global chlor-alkali market report_summary

Page Legend Demand Price

8Asia: In Asia, caustic prices firmed amidst tighter spot availability. The earthquake and tsunami in Japan havecaused massive unplanned plant outages, resulting in much uncertainty on the short-term causticsupply/demand outlook in the region.

↑ ↗

15 Europe: Caustic soda in Europe is very balanced. Pricing plans are mixed as some producers target roll-overswhile others target increases of between €20 and €60 per dry metric ton. Spot prices are rising. ↔ ↑

24

United States: Contract prices were unchanged in March, but spot prices are responding rapidly to the crisis inJapan, removing any doubt about the upward direction of the market. Contract prices were stable in March butthe $40 per dry short ton price increase in April appears to have sudden strength, and producers have addedan additional $60 per dry short ton increase. Coastal prices will soon follow higher originating prices, anddistributors have announced increases. ‘Apparent’ demand is suddenly stronger as many sought to buymaterial before prices rose. Export volumes have been high covering issues in South America, and lostJapanese volume.

↔ ↑

33 Latin America: Domestic caustic prices in Brazil rolled over in March. Year-to-date demand is healthy butdomestic supply has been tight in 2011. ↔ ↔

12 Europe: Chlorine demand remains strong, with production to-date up by 7.3 percent on last year. ↑

20United States: Sellers have announced a $60 per short ton price increase, really aimed at second quartervolumes. Chlorine demand is expected to pick up in the second and third quarters as it typically does duringthese seasonally higher demand quarters. Chlorine demand for chlorine derivative exports is still very strong.

↗ ↔

37Asia: PVC price sentiment strengthens amidst worries of supply constraints as a result of unscheduled plantsshutdown in Japan. Prices for the entire vinyls chain are not just reacting to higher cash costs, but also thepsychological impact of large scale loss production in Kashima and Chiba.

↔ ↑

39 Europe: The PVC market is in pretty good shape demand-wise, but prices are not following rising ethylenecosts. ↔ ↔

40 United States: PVC domestic prices are poised to increase over the next couple of months, due to cash costincreases. PVC export demand still very good. ↔ ↑

KOH 43

KOH demand has been strong through the winter for deicing and is now very strong into agricultural chemicals.The market remains oversupplied and protective of market share, however. In an announcement that wouldseem to imply a long-term future for the Ashtabula KOH plant, Ashta Chemicals announced new ownership.

↑ ↑

HCL

22Contract acid prices seemed to remain flat in March, however higher end contract prices seem to have moveddown a little to narrow the contract range in many regions. Muriatic acid demand continues to be good. Acidinventories in March might have moved upward just slightly. Some spot tank car acid is still occasionally beingoffered, at fairly low prices.

↑ ↔

* Vinyls Demand and Price arrows are indications for PVC

CHLO

RINE

VINy

LS *

GLOBAL MARKET HIGHLIGHTS

CAUS

TIC

UP DOWN SLIGHTLY UP SLIGHTLY DOWN UNCHANGED

↑ ↓ ↗ ↘ ↔

UP DOWN SLIGHTLY UP SLIGHTLY DOWN UNCHANGED

↑ ↓ ↗ ↘ ↔

LOCALE Pricing Terms Listed UnitsU.S.$

Per Dry Metric Ton

NE Asia2 Contract Del'd TAI 310 - 330 5 - 15 ↑

NE Asia Spot, FOB NEA Port 310 - 325 15 - 20 ↑

W. Europe Contract, Del'd Cont. WE, €/DMT 370 - 400 521 - 563 12 - 13 ↑

W. Europe Spot, FOB Rotterdam 310 - 380 40 - 20 ↑

U.S. AAP, FOB USGC, $/DST 470 517 0 ↔

U.S. Spot, FOB USGC, $/DST 309 - 410 340 - 451 0 - 33 ↑

Brazil Contract, ex tank 540 - 700 0 - 0 ↔

Brazil Spot, CFR Santos 450 - 460 30 - 10 ↑1 Average or ranges for the month 2 Excludes China

Change From Last Month*U.S.$ Per Dry Metric Ton

CAUSTIC MARKET PRICES1

* Change may be due to currency conversion

This report is for the exclusive use of the client company. Distribution outside of the client company isstrictly prohibited without the prior written consent of Chemical Market Associates, Inc. (CMAI).

SUMMARY

GLOBAL CHLOR-ALKALIMARKET REPORT

ISSUE No. 202March 31, 2011

The prices presented herein are strictly the opinion of CMAI and are based oninformation 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 2011 All Rights Reserved

Eddie Kok Director, Asia [email protected] (65) 6224-8176 Marguerite Morrin Director, Europe [email protected] (44) 20 7766-6687 Joel Lindahl Director, North America [email protected] (281) 752-3218Steve Brien Global Business Director [email protected] (281) 752-3237

Bangkok ◆ Dubai ◆ Düsseldorf Houston ◆ London ◆ New York

Singapore ◆ Shanghai www.cmaiglobal.com

March 31, 2011 / Issue No. 202

Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Report

CAUSTIC PRICES FOR MARCH 2011

SPOT PRICES (1)

ASIA $/Dry Mton yen per Dry KG

Caustic -Taiwan (5) 282 - 300 310 - 330 Caustic - Japan (5) 480 - 502 528 - 552 43 - 45 264 - 273 290 - 300

Caustic - NE Asia spot (7) 282 - 295 310 - 325 Caustic - SE Asia CFR (10) 327 - 345 360 - 380

UNITED STATES $/Dry Mton $/Dry Mton

Avg. Acquisition FOB USGC (17) Avg. Acq. Chicago (14, 17) Avg. Acq. California (14, 17) Avg. Memb. Premium (3,USGC) Avg. Merc. Premium (3,USGC) Caustic - Total US spot (10,13,17) 309 - 410 340 - 451 Caustic - US spot domestic (10,17,18) 340 - 410 374 - 451 Caustic - US spot export (10,17,19) 309 - 373 340 - 410

WEST EUROPE $/Dry Ston $/Dry Mton Euro/Dry Mton Euro/Dry Mton

Caustic Soda Liq. (5,9,10,11) 473 - 512 521 - 563 370 - 400 220 - 270 310 - 380

Caustic Soda Pearls (5,9) 614 - 640 676 - 704 480 - 500 Caustic Soda Flakes (5,9)

Caustic - Scandinavia (FOB) N.W. Europe 358 - 384 394 - 422 280 - 300 Caustic - Italy (4,5) 486 - 499 535 - 549 380 - 390 220 - 270 310 - 380

LATIN AMERICA $/Dry Mton

Caustic - Mexico (14, Veracruz) 573 - 618 630 - 680Caustic - Brazil (14 16) 491 - 636 540 - 700 409 - 418 450 - 460

CONTRACT PRICES

$/Dry Ston $/Dry Mton

$/Dry Ston $/Dry Ston

60 66

$/Dry Ston $/Dry Mton

$/Dry Mton

$/Dry Ston

no transactions identifiedno transactions identified

$/Dry Ston

470 517560410 451

60 66

616 see footnote 13 below on u.s. spot prices and important

clarifying text in u.s. caustic section.

