may 20, 2010 savannah, ga - tappi 20, 2010 savannah, ga raw materials (methanol and urea) review and...

May 20, 2010Savannah, GA

Raw Materials(Methanol and Urea) Review and Outlook

Reed Singleton

TAPPI’s B&IM CommitteeSpring Meeting

2

Review

3

Pete WallacePete Wallace

4

MethanolFOB US Gulf Coast - $/gal

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

Pete's Forecast Actual Price

5

UreaNOLA - $/ST

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

Pete's Forecast Actual Price

6

Urea/FormaldehydeResin Review

• To make a 45,000 lb tank truck of a typical 65% UF resin requires:

– Approximately 31,500 lbs of 50% formaldehyde (requi res approximately 19,000 lbs of methanol)

– Approximately 20,000 lbs of granular urea, or 10 sh ort tons.

7

Formaldehyde

8

Supply Chain for Methanol/Formaldehyde

• Natural Gas (Methane)

• Natural Gas Reacted to form Methanol.

• Methanol Reacted to form Formaldehyde.– The driver on formaldehyde pricing is methanol.

9

Methanol Overview

• Production & Uses

• Supply/Demand

– Global

– North America

– Expansion and Rationalization

• Price History and Outlook

10

Methanol production

11

Methanol

• Feedstock

– Natural Gas and Coal

• Primary Markets

– Formaldehyde, widely used to make resins and other chemicals

– Methyl-tert-butyl-ether (MTBE), used as a gasoline oxygenate

– Acetic Acid

– Methyl Amines

– Windshield washer fluid

– Energy applications

– Other chemicals

• Primary Cost Drivers

– Supply/Demand

– Energy Costs

12

Methanol and Its Uses

M

e

t

h

a

n

o

l

Methylamines

Methyl Methacrylate

Dimethyl terephthalate (DMT)

Methanethiol (Methyl Mercaptan)

Methyl tertary-Butyl Ether (MTBE)

Acetic Acid

Formaldehyde

Methanol to Olefins

Fuel Cells

Alternative Fuels

Methyl Chloride (Chloromethane)

Many Other Uses

Caffeine; Sevin/carbaryl; Various insecticides,

herbicides, pesticides; Analgesics; +

Polymethylmethacrylate (PMMA);

Methacrylate/Acrylate Co Polymers

Polyesters

Chlorine Dioxide;

DL-Methionine (amino acid)

Vinyl Acetate; Acetic Anhydride;

Terephthalic Acid

Phenol, Urea, Melamine Resins;

Polyoxymethylene; Polyois; Butanediol; +

Methylene Chloride (CH2Cl2)

Gasoline Additive

DME/Gasoline Blending

13

Global Supply & Demand

• Global demand is returning from the 2009 low

• Supply still growing, but potential exists for significant rationalization of high-cost production

• Biggest demand

– Construction applications

– Automotive

– Energy applications increasing in importance

14

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2006 2007 2008 2009 2010E 2011E 2012E 2013E

Total Capacity Total DemandJim Jordan & Associates

(000) Tonnes per Year

World Methanol Capacity vs Demand

15

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2006 2007 2008 2009 2010E 2011E 2012E 2013E

FORMALDEHYDE MTBE ACETIC ACID M.METHACRYLATE

DMT GASOLINE/FUELS SOLVENTS MISCELLANEOUS

Methanol Demand in the World


Jim Jordan & Associates

Total Capacity

16

Marketing leaders(exclusive of China)

Methanex

SABIC

Mitsubishi Gas Chemical (MGC)

Methanol Holdings Trinidad Limited (MHTL)

Atlantic Methanol Company (AMPCO)

StatoilMitsubishi Corp

Company

Marketing capacity(mm mt)

Primary supply region

Methanex 6 GlobalSABIC 3.4 Europe and AsiaMitsubishi Gas Chemical (MGC) 3.0 GlobalMethanol Holdings Trinidad Limited (MHTL) 5.0 GlobalAtlantic Methanol Company (AMPCO) 1.4 NA and EuropeStatoil 0.9 EuropeMitsubishi Corp 0.8 NA and Europe

29%

17%15%

24%

17%

17

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2006 2007 2008 2009 2010E 2011E 2012E 2013E

FORMALDEHYDE MTBE ACETIC ACID M.METHACRYLATE

DMT GASOLINE/FUELS SOLVENTS MISCELLANEOUS

Methanol Demand in North America


Jim Jordan & Associates

18

Southern Chemicals (MHTL)

