Company Confidential

Industrial Outlook – What next?

LORD CorporationKaren Sy-Laughner

Global Outlook

Who Knows? Data changes daily Government projections differ from that of the economists - even for the different countriesCouple of points:•US Economy is expanding, but at a slower pace than earlier this year•China and India continue to grow strongly, but they are highly dependent on the growth of both the US and European economies•Growth in the Americas is primarily in Brazil, Mexico, and Argentina. Canada’s growth is a bit faster than the US but very dependent on US trade •Europe is showing growth in Germany and England, but slower growth in England beginning to show. •Issues with debt and liquidity for Greece, Portugal, and Ireland

Global OverviewKey World Economic Outlook projections from January

2010 with September 2010 updates

• World growth. After contracting by 1 percent in 2009, global activity is forecasted to expand by 3.9% in 2010 and 4.3% in 2011. Numbers have been since revised downwards to 3.7% for 2011 as of September 10, 2010 by Scotia Bank Group

• Advanced economies: Medium term prospect of sluggish growth. Output in the advanced economies is now expected to expand by 2% in 2010. In 2011, growth is projected to edge up further to 2.1%. The US economy is expected to grow at 2.5% for 2011, slower than the original 2.8% projected earlier this year. Eurozone expected to be 1.1% for 2011 with stronger numbers for Germany and England. Core inflation remains under control.

• Emerging and developing economies: Outpacing the rest. Growth in Emerging and Developing Economies is expected to rise to 6 percent in 2010. In 2011, output is projected to accelerate further. Between 6.5-7% Stronger economic frameworks and swift policy responses have helped many emerging economies to cushion the impact of the unprecedented external shock and quickly re-attract capital flows. China is expected to grow 10% for 2010, and 9.3% for 2011. India’s numbers have been revised upwards to 8.3% for 2010 ( some as high as 8.8%) and 7% for 2011.

Source: World Economic Outlook Update: Policy-Driven, Multispeed Recovery – January 26, 2010, Scotiabank group 2010, Morgan Stanley Economic Forecasts September 2010

July 2010 Data on recovery remains mixed. IMF and the Fed predict that the factors for growth are solid - HIGHER THAN THAT OF ECONOMISTS

Advanced Economies 2010 Projections 2011 Projections

Advanced Economies 2.6 2.4

US 3.3 2.9

Euro Area 1.0 1.3

Germany 1.4 1.6

France 1.4 1.6

United Kingdom 1.2 2.1

Japan 2.4 1.8

Canada 3.6 2.8

Emerging and Developing Countries

6.8 6.4

Central and Eastern Europe 3.2 3.4

China 10.5 9.6

India 9.4 8.4

ASEAN 6.4 5.5

Middle East and North Africa 4.5 4.9

Sub-Saharan Africa 5.0 5.9

Brazil 7.1 4.2

Mexico 4.5 4.4

Reference: WEO Update July 2010 Data

World Economic Outlook

Historical Gross Domestic Product Growth 2006 – 2011– World– Advanced

Economies– Emerging

Developing Economics

Latest OECD Projections - note how with the numbers slow in the 3rd abd 4th quarters for US and UK.

Source: OECD, System of National Accounts database; Datastream; MarkitEconomics Limited; OECD Economic Outlook 87 database; and OECD Indicator Model forecasts.

Business Confidence has weakened – Purchasing Manager’;s Index

What is happening now? - Tepid growth except for developing countries

China GDP is expected to grow in 2010 between 10-10.5% and next year closer to 9-9.5% as the government tries to head off inflation.

China Daily from 09-06-2010 reports:” In spite of high jobless rates, Europe is registering strong economic growth and the recovery base in the US is broadening……For Chinese decision makers, all these sentiments and judgments are of no slight significance because their country’s economy is already deeply interwoven with the rest of the world.”They further proceed to state that “ The coming five years can be divided into two parts. After massive stimulus investment and because the global economy is more likely to grow at a slower pace, China’s economy may achieve moderate rate of about 8-8.5% in 2011-2012. After the first two years, China can have a stable 9% growth when the global economy is in better shape.

India’s economy is strong, with numbers revised upwards to end 2010 at 8.8% and 2011 at 8.4%.

Brazil will most probably end 2010 at around 7% growth, but that will slow to closer to 4.1% growth for 2011.

The US economy has started to slow in its growth projections from earlier this year. It is expected to grow 2.4% for 2011, which is slower. The adjusted numbers for GDP growth for the 1st quarter of 2010 is 2.4% and for the second quarter, it projected at 1.6%

Germany and England are showing strong recovery from the Eurozone –due to overseas demand for their products. China is the largest market for German automobiles, high luxury goods, and specialized equipment. Countries associated with similar export industries are also doing well like Sweden and France. However, Spain, Portugal, and Greece are still mired in some challenges.