Caustic - Brazil (14, 16) 491 - 636 540 - 700 409 - 418 450 - 460

CAUSTIC TO ALUMINA FOB USGC FOB NEA FOB Middle East

EXCHANGE RATES (per U.S. $) Yen 81.47 Euro 0.71 CAD$ 0.98

(1) Spot is FOB or FAS, unless otherwise indicated, for (10) FOB Spot was lifted this month; CFR Spot was delivered product lifted during the month this month. CFR is before duties, tank charges, etc. (2) FOB TX & Louisiana producer's plant. Sales to large (11) Continental Europe prices buyers. Benchmark prices are negotiated transactions (13) U.S. Spot Caustic price is for spot export and spot domestic during the month, before caps & discounts barges. The low end of the range is typically representative of (3) Premium is only for sales to accounts that require spot export prices. The high end of the range is typically repre- membrane or mercury purity sentative of spot domestic prices. (4) Represents FOB spot prices in the Med (14) Contract, FOB tank or Ex tank (5) Delivered contract (15) Solution ton, trucks delivered, 22 Be (6) Before discounts (16) Spot is CFR Santos; landed this month (7) Spot is FOB NE Asia (China, Japan, Korea, Taiwan); lifted this month (17) U.S. caustic is sold on a 76% Na2O basis (8) 45% solution ton delivered; cents/lb = $ per 100 weight (18) U.S. spot domestic range, excludes export (9) Spot price is FOB Rotterdam (19) U.S. spot export range, excludes domestic

Note: 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.

This report is for the exclusive use of the client company. Distribution outside of the client company is strictly prohibited without the prior written consent of Chemical Market Associates, Inc. (CMAI).

1H = 200; 2H = 2401H = 200; 2H = 240

All prices $/Dry Mton, 2010.

Q1 = 155; Q2 = 200; Q3 = 230; Q4 = 290 See U.S. Caustic text.

Price Pages


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportPRODUCT PRICES FOR MARCH 2011

CONTRACT PRICES SPOT PRICES (1)

UNITED STATES $/Mton $/Mton

Chlorine (Chemical 2) 300 - 330 330 - 363 250 - 270 275 - 297

HCL Midwest (Chicago/St. Louis) (15) 105 - 125 116 - 138

HCL Northeast (15) 125 - 150 138 - 165

HCL Southeast (15) 145 - 175 160 - 193

HCL Gulf Coast (15) 85 - 110 94 - 121

HCL West Coast (15) 155 - 175 171 - 193

HCL Ohio Valley (15) 90 - 115 99 - 127

Sodium Chlorate (Crystal, 5, 6) 585 - 645 644 - 710

Potassium Hydroxide (8) 610 - 750 671 - 825 30.50 - 37.50

EDC Export (Mar) (2) 400 - 420 440 - 462 20.00 - 21.00

ASIA $/Mton $/Mton

EDC (CFR NEA, 10) 473 - 491 520 - 540

VCM (CFR China, 10) 855 - 859 940 - 945

EXCHANGE RATES (per U.S. $) Yen 81.47 Euro 0.71 CAD$

(1) Spot is FOB or FAS, unless otherwise indicated, for (10) FOB Spot was lifted this month; CFR Spot was delivered this product lifted during the month month. CFR is before duties, tank charges, etc. (2) FOB TX & Louisiana producer's plant. Sales to large (11) Continental Europe prices buyers. Benchmark prices are negotiated transactions (13) U.S. Spot Caustic price is for spot export and spot domestic during the month, before caps & discounts barges. The low end of the range is typically representative of spot (3) Premium is only for sales to accounts that require membrane or mercury purity of spot domestic prices. (4) Represents FOB spot prices in the Med (14) Contract, FOB tank or Ex tank (5) Delivered contract (15) Solution ton, trucks delivered, 22 Be (6) Before discounts (16) Spot is CFR Santos; landed this month (7) Spot is FOB NE Asia (China, Japan, Korea, Taiwan); lifted this month (17) U.S. caustic is sold on a 76% Na2O basis (8) 45% solution ton delivered; cents/lb = $ per 100 weight (18) U.S. spot range, excludes export domestic (9) Spot price is FOB Rotterdam (19) U.S. spot export range, excludes domestic


This report is for the exclusive use of the client company. Distribution outside of the client company is strictly prohibited without the prior written consent of Chemical Market Associates, Inc. (CMAI).

export prices. The high end of the range is typically representative

$/Ston Cents/Lb. $/Ston

$/Ston Cents/Lb. $/Ston

0.98

Price Pages



Historical Prices Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11

CAUSTIC SODAUnited States (FOB USGC) $/DST

Avg. Acquisition FOB USGC 295 350 360 360 370 370 400 430 455 470 470 470

Avg. Acquisition Chicago 375 445 460 460 460 460 490 520 545 560 560 560

Avg. Acquisition California 350 350 350 360 360 360 360 375 385 395 395 410

Avg. Memb. Premium 40 40 50 60 60 60 60 60 60 60 60 60

Spot Low 173 177 191 218 218 245 273 318 327 327 309 309

Spot High 230 240 270 290 290 310 350 370 390 390 380 380

West Europe (Delivered Cont) Euro/DMTCont. Merc. Continental Low 240 250 250 250 250 250 250 350 350 350 370 370

Cont. Merc. Continental High 270 270 270 270 270 270 270 390 390 390 400 400

West Europe (Delivered Cont) $/DMTSpot, All Grades, FOB

Rotterdam Low 180 200 235 240 220 250 330 350 380 400 300 350

Rotterdam High 200 210 245 250 240 260 350 370 390 440 370 360

Asia $/DMTCont. Membrane Delivered

Taiwan Low 260 280 290 290 280 270 260 270 280 300 300 305

Taiwan High 270 290 300 300 300 280 270 290 300 320 310 315

Spot Membrane

N.E. Asia Low FOB 190 205 220 230 220 205 225 240 265 290 295 295

N.E. Asia High FOB 210 225 230 250 240 225 235 260 275 310 305 305

S.E. Asia Low CFR 230 230 260 270 260 250 260 270 300 350 340 340

S.E. Asia High CFR 250 250 270 280 270 260 270 290 310 360 350 355

CHLORINEUnited States (FOB USGC) $/ST

Cont. Chemicals Low 295 295 295 295 320 320 320 320 320 320 300 300Cont. Chemicals High 325 325 325 325 350 350 350 350 350 350 330 330Cont. Chemicals Wtd. Avg. 310 310 310 310 335 335 335 335 335 335 315 315Spot Chemicals Low 240 240 230 260 300 330 320 300 275 250 250 250Spot Chemicals High 275 275 260 300 350 350 350 310 300 280 270 270