38%

Methanex25%

AMPCO9%

Lyondell9%

Mitsubishi Corp4%

Mistui4%

ENI4%

Sabic3%

Other19%

MGC4%

C om panyN A sup ply

(mm mt)Southern Chemic a ls (MH TL) 2.35Methanex 1.55AMPCO 0.55Lyondell 0.53MG C 0.25Mitsub ish i Corp 0.25Mis tu i 0.25ENI 0.25Sabic 0.20

North American Methanol Supply (major)

19

Capacity Expansions

20

Methanol pricing

21

Methanol price posting agencies*

• Jim Jordan & Associates (JJ&A)

• Chemical Market Associates, Inc (CMAI)

• Chemical Data (ChemData)

• ICIS

*Third party, unbiased agencies

22

Energy Factor Relationship

24

Methanol Price Forecast(US Gulf Coast Estimated Actual Contract in Barges)

JJ&A US Cents per Gallon 22-Apr-102009 2010 2011 2012 2013 2014 2015

1st Quarter $0.58 $0.942nd Quarter $0.54 $0.883rd Quarter $0.61 $0.704th Quarter $0.86 $0.60AVERAGE FORECAST $0.65 $0.78 $0.70 $1.10 $1.30 $1.20 $1.10

Upside Forecast $0.86 $0.77 $1.21 $1.43 $1.32 $1.21

Downside Forecast $0.70 $0.63 $0.99 $1.17 $1.08 $0.99

US Gulf Coast Estimated Contract in Barges

25

Conclusions

• Methanol is a building block for many products

• North American supply controlled by 2-3 suppliers

• Current oversupply of methanol

• Entering extended period of price stability

• Energy applications increasingly important

26

Urea

27

Urea Basics

• Synthesized from Ammonia and Carbon Dioxide

• High Nitrogen Content (46%)

• Used as Prills, Granular, or in Solution

• Globally traded (ease of transport)

• Main trading Hubs – The Black Sea and the Middle East

• Long-term Demand Growth

• Energy Intensive Production (energy = approx. 90% of production cash costs)

28

Urea

• Feedstock– Natural Gas

• Primary Markets– 90% of urea is used in the fertilizer industry

– Used to make melamine and urea formaldehyde resins

– Used in the reduction of Nitrogen Oxide emissions

• Primary Cost Driver– Natural Gas

• Supply and Demand– World production approximately 140 million MT’s

– Traded material approximately 33 million MT’s

29

� Supply-driven price for urea

� Urea demand

� Urea supply

� Urea price (above floor)

� Most other nitrogenfertilizer prices

Nitrogen Fertilizer/Urea Market Drivers

US / European gas prices

Grain inventories/prices

New urea capacity vs. closures

Global urea demand vs. supply

Urea price

Drivers Effect on

� Gas cost in Europe

� Fixed cost

� Unit cost

Oil product prices

Manning and maintenance

Productivity and economies of scale

RevenueDrivers

CostDrivers

30

Urea Demand

31

Drivers for Increased Nitrogen/Urea Consumption

• Fertilizer consumption

– Population growth

– Economic growth

• More meat consumption in developing countries

• Focus on diets rich in proteins

• More fruit and vegetables

• Reduce hunger

– Biofuels (continues to grow)

32

0.0

0.1

0.2

0.3

0.4

0.5

1960 1970 1980 1990 2000 2010E 2020E

Hec

tare

s/pe

rson

0

2

4

6

8

10 Population (billion)

Hectares/person Population

Increasing population and reduced land available for food production per capita

Source: IFA, Worldmarkets.com

�Very limited potential toincrease farmable land

� Improved living standards increase protein consumption per person, requiring more grain for animal feed

The only solution is to increase agricultural

productivity

33

Higher demand for meat requires more feed grain

0 20 40 60 80 100 120 140

Africa

Asia

Latin America

North America

EU

World

Kg/capita/year

Source: FAO

Significant potential for increasingmeat consumption in emerging countries

0 1 2 3 4 5 6 7 8 9

Beef

Pork

Poultry

Kg’s of grain to produce 1kg of meat

Feed grain multipliersfor meat production

2X

4X

7X

34

Solution (as I see it)

35Source: FAO (cereal production) and UN (population)