How can Asia keep growing? Asian economies are still highly dependent on exports – so as the

global economy improved, greater demand for their products Sub-Saharan Africa’s economy has been growing at a steady pace,

with Asia being their largest trade partner Private domestic demand maintained momentum with the growth of

the middle class and buying power of overall population Demand for high item luxury goods continues to increase with

increasing wealth. Robust corporate profits and favorable financing in India China growth is driven by export rebound and domestic demand

coupled with government intervention to prevent over heating and maintain financial stability.

Risks are that any stalling in the European or American economy can slow growth. European bank situation is still tenuous. Asian banks, however, have the ability to deploy stabilizing measures.

Some positive indicators for the US economy

Companies are reporting strong earnings – hopeful that they would gain confidence that they would start hiring soon

Retail Sales (MoM):July Retail & Food Sales Revised to +0.3% from +0.4%; U.S. August Retail & Food Sales Ex-Autos rose +0.6%; U.S. August Retail & Food Sales rose 0.4%; Compared to Consensus of an increase by 0.3%.

Business Inventories (MoM): U.S. July Business Sales rose 0.7%; Gain is Biggest in Four Months; Increase in July Business Inventories is Biggest in Two Years; U.S. July Business Inventories rose 1.0%

IBD/TIPP Economic Optimism:U.S. September IBD/TIPP Economic Optimism Index 45.3 versus 43.6 in August.

Economic Markers 2010 for US

Statistics Data

Industrial Production 93.4%, up 7.7% over 12 months

Consumer Confidence Index 53.5% for August versus 51% in July.

Mining Output Mining output grew 0.9% over June, and is up 7.5% over July 2009

Manufacturing Output At 90.6%, up 7.7% over 12 months, rose 1.1% after declining 0.5% in June

Capacity Utilization Rate Reached 74.8% in July

Production index for durable goods manufacturing

Jumped 2.1% in July. Increases were widespread, with the larges in motor vehicles and parts, and in mineral products.

912

Markers still show improvement, even if slower

US Federal Reserve, August 2010 release

More positive news- Americas and Europe In the Eurozone, it is expected that 10 out of the 14 industries will grow in 2010, led

by motor vehicles by 19.5%. In 2011, 6 our the 14 will grow, primarily in the machinery and equipment building areas. For Central Europe, growth in 12 of the 14 industries for 2010 but in 2011, electronics will see some volatility.

– For Europe, production in non-high tech industries is expected to increase by 5.1% in 2010, and by 4.3% in 2011.

Latin America’s economies are showing a sharp V shaped recovery from 2009. Brazil, Argentina, and Mexico are responsible for more than 80% of the manufacturing output for the region. Overall Manufacturing output will grow 8.3% in 2010 and will decelerate to 3.7% growth in 2011 which is more manageable.

– Most of the growth in Latin America will be in food and beverage, machinery and equipment production, along with motor vehicles. These three categories make up 40-45% of total manufacturing output for the region.

US numbers while slowing still show that the manufacturing sector is recovering. The industrial rebound is stronger than the rest of the economy. Manufacturing has added over 100K jobs since the beginning of the year.

– Economic activity in the manufacturing sector expanded in August for the 13th consecutive month, and the overall economy grew for the 16th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

China and India India -14 of the 16 sectors for India show growth, with transportation equipment

and parts leading the pack at 17% and 15% respectively. Machinery and equipment are also growing strong at 12%. Other industrial, such as pulp and paper are expected to grow at 10%.

Stimulus related infrastructure investment will decline in China, but manufacturing production is still expected to grow swiftly. China’s growing middle class is growing faster than that of any other country’s and their need for consumer goods and necessities will help set the tone for China’s industrial output.

What is preventing us from faster growth? – Advanced Economies:

Banking crisis in Europe is still far from over - only purchaser of Greek Debt were other European governments.

New banking rules formed in Basel will further tighten lending standards:– The new rules would make banks roughly double the amount of capital set aside as a

buffer against possible losses, slash stockholder dividends and executive pay if that stockpile falls short, and limit lending during economic boom times. Goal is to curb lending in good times in the hope that asset bubbles won't give way to a costly bust.

– Arguments that this would further slow down the economic growth - Some financial industry analysts and groups have argued that the stricter standards would slow lending and economic growth.