VINyLSEDC Export Contract (FOB USCG, c/lb) 20.50 21.50 22.00 20.50 17.25 17.25 18.50 19.50 20.50 20.50 19.50 19.50

EDC Spot (CFR NEA, $/MT) 510 520 530 510 450 450 490 520 540 510 485 495VCM Spot (CFR China, $/MT) 850 850 855 805 750 760 815 850 885 908 890 900

EXCHANGE RATESYEN/$ 92.80 93.17 89.94 89.27 86.90 84.71 84.22 81.50 83.61 82.90 82.90 82.90Euro/$ 0.75 0.76 0.82 0.81 0.77 0.79 0.74 0.72 0.75 0.76 0.76 0.76


Price Pages



FOCUS ON JAPAN: CHLOR-ALKALI IMPACT

The situation in Japan is fluid and has roiled spot markets. The earthquake will also drive lasting impacts in a number of industries. The chlor-alkali chain has definitely begun to react to the shifting market dy-namics as both supply and demand are suddenly being interrupted. Short term, it is helpful and practical to examine the impact on the supply side of chlor-alkali and vinyls, while the impact on demand is less visible but still very important.

The Japan Key Statistics table provides some insight into the importance of Japan’s contribution to the global caustic markets. While Japan now represents only six percent of global capacity, and exports are around eight percent of global trade, Japan is an extremely important trading partner to Australia’s huge alumina industry. The alumina industry typically operates at steady rates and consumes massive volumes of caustic soda monthly. A disruption of the supply chain from a major sourcing country is cause for im-mediate action by alumina producers.

We have included the operating schedule tables for chlor-alkali and PVC from the most recent CMAI Japan Update, a report that is being updated and sent to CMAI clients regularly throughout this period of rapidly changing events in Japan. These tables here are pertinent to only chlor-alkali and vinyls, while the Japan update covers a wide range of product families.

sPecial focus

2008 2009 2010

Japan Caustic Capacity 4,972 5,047 5,047Percent of Global Capacity 7% 7% 6%

Japan Caustic Exports 665 722 658Percent of Global Trade 8% 9% 8%

Japan Exports to Australia 517 547 520Percent of Australian Imports 28% 29% 27%

Annual Australian Imports 1,853 1,893 1,922

Japan Key Statistics: Caustic Capacity, TradeThousand Dry Metric Tons

Company Location

Capacity(-000- metric tons)

Action CommentsPercent of Japanese Capacity

Percent of NE Asian Capacity

Asahi Glass Chiba 208 Operational Low operating rates due to restricted power supply 4.8 0.5


Asahi Glass Kashima 235 Shutdown May be down for several months. 5.4 0.6

Kashima Chlorine Kashima 345 Shutdown May be down for several months. 7.9 0.9

Total Capacity Shutdown = 13.3 1.5

Japan Chlorine Operating Schedule Update - Plants Impacted



Demand for caustic soda has also been impacted in Japan. Some industries have been closed directly by the earthquake and tsunami, while others have felt the reduction of available electricity or other supply chain disruptions. The pulp industry has idled a number of pulp mills, for example.

It is too early to determine the net impact or the duration of curtailments. The market is, however, reacting quickly and spot prices are rising globally on the concern that the alumina industry will source material from other regions and drive caustic towards tightness.

The Japan situation has caused CMAI to raise price forecasts in several regions. Please refer to the regional sections in this month’s report.

sPecial focus

Company Location

Capacity (-000- metric tons)



Kaneka Corp Kashima 145 Shutdown May be down for several months 7.3 0.6


Shin Daiichi Chiba 80 Operational Low operating rate due to power supply issue. 4.1 0.3

Shin-Etsu Kashima 550 Shutdown May be down for several months 27.9 2.1

Taiyo Vinyl Chiba 100 Operational Low operating rate due to power supply issue. 5.1 0.4


Japan PVC Operating Schedule Update - Plants Impacted

Company Location Type of PulpCapacity

(-000-) Metric Tons

Percent of Japanese Capacity

Mitsubishi Paper Mills Hachinohe, Aomori BHK 585 2.8%Mitsubishi Paper Mills Hachinohe, Aomori BSK 849 4.1%NPG Iwanuma, Miyagi THP 420 2.0%NPG Iwanuma, Miyagi Deinked pulp 514 2.5%NPG Ishinomaki, Miyagi TMP Ground Wood Pulp 108 0.5%NPG Ishinomaki, Miyagi Stone Ground Wood Pulp 100 0.5%NPG Ishinomaki, Miyagi BSK 91 0.4%NPG Ishinomaki, Miyagi BHK 260 1.2%NPG Ishinomaki, Miyagi Other 84 0.4%NPG Ishinomaki, Miyagi Deinked pulp 370 1.8%NPG Fuji, Shizuoka BHK 380 1.8%Oji Paper's Nikko,Tochigi BHK 36 0.2%Hokuetso Paper Niigata, Niigata TMP Ground Wood Pulp 720 3.4%

Total 4517 21.6%

Japan Pulp - Plants Impacted



ASIA CHLOR-ALKALI ECU FORECAST

-90

0

90

180

270

360

450

540

630

-100

0

100

200

300

400

500

600

700

06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 Q3

Chlorine Value (Asset Shared) Contract Caustic (Memb, del'd TAI)ECU Cash Margin ECU Value

forecast

Dollars Per Metric Ton Dollars Per Short Ton

~

Northeast Asia* Chlor-Alkali Quarterly ECU Economics

Asset Share Methodology

*Excludes China

-90

0

90

180

270

360

450

540

-100

0

100

200

300

400

500

600

05 06 07 08 09 10 11 12 13 14 15

Chlorine Value (Asset Shared) Contract Caustic (Memb, del'd TAI)ECU Cash Margin ECU Value

forecast


~

Northeast Asia* Chlor-Alkali Annual ECU Economics


*Excludes China

2011 2012Qtr-2 Qtr-3 Qtr-4 Qtr-1

ENERGyNortheast Asia Electricity, (Cents/Kilowatt hour) (1) 4.51 4.77 4.78 4.89 5.08

Caustic (Membrane; Dry Metric Ton del'd Taiwan) 310 - 330 357 363 373 363Asset Share Chlorine Value into Vinyls (FOB) 9 30 68 17 (3)ECU (FOB basis) (1) 336 398 443 402 372ECU average Cash Margin (FOB; based on CMAI membrane model) (18) 38 80 36 (1)

(1) Average for large Chlor-alkali/Vinyls producers in Japan, Korea, & Taiwan.

