07

Jan-08

Jul-08

Asia Contract WEP Contract WEP - Asia delta (RHS)

Jan-09

Jul-09

NAM Contract Asia Spot delivered WEP

~

• The net December contract price has been settled €1 per ton lower than the paraxylene raw material cost increase of €14 per ton. On a net basis this made European PTA $84 per ton higher in price than the cost of Asian PTA delivered to European consumers. • In the last month demand for PTA has continued to be weak. This is partly due to the normal seasonal weakness in bottle resin demand. However, PET producers can also see that glycol prices are falling and so they are minimising their purchases as they do not want to put expensive raw materials into stock.

• On operations a strike at a northwest European PTA producer delayed the restart of some plants following a turnaround. The strike was quickly resolved and deliveries to customers were not affected. In Iran one line of the PTA unit at Bandar Imam was taken down in early February because of mechanical problems. It is not expected to return to production until the end of April. • January contract price discussions have only just started with producers wanting prices to increase by the rise in paraxylene raw material costs of €14 per ton. Consumers on the other hand would like prices to be more competitive with Asia and want the increase to be limited to €4 per ton.

• In Asia, the PTA market has been very quiet these last four weeks because of the holidays. The spot PTA price has moved slightly from a range of $855-$860 per ton to the current 1200 320 level of $865-$885 per ton. Over the same timeframe spot paraxylene prices have moved 900 240 up from a range of $1115-$1130 per ton to $1140-$1150 per ton. As a consequence, the 600 160 spread between spot PTA and 0.67 times the spot paraxylene price increased from $105 300 80 per ton to $112 per ton before falling back to $108 per ton. 0 0 • In contrast the spread between contract PTA Spread WEP PTA - 0.67*PX Spread Asia PTA - 0.67*PX and 0.67 times the contract paraxylene price ~ Asia PTA Spot WEP PTA in Western Europe has declined in the last four weeks from a peak of $352 per ton to the current level of $346 per ton. • The gap between net European PTA prices of $1109 per ton and net Asian prices of $846 per ton continues to be significant. The difference in price is sufficient for Asian producers to be able to cover their costs in delivering to European customers and make a margin. As a result, Europe must be an attractive market for Asian PTA producers and as previously reported it is no wonder that PTA imports have increased into the EU 25 in the last year. Asia & WEP PTA - PX Spreads

Dollars per Metric Ton 1500

Jan-07

Feb-07

Spread= PTA - 0.67 x PX 400

Apr-07

Jun-07

Aug-07

February 22nd, 2008 / Issue No. 238

Oct-07

Dec-07

Jan-08

Page 22

European Market Report - Aromatics

PTA

West Europe PTA Economics

• Between December and January we expect that PTA margins will fall by €15 per ton for 1400 two reasons. The weakness in demand will Forecast 1200 result in producers only recovering €4 per ton of the €14 per ton increase in paraxylene 1000 raw material costs. In addition margins will 800 also be impacted by higher acetic acid prices, 600 which we estimate will reduce margins by a further €5 per ton. 400 • Demand for PTA should start to pick up 200 in March as the bottle resin season gets 0 underway, with volumes increasing furJan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 ther in Q2. A combination of high demand Feedstock Variable Direct Fixed ~ Avg Transport PTA Contract Margin and a series of plant shutdowns in Q2 should cause the PTA market to tighten. For Q1 due to the weakness in the market we expect that net PTA prices will fall by €15 per ton. However, in Q2 as the market starts to tighten €10 per ton of the €15 per ton that were lost in Q1 should be recovered. • After Q2 we expect that PTA prices will start to weaken as supply increases following the start up of BP’s expansion at Geel. Delivered Basis

Dollars per Ton

A comprehensive study of the world benzene industry to 2012

er d ov sente e r p Data a period rs yea even of el 12

2002

2008

WORLD BENZENE ANALYSIS

- 20

For information or to order your copy, contact CMAI at (281) 531-4660 or email [email protected].

~ CHEMICAL MARKET ASSOCIATES, INC.

Houston ousto - New York - Dubai - Düsseldorf - London - Shanghai - Singapore

www.cmaiglobal.com Excellence & Experience in Petrochemical Consulting since 1979. Excellence & Experience in Consulting since 1979 Chemicals - Plastics - Fibers

February 22nd, 2008 / Issue No. 238

Page 23

European Market Report - Aromatics

PET

PET • The PET market in Europe has remained in the doldrums in the last month. Demand which is 1,800 normally weak at this time of the year has been below expectations. The reason for this is that the 1,600 glycol contract price in Europe was settled on a 1,400 net basis approximately $280 per ton higher than 1,200 the Asian contract price. The expectation is that 1,000 the glycol prices will fall significantly in March. 800 In order to come back to parity with Asia the price 600 will need to fall by €125 per ton. PET buyers 400 hope that this fall in glycol prices will translate 200 into lower PET prices and so demand was weaker 0 than expected. Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 ~ • In the last month prices have fallen from a range Spot PET NEA WEP PET WEP PET - Spot PET NEA of €1130-€1180 per ton to the current levels of €1030-€1100 per ton. The price fall has been driven by intense competition in the market and a Middle Eastern producer placing material in Europe. PET Prices

Dollars Per Ton 2,000

West Europe PET Economics Discount Applied

Dollars per Ton 1800 1600 1400 1200 1000 800 600 400 200 0 -200 Jan-05

Jul-05 PX Component MEG Component Contract Price

Jan-06

Jul-06

Jan-07

Jul-07

PTA Component Conv Costs and Other Raw Margin

Jan-08

~

• For March there have been no announcements of price increases so far. The hope is that whilst raw material prices will fall in March producers will not have to pass this onto their customers. • Between January and February PET margins have fallen by €24 per ton. Between the two months raw material costs are forecast to fall by €34 per ton. This assumes that net PTA prices fall by €10 per ton rather than by the €5 per ton decrease in the paraxylene raw material cost. At the same time PET prices fell between the two months by €59 per ton to give margin decrease of €25 per ton. There was a small change in variable conversion costs between January and February which brought the fall in margins to €24 per ton.

• In February despite the fall in PET prices they have still been higher than the cash cost of Asian 1400 500 PET delivered to Europe as the attached graph Forecast 1200 400 shows. • In March PET demand is expected to improve 1000 300 with the start of the bottle resin season. At the 800 200 same time raw material costs should decline due to glycol falling significantly in price. 600 100 This fall will however be mitigated by PTA 400 0 prices rising driven by increasing paraxylene 200 -100 costs. Across Q2 we expect to see raw material rising in cost driven mainly by escalating 0 -200 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 paraxylene costs and higher PTA prices due to WEP PET - ASP CC WEP PET PRICE ~ a tightening supply-demand balance in Europe. ASP Cash Cost Delivered Europe Inc Discounts As a consequence, we are forecasting that prices for PET will roll over from February to March, as the increased demand should help to tighten up the market. Across Q2 with the greater demand we are forecasting that the PET price rises will be higher than the raw material cost increases, resulting in higher PET margins. Comparison of WEP PET Prices with Asian Cash WEP PET - ASP CC Costs

Euro per Ton

February 22nd, 2008 / Issue No. 238

Delivered WEP €/t

Page 24