Fiscal deficits, mounting public debt Broad unemployment. August unemployment numbers remain high - at 9.6%. Belief that

in 2011, unemployment will remain high at 9.1%. No lowering in numbers until 2012 where it is expected to go to 8.4% and then 7% by 2014.

Only started adding jobs, but 7.6MM jobs were lost in this recession and GDP contracted 4.1%.

Consumer Spending remains tight Companies are showing great profitability but hiring is still meager. Housing and construction still showing poor recovery. Only Lennar and Toll Bros show

some progress but it is from buying up loans New Home sales, pending home sales, and mortgage applications are at a 13-year low.

New home prices have plummeted 30% on average. 8 million home loans are in some state of delinquency and another 8 million have less than 5% equity in their homes.

Wall Street Journal – September 21, 2010

Unemployment Data

Deflation ?

With mounting public debt, large fiscal deficits, concern about deflation in the US .

Possibility – highly unlikely - if economy shrinks, we would just enter another recession - recession officially declared over as of June, 2009 – means period of declining activity has ended, not that the economy is healthy.

– Reasons: Institutional structure around the Fed and the political economy is

highly adverse to deflation Fed’s goal is not just monetary policy but also the inclusion of

employment. Fed’s inflation goals are made clear each announcement so investors understand. Accountability of Fed to Congress and need to testify before Sentate and House plays a huge role in terms of responsibility.

Fed has tools they can deploy to head off deflation.Dollar’s international role encourages discipline on US policyAging US population is not as rapid as that of Japan’s.US has run deficits for many years and is dependent on foreign

nations for financing. Japan has always balanced their budget, but yen is a more local currency.

Morgan Stanley-Global Economic Forum September 10, 2010 – “Crisis, Credit, and Capital”

Focusing on this region…..

The Mid-American region looks stronger than the national economy, said Creighton University Economics Professor Ernie Goss.

"Over the past several months, for example, the region has been adding jobs at a very healthy pace while U.S. job growth has been nil," he said in a statement. ( Reuters September 1, 2010)

Midwest Manufacturing Index

Interesting to note his the output is 13.1% higher than a year ago, much higher than the national average of 8.1%.

Individual key sectors for this regionAuto index is 27% above last year, Steel, highly dependent on auto is also significantly up. Auto industry still looks strong for 2011. Industrial production and Machinery is slower but still recovering. We expect strength in the agricultural and off-highway segments

Key sectors for this region – their performance

Industrial Rubber Goods- Outlook still shows growth on a macro scale

Global demand to rise 4% annually through 2011 –

– World rubber consumption is forecast to increase 4.0 percent annually to 26.5 million metric tons in 2011. US, China and Japan dominate global rubber consumption, and will continue to do so, collectively accounting for more than half of the market in 2011.

– China has become the leading consumer of rubber worldwide, following more than a decade of strong growth in motor vehicle production and industrial goods manufacturing. The country overtook Japan as the second largest rubber market in the late 1990s and by 2001 had essentially caught up to the US as the world's leading consumer. While China will continue to extend that lead, the US and Japan will remain leading markets worldwide.

Industrial Rubber Goods- Outlook

Non-tire rubber demand to outpace tire rubber –

– Non-tire rubber will outpace tire rubber demand through 2011, based on a favorable outlook for mid-range elastomers(e.g.,ethylene-propylene, nitrile and polychloroprene) used in components such as hoses, belts, gaskets and weather stripping.

Natural, synthetic rubber to both expand at strong pace –

– Demand for both natural and synthetic rubber will expand at a strong pace, but the division of the market will remain essentially unchanged through 2011, with synthetic rubber continuing to hold approximately 55 percent of demand and natural rubber holding the remaining 45 percent. General-purpose synthetic commodity elastomers -- typically defined as SBR (styrene-butadiene rubber), BR (polybutadiene rubber) and IR (polyisoprene rubber) -- account for the vast majority of synthetic rubber demand.

Resources

Bharat Book Bureau – Industrial Rubber Products forecasts for 2010 & 2017 US Department of Housing U.S. Census Bureau News– 2009-10 – U.S. Department of housing and Urban

Development – New Residential Construction in January 2010 – January 2009 World Energy Outlook - Online International Monetary Fund – Online Bloomberg, Citigroup Nomura Global Economics - 2010 Global Economic Outlook HSBC Purchasing Managers Index & Emerging Markets Index www.metalsplace.com - Metals and Mining Stock Review – Jan. 2010 – Industry

Outlook – January 7, 2010 www.federalreserve.gov/releases S&P Indices www.chicagofed.org Bureau of Labor and Statistics Morgan Stanley Reports OECD Reports