Current Price

NORTHEAST ASIA CHLOR-ALKALI ($/MT)

-5

0

5

10

15

20

25

30

35

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

NEA CAV ROI vs. Ethylene/Polyethylene ROI

Chlor-Alkali/Vinyls ROI Ethylene/Polyethylene ROI ~

forecast

Percent

0

10

20

30

40

50

60

70

80

90

100

0

220

440

660

880

1,100

1,320

1,540

1,760

1,980

2,200

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Northeast Asia PVC Spot HDPE Blow Molding

Northeast Asia PVC Vs. HDPE Prices

Dollars Per Metric Ton

forecast

Cents Per Pound

asia ecu forecast



ASIA CAUSTIC SODA by Eddie Kok

ASIA CAUSTIC SODA HIGHLIGHTS

• Causticpricesfirmedamidsttighterspotavailability • Average spotprices forMarch loadingfirmed toa levelof$310-$325perdrymetric tonFOB

Northeast Asia • Theunfortunateevents inJapan resulted inmuchuncertaintyon the short-termcaustic supply/

demandoutlookintheregion

Prices: In Asia, causticpricesfirmedamidsttighterspotavailability. The March 11 earthquake and tsu-nami that hit Northeastern Japan caused devastating damages to infrastructure and plants, particularly those located in the Kashima area. On the caustic front, the immediate market reaction was filled with concerns that regional supply may become tighter as a result of large scale unscheduled downtime. Below is a list of the Japanese chlor-alkali plants affected by the incident. Plants in Kashima will likely take a longer time to recover due to the extensive damages at those facilities, while plants located in Chiba should recover faster. Currently, the recovery period for these plants has not been ascertained. As a percentage of total production for Japan, the affected output appears substantial. While caustic consuming capacity has been affected, the net effect was greater on producing capacity. We expect production capacity, mostly located in the western part of Honshu Island, that was not affected by the earthquake will need to operate at full capacity to cover the loss of production in Kashima and Chiba. The short-term implication will be less caustic available for export out of Japan.

Based on CMAI’s assessment, average spot prices for March loading firmed to a level of $310-$325 per dry metric ton FOB Northeast Asia. In reaction to the unscheduled shutdowns in Japan, most Chinese exporters have taken a wait-and-see approach in nominating offers for spot caustic. Chinese producers that have volume for export have reported brisk sales for most of their April allocations. Earlier deals were reportedly done at a level of $330-$340 per dry metric ton FOB China. As buying frenzy sets in, subsequent deals were reportedly done at a level of $380-$400 per dry metric ton. At the time of writing, Chinese producers’ asking level for May parcels has escalated to $450 per dry metric ton FOB China. In

asia caustic soDa

Company Location

Capacity(-000- metric tons)





Asahi Glass Kashima 235 Shutdown May be down for several months. 5.4 0.6

Kashima Chlorine Kashima 345 Shutdown May be down for several months. 7.9 0.9


Japan Chlorine Operating Schedule Update - Plants Impacted



the Southeast Asian market, caustic import prices have also firmed relative to February levels. Deals done for March delivery settled mostly at a level of $360-$380 per dry metric ton CFR Southeast Asia, about $25 per dry metric ton higher than last month. Offer prices for April/May delivery continue to rise, with most suppliers asking level surpassing $450 per dry metric ton CFR Southeast Asia. Cash Cost/Margins: The caustic scoreboard shows CMAI’s projections for ECU cash costs, values and margins in Northeast Asia. The recent roll out of a higher energy price forecast for the short- and mid-term has an impact on the overall cash costs for ECU and the vinyls chain. With the new energy and higher cash costs, forecast prices for both caustic and PVC were adjusted higher. The net impact from these changes is that both ECU cash costs and values have increased, while margins remained at about the same level as before.

MonthNEA Spot Average, $/Dry MT

Change Month-to-

Month, $/Dry MT

Domestic Taiwan

Delivered, $/Dry MT

Change Month-to-

Month, $/Dry MT

Oct 10 250 20 280 15 Spot move higher, pull from other regional marketNov 270 20 290 10 Higher import replacement cost, support Taiwanese priceDec 300 30 310 20 Spot upward trend starting to lose momentum

Jan 11 300 0 305 -5 Taiwan caustic import duty drop from 2.5% to nil. Feb 300 0 310 5 Stable pricesMar 318 18 320 10 Tighter spot availabilityApr *350 32 340 20 *EstimateMay 360 20 Demand improvementJun 370 10 Demand/supply balancedJul 370 0 Demand/supply balancedAug 360 -10Sep 360 0

2010 - 2011 NEA Caustic Price Table

CommentsH

IST

OR

yF

OR

EC

AS

T

asia caustic soDa

10-11 11-122010 2011 2012 % Change % Change

Capacity 38,422 42,417 43,895 10.4 3.5Production 27,859 29,443 31,119 5.7 5.7Imports 309 181 158 (41.4) (12.7)Operating Rate, % 72.5 69.4 70.9 Exports 3,409 3,574 3,536 4.8 (1.1)Apparent Demand 24,760 26,050 27,741 5.2 6.5Caustic Soda Prices ($/DMT) 281 351 356 25.1 1.3ECU Value ($/ECU) 349 370 392 6.2 6.0ECU Cash Costs ($/ECU) 348 361 380 3.8 5.2ECU Cash Margins ($/ECU) 1 9 12 1135.6 39.6

Based on published statistics and CMAI assessments.

NORTHEAST ASIA CAUSTIC SODA SCOREBOARD 2010 - 2012

Thousand Dry Metric Tons


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportThe bottom line is that the higher energy environment is expected to result in higher product prices, but this may not necessarily translate to better margins. The recent natural disaster in Japan may have the potential to cause short-term caustic and PVC prices to go higher than usual, but in the long-term, the fundamental supply/demand factor should still hold. The region still has excess capacity, thus plant uti-lization rates are expected to stay low as more expansions come on stream in 2011 and 2012. The start-up of new capacities, particularly in China, where more than 3.5 million dry metric tons of new caustic capacity will come on stream over the next 9 to 12 months, could dilute this region’s plant utilization rate to about 70 percent in this year and the next.

Market (Supply/Demand):TheunfortunateeventsinJapanthatresultedinmassplantoutageshavecausedmuchuncertaintyontheshort-termcausticsupply/demandoutlookintheregion. The immedi-ate market reaction was that of confusion and the situation was exacerbated by several unsubstantiated market-related news stories circulating. Most sellers are expecting supply to tighten, followed by a firm-ing of prices. Fundamentally, any significant scale of unscheduled production loss will have a short-term impact on the supply/demand balance. Initial speculative buying will have an impact on increasing spot prices. However, demand is expected to have a bigger impact on price support. Regional caustic demand has been doing rather well over the past few months and pricing momentum is expected to gather strength as we move towards Q2, 2011. The recovery in key sectors, such as alumina and pulp & paper, and an increase in manufacturing activities are helping to stimulate caustic consumption growth in the region. Our short term caustic price forecast is reflected in the price table. The CMAI benchmark caustic price for Taiwan’s domestic market is projected to escalate at a slightly higher quantum. We expect domestic prices in Taiwan to continue to firm in April and May due to demand improvement and much higher im-ported caustic replacement costs.