Cereal grain production per capita lower today compared to the 80s

Peak: average 1984-1986:374 kg/capita

Average 2002-2007:340 kg/capita

36

Current grain stocks up last two years, but still low

Consumption Production

Source: USDA, September 2009

75 days inventory

115 days inventory

Mt

1996-2001: 0.8% growth/year

2001-2008: 1.8% growth/year

37

U.S. Renewable Fuels Standard

0

5

10

15

20

25

2007actual

2008 2009 2010 2011 2012 2013 2014 2015

Billio

n G

allo

ns

0

1

2

3

4

5

6

Conventional Biofuel Advanced/Cellulosic BiofuelCorn Use for Ethanol

• Corn used for ethanol in 2010/2011 crop year, 4.3 b illion bu. vs. 3.63 billion bu. In 2009/2010 crop year (per U.S.D.A.)

Source: Renewable Fuels Association

38

U.S. Historic Grain Prices

39

Nitrogen consumption in key regions

0

5

10

15

20

25

30

35

40

1993 1995 1997 1999 2001 2003 2005 2007 2009F 2011F 2013F

Mil

lio

n t

on

s n

itro

ge

n

China: 1.1% per year

Europe: 1.8% per yearNorth America: 1.7% per year

Latin America: 3.0% per year

Source: IFA

Rest of Asia: 3.8% per year

India: 2.6% per year

40

Urea Supply

41

2H 2010 – Trade Balance

42

Expected New Capacity

YearGlobal Urea Capacity

Growth Estimate*Driving Regions

World Excluding China World Ex. China

2008 2.2% 1.6% China 55%

Iran 25%

Iran 56%

Egypt 26%

2009 5.9% 2.2% China 77%

Oman 7%

Oman 30%

Turkmen. 17%

2010 7.6% 4.5% China 65%

Iran 8%

Iran 23%

Pakistan 21%

2011 5.0% 2.8% China 68%

Qatar 12%

Qatar 37%

Pakistan 21%

2012 3.9% 4.7% China 32%

Algeria 22%

Algeria 32%

Vietnam 27%

43

Long-term S/D Outlook

44

Plant Operating Rates

45

Forecast

46

• Supply

–Spot prices are falling globally as Supply overcome s Demand.

–Over 11mm mt of new capacity is expected in 2010; 7 mm mt in China and

4mm mt outside China. China is expected to absorb i ts domestic supply, leaving a signficant excess supply in other regions .

–Three new plants (Brunei, Egypt, and Venezuela) are scheduled to start-up by mid 2010.

– There is no significant new capacity scheduled to s tart from 2011 through 2012

• Demand

–Demand continues to increase in most markets.

–Demand is expected to steadily increase through the forecast period.

Methanol Forecast Methanol Forecast Comments

47

Methanol forecastMethanol forecast(FOB US Gulf Coast)(FOB US Gulf Coast)

0.650

0.600

0.732

1.003

1.080

0.970

0.853

1.017

0.850

0.917

1.1071.083

0.500

0.600

0.700

0.800

0.900

1.000

1.100

1.200

Q1

200

9

Q2

200

9

Q3

200

9

Q4

200

9

Q1

2010

Q2

20

10

Q3

20

10

Q4

20

10

Q1

201

1

Q2

201

1

Q3

201

1

Q4

201

1

Period

Me

OH

pric

e (

US

$/ga

l)

48

Bullish

• Current Black Sea prices ($ 235/MT FOB) are already near low of past 2 years ($ 225/MT FOB). Can they go much lower before production curtailed?

• 2010 U.S. corn plantings to increase 3% from levels of past 2 years. Rice up 9% from 2009. Rice is a large consumer of urea.

UreaShort Term Market Factors

49

Bearish• Chinese urea stocks high.

�Q110 exports up 95% from Q109

• Chinese export tax to revert down to 7% effective Jul y 1st. Given high stocks and domestic weather problems cutti ng into demand, exports are expected to remain strong.

• New capacity (Iran, Pakistan, China) to come on-strea m.

• Second half 2010 trade balance is showing a slight u rea surplus.

• Early Midwest field activity may have favored other nitrogen products (ammonia, UAN) at expense of urea demand.

• Current NOLA values above current international levels.

• Forward paper market trading at a price discount.


50

Uncertainties

• Chinese export volumes could be negatively impacted should China allow the Yuan to appreciate against the dollar.

• Will recently negotiated lower Ukrainian gas import prices from Russia flow through to nitrogen producers? Ukraine is under pressure to remove gas subsidies to industrials.