asia caustic soDa



WEST EUROPE CHLOR-ALKALI ECU FORECAST

-200

-100

0

100

200

300

400

500

600

06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 Q3

Chlorine Value (Asset Shared) Contract Caustic, Del'dECU Value ECU Cash Margin

forecast

Euros Per Metric Ton

West Europe Chlor-Alkali Quarterly ECU Economics

~


-50

0

50

100

150

200

250

300

350

400

450

500

550

600

05 06 07 08 09 10 11 12 13 14 15

Chlorine Value (Asset Shared) Contract Caustic Del'dECU Value ECU Cash Margin

forecast


~

West Europe Chlor-Alkali Annual ECU Economics


2011 2012Qtr-2 Qtr-3 Qtr-4 Qtr-1

ENERGyWest Europe Electricity, (Euro Cents/Kilowatt hour) (1) 5.96 6.43 6.52 7.23 7.30West Europe Electricity, (U.S. Cents/Kilowatt hour) (1) 8.34 8.98 9.09 9.96 9.90

Caustic (Dry Metric Ton delivered) 370 - 400 370 385 390 350Asset Share Chlorine Value into Vinyls (FOB) (47) (3) 10 15 100ECU (FOB basis) 344 372 400 412 452ECU average Cash Margin (FOB; based on CMAI merc/memb model) 16 27 53 40 75

Caustic (Dry Metric Ton delivered) 521 - 563 517 537 537 474Asset Share Chlorine Value into Vinyls (FOB) (66) (4) 13 21 136ECU (FOB basis) (1) 484 520 559 567 613ECU average Cash Margin (FOB basis) 22 38 74 55 102

(1) Average for Continental West Europe.

Current Price

WEST EUROPE CHLOR-ALKALI (Euro/MT)

WEST EUROPE CHLOR-ALKALI ($/MT)

0

5

10

15

20

25

30

35

40

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

WEP CAV ROI vs Ethylene/Polyethylene ROI


forecast

Percent

400

900

1,400

1,900

2,400

2,900

95 97 99 01 03 05 07 09 11 13 15

WEP PVC vs. HDPE Prices

WEP PVC Contract HDPE (Blow Molding)


~

forecast

west euroPe ecu forecast



WEST EUROPE CHLORINE by Marguerite Morrin

WEST EUROPE CHLORINE HIGHLIGHTS

• ECUmarginstorecoverin2011and2012–ifcausticsodapricesremainstrongrecoverywillbebetterthanwewereinitiallyprojecting

• Chlorinedemandto-dateisupby7.3percentonlastyear• Positiveoutlookforchlorinedemandin2011,2012

Prices/Margins: The chlorine value used by CMAI in our economic model is a calculated figure. In the absence of a market price for chlorine in West Europe, CMAI uses a derived chlorine value based on vi-nyls prices, the largest chlorine demand sector, and on an asset based margin-sharing formula between the chlor-alkali and vinyls businesses. During most of 2010 the chlorine value was negative, which, in effect, means that chlorine had to make a greater contribution to the ECU in line with weak caustic soda prices. The fourth quarter hike in caustic soda prices lowered the price for chlorine to PVC and the chlorine value has remained negative since November last year. High caustic soda prices are helping to subsidize the low returns in the PVC industry. PVC margins remain extremely weak.

We estimate that ECU cash margins in West Europe in 2010 were amongst the lowest the industry had ever seen. As described in the West European Scoreboard weareprojectingagradualrecoveryinECUmarginsoverthecomingtwoyears.Itisclearthatcausticsodaplaysakeypartintermsoftheoverallhealth of the ECU. If the producers can manage to hold on to reasonably high caustic soda prices the margin environment could recover more quickly than we were initially projecting.

Market (Supply/Demand): West European chlorine production in February totalled about 773 thousand metric tons which was 6.3 percent lower than January but 5.3 percent higher than in February 2010. On a per-day basis, production in February was very strong; it was, in fact, the highest daily rate since January 2008. On a cumulative basis, production in the first two months of 2011 totalled about 1.6 million metric tons, whichwasupby7.3percentcomparedtothefirsttwomonthsof2010. We estimate that West European producers operated at about 91 percent of capacity in February, up from 87 percent in February 2010.

west euroPe chlorine

WEST EUROPE CHLORINE PRODUCTIONThousand Metric Tons

Date 2010 2011 Change % 2010 2011 2010 2011 Change %

January 756 825 9.2 81 88 756 825 9.2February 734 773 5.3 87 91 1,490 1,598 7.3March 793 85 2,282April 782 86 3,064May 819 87 3,883June 791 87 4,674July 830 89 5,503August 848 90 6,352September 739 82 7,091October 785 84 7,876November 812 90 8,687December 784 84 9,471Average yTD 745 799 7.3% 81 89Source: Euro Chlor; CMAI estimates

Monthly Production Op. Rate % Cumulative Production


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportAnwil’s chlor-alkali unit in Po-land has been down since last June due to technical problems when the plant’s three rectifiers were destroyed in an accident. Anwil hopes that next month they will be able to operate with two rectifiers. In addition, Vestolit continues to struggle operationally following plant problems which developed at its chlorine plant at Marl,Germany, in July last year.

There are several maintenance outages scheduled over the com-ing weeks/months. In Febru-ary, Ineos took its mercury cell chlorine plant at Runcorn down for a scheduled two-week outage; in the end, the outage took a bit longer than scheduled. Ineos then took down its membrane cell capacity at Runcorn during the first week of March for two weeks; again, there were reports of delays when restarting. Ineos has a five-week VCM outage scheduled in Wilhelmshaven, Germany commencing at the end of March. The chlor-alkali plant in Wilhelmshaven will be taken down at the start of the VCM outage for about ten days. After the German maintenance work is completed, Ineos is to take its VCM plant at Rafnes down for a one-week maintenance shut down – one of the membrane cell chlorine plants at the site will also be taken down during this period for maintenance.

Arkema is carrying out a scheduled two-week maintenance outage at its two chlorine plants at Lavera this month. In addition, Akzo Nobel is to take its 620 thousand metric ton per year chlorine plant at Botlek in the Netherlands down for a four-week maintenance outage starting at the end of March. Dow has a major three-week maintenance outage scheduled for Stade in May; the chlorine capacity at Stade totals 1.6 mil-lion metric tons. Vinnolit may lose some chlorine production in Knapsack in May as they have scheduled to take their EDC/VCM plants down for three days.


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West Europe Chlorine Production Per Day

2010 2011

Thousand Metric Tons

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2010 2011 2012 10/09 11/10 12/11Capacity 11,302 11,281 11,281 -1.7 -0.2 0.0Operating Rates % 83.8 85.3 86.9Production 9,471 9,619 9,809 12.6 1.6 2.0Imports 10 10 10 0.0 0.0 0.0Total Supply 9,481 9,629 9,819 12.6 1.6 2.0Domestic Demand 9,475 9,627 9,817 12.6 1.6 2.0Exports 6 3 3 100.0 -50.0 0.0Total Demand 9,481 9,630 9,820 12.6 1.6 2.0

Chlorine Value (€/mt del) 40 1 159ECU Cash Margins (€/mt) 13 40 81

West Europe Chlorine Scoreboard-000- Metric tons Percent Change


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportOuroutlookforchlorinedemandoverthenexttwoyearsispositive. It is unlikely, though, that we will see the same step change in growth as seen in 2010, when in the initial stage of the recovery, we saw a very sharp increase of 12.6 percent. Nonetheless, the growth outlook remains pretty healthy. One factor which may limit overall growth is the fact that there has been a lack of investment in many of the key chlorine end-uses in Europe during recent years, which will limit chlorine growth in certain applications.


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a monthly market summary• clients will also receive the • Europe PVC Price Report twice monthly access to our online price database with both monthly and an-• nual price history and forecastsreasonable access to the regional consultants•

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WEST EUROPE CAUSTIC SODA HIGHLIGHTS

• Pricingplansaremixedassometargetaroll-overwhileotherstargetincreasesofbetween€20 and€60perdrymetricton

• CausticsodainEuropeisextremelybalanced • Inventoriesincreaseforthethirdconsecutivemonth • Onacumulativebasisdemandforthefirsttwomonthsof2010increasedbyabout14percent, or1.1milliondrymetrictons,versusthesametimeperiodof2010 • Intotal,WestEuropeanaluminaproductionin2010increasedby21percenton2009

WEST EUROPE CAUSTIC SODA by Marguerite Morrin

Prices/Margins: Most producers in Europe, although not all, are targeting a price increase for aque-ous caustic soda effective April 1. As usual, there is a wide range in terms of what is being targeted. The Spanish producer Ercros is targeting a roll-over. Inaddition,reportssuggestthatsomeproducersaretargetingincreasesinbetween€20and€30perdrymetricton.Meanwhile,bothDowandVinnolithavereportedlyannouncedanincreaseof€50perdrymetricton,whileIneoshasannouncedanincreaseof€60perdrymetricton.

This month, there was continued pressure on caustic soda prices in the Mediterranean. Prices in Italy and Spain have, though, been at a premium versus the rest of Europe – as such, these changes bring the prices more in line with European averages. We understand that the average prices for both countries are now between €380-€390 per dry metric ton delivered.

Spot caustic soda prices in March were headed lower prior to Japan’s crisis,currently prices are in a range of $310-$380 per dry metric ton FOB Northwest Europe and the Mediterranean, compared to $350-$360 per dry metric ton FOB in February.

Anhydrous caustic soda: Solid caustic soda prices remained stable in recent months, in a range of €480-€500 per dry metric ton delivered.

west euroPe caustic soDa

Country/Region Basis Q4 10 Q1 11 Feb 11 Mar 11 Change**

Aqueous Caustic SodaWest Europe Avg* €/dmt Del. 350-390 370-400 15UK €/dmt Del. 380-390 380-410 10Nordic €/dmt FOB Rott. 260-290 280-300 15Spain €/dmt Del. 400-410 380-390 -20Italy €/dmt Del. 380-400 380-390 -5Spot - Mediterranean $/dmt FOB 350-360 310-380 -25Spot - N.W.Europe $/dmt FOB 350-360 310-380 -25Anhydrous Caustic SodaWest Europe Avg.* - Pearls €/dmt Del. 480-500 480-500 0Spot - Mediterranean $/dmt FOB n/a n/a n/a* Estimated weighted average price for Continental Europe

** Price change March versus February or Q1 versus Q4

Europe Caustic Soda PricesQuarterly Monthly


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportMarket Forecast: Chlor-alkali margins in 2010 were very weak. Caustic soda prices averaged lower than in 2009 while PVC economics were also very poor. We are forecasting that the industry will start to recover in 2011.

After a sharp increase in caustic soda prices at the end of last year, 2011 is start-ing off with a fairly high caustic soda price level. Theoretically, as chlorine demand continues to recover in 2011 this should support a balanced caustic soda market. We could expect that this balanced situa-tion will encourage buyers to push against the prevailing high caustic soda prices. However, there are a number of significant chlor-alkali outages scheduled during the end of Q1/Q2. These outages are likely to cause caustic soda to tighten consider-ably in Q2; however, that tightness may not be visible early enough to support an increase for second quarter discussions. At the same time, it is likely that there will not be any big decrease. If the industry avoids any big decrease in the second quarter, this will set it up for a healthy caustic average for the year and will sup-port better margins than might otherwise have been expected.

Based on our overall projections for chlo-rine and caustic soda supply and demand in 2011, we are forecasting that, on aver-age, caustic soda prices in 2011 will be higher than in 2010.

Market (Supply/Demand): Caustic soda in Europe is currently extremelybalanced.There are no problems with availability. Caustic stocks in West Eu-rope increased by 10,000 dry metric tons at the end of February to about 264,000 dry metric tons. This is the thirdmonthinarowforstockstoincrease. It is clear that some of the stock increase is due to producers building inventories ahead of


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Chlorine Value (Asset Shared) Contract Caustic, Del'dECU Value ECU Cash Margin

forecast


West Europe Chlor-Alkali Quarterly ECU Economics

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West Europe Chlor-Alkali Annual ECU Economics


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Caustic Soda Inventory Av Inv Level Caustic Soda Price Av Price Level

Thousand Dry Metric Tons Euros Per Dry Metric Ton, Delivered

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West Europe Caustic Inventory vs. Price


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Reportthe large number of scheduled outages that are coming up over the coming weeks/months. This is a very comfortable stock level for West Europe and is in line with the average long-term stock position.

Industry statistics suggest that domestic demand for caus-tic soda in February totalled about 760,000 dry metric tons, a decline of 7.9 percent versus January. Onacumulativebasisdemandforthefirsttwomonthsof2010 increasedbyabout14percent,or1.1milliondrymet-ric tons, versus the same timeperiod of 2010. This compares to a decline in chlorine production over these relative time periods of 7.3 percent. With just two months of statistics available at this stage it is difficult to de-fine a trend. Last year demand was seen to be strong across all key applications, including the chemicals sector. Today the picture is somewhat mixed. In many parts of Europe demand is reported to be very strong. Although there are some areas of weakness. In particular, markets in the Mediterranean region, in-cluding Italy and Spain, seem to be a bit weak.

Alumina represents about four percent of West European caustic soda demand. Alumina production recovered strongly last year. Intotal,WestEuropeanaluminaproductionin2010increasedby21percenton2009. It is clear from the graph, though, that alumina production is still below trend. However, alumina production in West Europe may not recover to pre-recession levels. A one million metric ton per year alumina refinery in Italy was closed in 2009 for market reasons – this closure is thought to be permanent. As such, if this refinery remains idled, this will obviously mean a permanent loss in both alumina production and caustic soda demand in Italy.