51

Short-term Outlook (12 months)• Prices declining through spring and summer before

stabilizing and moving higher through fall and wint er.

• Overall, expect prices to trade in a relatively nar row range (+/- $ 30/ST) from current NOLA value of US$ 270 per ST, as global supply/demand fundamentals are relatively balanced.

Urea Market Forecast

52

Urea Market Forecast

Longer Term (2-3 years)• Agricultural fundamentals to support continued incr ease

in urea demand.

• Agricultural demand and higher energy costs resulti ng from the economic recovery will keep prices from fa lling to levels experienced in the early 2000’s.

• Investments in capacity should result in moderate surplus capacity in 2012/2013 and limit any strong upward price movement.

• Prices should remain above long-term (10 year) aver age ($ 240/ST), and relatively close to the past 5 year average of $ 320 per ST (basis NOLA).

53

UREA

NOLA

0

100

200

300

400

500

600

700

800

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111

US

$ pe

r S

T

54

Normal route New route to naviga te around oil spill Area of c oncern for inland barge traffic

Impact from Horizon Oil Rig ExplosionApril 20, 2010

Special Thanks

• To YOU, for your attention!!

• To Ralf Yobp & Michael Curtin

…of the Arclin Procurement Team for their personal insights and help gathering information for this presentation.

2010 - Acrylic Latex Supply Chain Overview

Building & Industrial Mat Committee Meeting – May 2010

Dow Company Confidential2

Agenda

� Review of Acrylics Supply Chain

� Petrochemicals to Specialty Polymers

� Acrylic Chain Infrastructure

�Trends and Drivers

�Current Acrylic Polymer supply constraints and outlook

� Questions

3Dow Company Confidential

Disposable DiapersDetergentsWater Treatment

Industrial CoatingsLatex PaintsTextilesPaperAdhesivesPVC/Plastics

Signs and DisplaysAutomotive Lighting Fixtures Building PanelsMotor Oil

End-Uses

Acrylic Acid Polyacrylic Acid

Acrylic Resins

Acrylic Emulsions

Plastics Additives

Acrylic Sheet

Molding Resins

PetroleumChemicals

MethylMethacrylate

Major RawMaterial

Key Monomer(Building Blocks)

PolymerProducts

Propylene

AcetoneNatural Gas

Monomers Paint and Coatings, Adhesives,CIS, Plastics Additives

Ethyl Acrylate

Butyl Acrylate

Acrylic Platform

Fossil Fuels

Refining:

Crude Oil &

Natural Gas

Dow Company Confidential

Acrylic Infrastructure – Supply/Cost Elements

Acrylic Acid

Feedstock

Supply/Costs

(Propylene)

Downstream Demand(End-use products using acrylic based

products – superabsorbents, coatings,

construction products, etc)

Acrylic Monomer

Supply

(BA, MMA, 2-EHA, etc)


CMAI DataContract Benchmark Stream ValueDelivered United States

CMAI DataContract Benchmark Stream ValueDelivered United States


Propylene - Tight Supply Drivers

� Global recession - Capacity Reduction

� Permanent closure of several steam crackers and refineries in 2009

�LyondellBasell, ChevronPhillips, Sunoco, Eastman, Dow

�Resulting in nearly 1.9 billion pound capacaity reduction – mainly chemical grade propylene

� Proliferation of Shale Gas Technology

� Increased natural gas liquids to market

� refineries adjusting to favor these lighter feedstocks over heavier weight feedslates from naptha and gas oil

� Net result is decrease in propylene production

� Capacity Closures + Shift to lighter feedstocks has reduced Polymer & Chemical grade propylene production 30%


Global Supply Effect

Past Present

• Multiple RM Suppliers• Reliable Backup Supply

• Few RM Suppliers• Poor Backup Supply


The Cost Out Effect

OverCapacity

GlobalCompetition

RMVolatility

OverCapacity

OverCapacity

MarginErosion

CostCutting

• Capacity • People• Assets• Inventory

Chemical Industry: Last 20 Years 2010

GlobalCompetition

RMVolatility

OverCapacityCapacity

Constraints

SupplyOutages


Economic Rebound as Fierce as the Decline

• Worst recession since Great Depression has led to biggest rebound in Chemical Industry history

– Adjusted production plans unable to keep pace with demand in all regions

– Leaders are responsibly managing supply, safety, relationships to ensure clear, consistent delivery


• Purchasing is rebounding much stronger than forecast

• Breadth of markets recovering is wide

• Suppliers are in new territory and coming up with new models to deliver on demand


Lean Infrastructure can’t handle Problems with Operations• 09 February 2010 HOUSTON (ICIS news)--LyondellBasell declared a force majeure (FM) on US olefins,

market sources said on Tuesday, citing supply restrictions due to a delay in the restart of the company’s Corpus Christi cracker in Texas.