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Domestic Demand Exports Average Annual Monthly Demand


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West Europe Caustic Soda Demand

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West Europe Pulp vs. Alumina

Chemical Pulp Chemical Pulp -Annual Qtr. Av. Alumina

Chemical Pulp - Million Metric Tons Alumina - Million Metric Tons

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We are forecasting positive growth for caustic soda demand over the next two years, albeit at a more modest pace than in 2010.


2010 2011 2012 10/09 11/10 12/11Capacity 11,651 11,630 11,630 -1.7 -0.2 0.0Operating Rates % 85 86 88Production 9,897 10,052 10,250 12.6 1.6 2.0Imports 285 300 280 -24.2 5.3 -6.7Total Supply 10,182 10,352 10,530 11.1 1.7 1.7Domestic Demand 9,704 9,903 10,059 12.7 2.1 1.6Exports 454 445 490 -20.1 -2.0 10.1Total Demand 10,158 10,348 10,549 10.7 1.9 1.9

Caustic Soda Prices (€/mt del) 286 383 313ECU Value (€/mt) 323 389 470ECU Cash Costs (€/mt) 310 349 389ECU Cash Margins (€/mt) 13 40 81

West Europe Caustic Soda Scoreboard-000- Metric tons Percent Change

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U.S. CHLOR-ALKALI ECU FORECAST

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NAM PVC vs. HDPE Prices

NAM PVC Contract HDPE (Blow Molding)

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NAM CAV ROI vs. Ethylene/Polyethyene ROI


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U.S. Chlor-Alkali Quarterly ECU Economics

Contract Chlorine (Chem, FOB USGC) AAP Caustic (FOB USGC)ECU Value (AAP Cau) ECU Cash Margin

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Market Price Methodology

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U.S. Chlor-Alkali Annual ECU Economics


forecast



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2011 2012Qtr-2 Qtr-3 Qtr-4 Qtr-1

ENERGyWest Texas Intermediate (Spot; $/Barrel) 102.81 102.72 99.50 103.14 105.45Natural Gas, ($/Million BTU; U.S. Gulf Coast Burnertip) 3.89 3.92 3.80 4.45 4.93U.S. Electricity, (Cents/Kilowatt hour) (1) 3.49 3.52 3.43 3.89 4.25

HCL (Short soln ton, del'd St. Louis/Chicago, 22 Be) 105 - 125 115 115 120 125Caustic (Avg. Acquisition, Dry Short Ton, FOB USGC) 470 520 523 453 420Chlorine (Chemicals; forecast is based on average) 300 - 330 340 360 345 320ECU (2) (based on Avg. Acquistion Caustic) 832 907 931 844 782ECU average Cash Margin (based on CMAI diaphragm model) 468 535 559 467 403

(1) Typical natural gas to cogen power. CMAI calculated (not discovered) electricity price.(2) Calculated ECU, does not represent market value for an ECU buyer.

Current Price

U.S. CHLOR-ALKALI ($/Short Ton, FOB USGC)

u.s. chlor-alkali ecu forecast



Prices/Margins: ThecontractchlorinepriceintochemicalsforMarchremainedinarangeof$300-$330pershortton. Chlorine demand is expected to pick up in the second quarter. Most chlorine demand end-use segments are expecting very good second and third quarters, barring any unexpected downtime. Also, the chlorine derivative demand of exports is still very strong, so any improvement in domestic de-mand just adds up to a fairly solid chlorine demand scenario for the summer months.

SpotchlorinepricesduringMarchremainedflatinarangeof$250to$270pershortton. The spot chlo-rine market, still small in volume, showed signs of stabilizing rather than any further decreases in price. Chlorine derivatives for export are still experiencing strong demand levels; also strong are the derived chlorine values in these exports.

InFebruary,theindustryoperatedat90percentofcapacity,withyear-to-datevolume7.2percenthigherthan thesame twomonths in2010. CMAI expects chlorine production in the first quarter of 2011 to increase roughly five to six percent compared to the fourth quarter of 2010; with February’s production level, 2011 is off to a good start.

u.s. chlorine

U.S. CHLORINE HIGHLIGHTS

• ThecontractchlorinepriceintochemicalsforMarchremainedinarangeof$300-$330pershortton

• SpotchlorinepricesduringMarchremainedflatinarangeof$250to$270pershortton• InFebruary,theindustryoperatedat90percent

U.S. CHLORINE by Steve Brien

Month Low High Avg CommentsOct 320 350 335Nov 320 350 335 Seasonal demand drop

Dec 320 350 335 Seasonal demand drop

Jan 300 330 315 Slower demand resulted in some price erosion

Feb 300 330 315Mar 300 330 315Apr 0 0 340 Seasonal demand pick up as bleach season starts

May 0 0 340 Seasonal demand pick up as bleach season starts

Jun 0 0 340 Seasonal demand pick up as bleach season starts

Jul 0 0 360Aug 0 0 360Sep 0 0 360Jul 0 0 300

2010-2011 U.S. Chlorine Price Table

HISTO

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FOR

ECAST


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Report u.s. chlorine

By year’s end, chlorine production in 2011 is expected to be about five percent higher than 2010 levels, mainly due to increased demand in all end-use segments. Operating rates have increased and ECU mar-gins remain high. Expectations for 2012 show increased production levels of about three percent, with ECU margins continuing to stay at very good levels. However, margins will decrease somewhat due to more capacity coming on-line.

U.S. CHLORINE PRODUCTIONCHLORINE PERCENT CUMULATIVE PERCENT NEW CMAIINSTITUTE CHANGE FROM MONTHLy CHANGE FROM NAMEPLATE

PRODUCTION PREVIOUS yEAR PRODUCTION PREVIOUS yEAR OP. RATE(-000- ST/Day) (%) (-000- ST) (%) (%)

2007 34.8 3.2 12,708 3.1 91.7

2008 31.5 -9.5 11,535 -9.2 82.3

2009 28.1 -10.8 10,253 -11.1 77.2

2010 J 30.9 16.9 959 16.9 85.8F 30.9 6.7 1,823 11.8 85.0M 32.9 38.4 2,843 20.1 91.4A 33.0 22.1 3,835 20.6 92.0M 29.6 11.8 4,751 18.8 81.8J 32.4 14.2 5,722 18.0 89.3J 32.6 12.0 6,733 17.0 89.1A 33.9 8.4 7,782 15.8 92.4S 33.6 15.1 8,790 15.7 92.5O 29.7 1.6 9,712 14.2 82.0N 31.0 4.1 10,642 13.2 85.5D 30.8 11.7 11,598 13.1 85.1