• March 1, 2010: Shell Chemicals has declared force majeure on ethylene (C2) and propylene (C3) from its Moerdijk complex in The Netherlands and put all customers on allocation. Output of the site's cracker, with capacity for 900,000 t/y of C2 and 500,000 t/y of C3, had to be reduced following technical problems on 23 February.

• 04 March 2010 18:25 [Source: ICIS news] --Chevron Phillips Chemicals has declared force majeure (FM) on US olefins deliveries following an outage at one of its Sweeny crackers in Texas, market sources said on Thursday

• March 1, 2010 – Lyon, France – Despite all efforts developed to mitigate the effects of the Force Majeuredeclared on October 9th, 2009, Rhodia Polyamide is not yet in position to resume normal deliveries of its polyamide 6.6 products (ADN, HMDA, Nylon salt, Polymers, Engineering Plastics compounds and fibers).

• Mar 12, 2010 ... BASF has declared force majeure on acrylonitrile-butadiene-styrene (ABS in North America due to a shortage of butadiene feedstock

• April 7, 2010: Arkema Emulsion Systems will be implementing a sales control program on some acrylic latex products due to certain specific raw material supply constraints

• May 14, 2010 Chemical Week: Dow Chemical has declared force majeure on methyl methacrylate (MMA) in the U.S. due to production problems at its Deer Park, TX plant.

• May 14, 2010 Chemical Week: Lucite International placed contract MMA customers on allocation from its 155,000-m.t./year facility at Memphis, TN, further tightening the market, .


Dow: Deer Park, TX• MMA unit failure in April drives Force Majeure• GAA separations unit failure in Feb. drives Force Majeure

BASF: Freeport, TX• Crude Acrylic Acid issues in Q1

BASF: Nanjing, China• Propylene and Crude issues in January and Feb.

Arkema: Carling, France• TOTAL strike severely constrains Propylene. Potential impact to acrylates plants

Arkema: Bayport, TX • Explosion closes site

Arkema: Clear Lake, TX• Customers report on allocation

Formosa: Kaohsiung, Taiwan• Customers report limiting ester production to focus on GAA/SAP production

Sasol: Sasolburg, SA• Production issues drive outage and customers report force majeure through May

Lucite: Singapore• MMA disruptions in April

2010 Global Acrylates Production Disruptions Cut Across Companies and Regions

Lucite: Beaumont, TX • MMA and GAA failure leads to 60% allocation in Q1


Acrylic Monomer/Polymer Outlook

� Propylene supply is improving; May propylene prices declined following steady increase since Oct 09

� Monomer supply forecasted to remain tight through the 3rd Quarter

� Dow crude acrylic acid unit running at 100%, but other producers still have capacity off-line for repairs

� MMA remains most critical NA monomer issue in short term

�Dow;s DeerPark, TX unit is back up and running

� 75% force majeure allocation to run through 2nd week of June

� Plan is to return to 100% allocation 3rd week of June, but is subject to change

�Monomer and Polymer Inventories will take time to re-build

� Global monomer supply remains very tight

� High season demand for coatings and construction materials

� Expect improving availability and return to more normal lead-times as we get through summer


Supply & Pricing Outlook

� Suggestions for managing your requirements

� Stay in close communication with your suppliers regarding your forecasted needs

� Provide additional lead-times when possible

� Pricing Outlook

� Raw material costs remain very hard to predict

�Raw materials remain at peak levels but forecasted to soften, but potential volatility remains

�Forecast accuracies over past 18 months have been poor

� Supply forecast to remain snug

�Stronger demand through busy season

�Tight polymer supply through busy season

�Overall acrylic polymer prices expected to remain near current levels as long as

supply/demand balance remains tight and raw materials costs remain steady.


QUESTIONS


THANK YOU FOR YOUR ATTENTION AND FOR YOUR BUSINESS

may 20, 2010 savannah, ga - tappi 20, 2010 savannah, ga raw materials (methanol and urea) review and...

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