2010 31.8 13.1 11,598 13.1 87.6

2011 J 33.8 9.4 1,049 9.4 93.2F 32.4 4.8 1,955 7.2 90.0

Production Source: The Chlorine Institute Capacity Source: CMAI

U.S. CHLORINE MARKET FACTORS2010 - 2012

Thousand Metric Tons% Change

2010 2011 2012 10-11 11-12Capacity 12,480 13,011 13,425 4.3 3.2 Production 10,755 11,279 11,593 4.9 2.8 Imports 307 358 358 16.9 - Operating Rate, % 86.2 86.7 86.3ECU Margin, US$/MT 406 411 331 1.2 (19.4)



(*Allpricingandvolumesinthissectionareforhydrochloricacid22Besolutionshorttons,unlessoth-erwisestated)

U.S. HyDROCHLORIC ACID by Steve Brien

U.S. HYDROCHLORIC ACID HIGHLIGHTS

• InMarch,Midwestpriceswereinarangeof$105-$125pershortton• Steelproductionthisyearisstillontracktooutpacelastyear

Prices/Margins: During the first quarter, there were several acid supply side interruptions which kept the market in balance. However, in March it seems like most of the supply side interruptions are over and acid supply is readily available. With most of the byproduct acid coming into the market combined with burner acid supply, there were several incidences of some very low priced spot acid tank cars being offered. The drastic increases and decreases in supply and demand that hap-pened in early 2009 caused CMAI to show the widely different prices across various parts of the U.S. These price differences are due to market dynamics that vary between regions and the freight, etc., involved in getting acid delivered to an end user. MajorU.S.averagepricesformuriaticacidintotheMidwestinMarchremainedinarangeof$105to$125pershortton,delivered.

Market (Supply/Demand): Acid demand in the steel and oil industry continues to be growing. Oil rig count and drilling continues to improve. The MDI and TDI industry seems to be running good and pro-

u.s. hyDrochloric aciD

22 Be, Trucks Delivered Dollars Per Short Ton

RegionMidwest (Chicago/St. Louis) 105 - 125Northeast 125 - 150Southeast 145 - 175Gulf Coast 85 - 110West Coast 155 - 175Ohio Valley 90 - 115

Price Range

U.S. HCL Regional PricesMarch 2011

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Delivered MidwestU.S. Hydrochloric Acid Quarterly Prices

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viding more acid in the market compared to 2010 levels. HCL pipeline flows into EDC are consistent. Acid inventories for March might have risen slightly due to higher byproduct acid production.

The American Iron and Steel Institute (AISI) reports raw steel production year-to-date through March 26 is 21.8 million tons, while average operating rates are 73.5 percent. This represents a 8.1 percent increase over the same period in 2010, when oper-ating rates were only averaging 69.4 percent. Steel production thisyearisstillontracktoout-pacelastyear.

u.s. hyDrochloric aciD

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U.S. Quarterly Steel Production vs. HCL Consumption

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Muriatic Acid Market ScoreboardMarch 2011

PriceItem Direction Effect Comment

Acid Demand Demand continues to be good

Derivative Production Acid production from MDI, TDI, and fluorocarbons strong during March

HCL Pipeline Volumes Pipeline flows of anhydrous acid are steady

Chlorine Burners Burners running hard

Muriatic Acid Inventory Acid inventories slightly up



Prices/Margins: Last month, we reported that the market was seeking direction as the signals remained muddled or mixed. At mid-month March, a clear market signal arrived in the form of a natural disaster. Spot prices have reacted sharply to the reports of outages in Japan, and global spot prices are on the rise. Whereas USGC producers were facing mixed prospects for a price increase in April, the mood and poten-tially the underlying supply/demand balance have shifted toward higher prices.

CMAIhasmateriallyrevisedourpriceforecastforUSGCpricesbecausetheeventinJapancreatedasupplyproblemthatwilllikelybefeltglobally. Prior to the earthquake and the problems created by it, the U.S. caustic market was steady, with prices that had not moved materially in several months. The manner in which producers achieved consensus for a price increase (slow to follow the initial announcement, for example) left most observers feeling that higher prices were not necessarily on the way. By mid-March, a price increase on chlorine was solidly in play, which always seems to further the notion that caustic simply did not have the market fundamentals to be successful. In the end, it appeared that without price movement in the spot markets, contract prices were not likely to move. Spot prices in early March were steady with February, if not showing some slight weakness.

Producersfollowedtheexisting$40perdryshorttonpriceincreasewithanadditionalincreaseof$60perdry short ton. The push by producers for higher prices will take front-and-center in April. Even though the initial $40 per dry short ton price increase was announced back in January, the market has not had a clear direction since then. But, the situation in Japan has had a major effect on the spot market, and is creating the justification for higher prices. The $40 increase will be an April event for producers. All major produc-ers followed a second increase of essentially $60 per dry short ton initiated later in March. The timing of this increase will be after April to most accounts.

The market is described as tight, especially for membrane, but no one reported having any difficulty sourcing material early in March. Once the concern over Japan began to take hold, a major spurt of buying activity tried to keep ahead of price increases.

Japan’scrisisiscreatingaglobalchangeinmarketdynamics. Here are the mechanics of the Japan issue: loss of production will impact Japan exports. Roughly 13 percent of Japan’s capacity is offline, with some

u.s. caustic soDa

U.S. CAUSTIC SODA by Joel Lindahl

• CMAIhasmateriallychangedourpriceforecastfortheshortterminresponsetotheJapancrisis

• Japan’scrisisiscreatingaglobalchangeinmarketdynamics• TheCMAIAverageAcquisitionPriceforMarchis$470perDSTFOBUSGC,stablecompared

toFebruaryandJanuary• Producersfollowedtheexisting$40perdryshorttonpriceincreasewithanadditionalincrease

of$60perdryshortton• SpotpriceshavespikedupwardquicklyinresponsetothecrisisinJapan• OlinpurchasedthefiftypercentofSunbeltthattheydidnotalreadyownandPPGandEquaChlor

havereachedagreementforPPGtopurchasetheLongview,WAcompany• Newbrine-to-bleachprojectsareslatedfortheU.S.• U.S.causticsodaproductionforFebruaryremainedinasimilarrangeasJanuary,showing

demandstrengthinearly2011

U.S. CAUSTIC SODA HIGHLIGHTS


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Report u.s. caustic soDa

in partial operation due to electricity shortages. Japan exports primarily to alumina buyers in Australia. Imports from Japan account for nearly one-third of the Australian supply. Without Japanese caustic, alu-mina buyers will source from elsewhere including China, Korea, USGC, etc. Please refer to CMAI’s Japan Update Report, updated frequently, for more details. Speculation that several plants in the Kashima area will be down and power will be restricted for many months is suggesting a longer-term impact to this crisis. Demand is down as well, but supply losses exceed demand cuts.

Because of the Japanese outages, China’s export prices have leaped from $330-$340 per dry metric ton to over $400 per dry metric ton. China prices drive U.S. West coast prices. U.S. producers will have higher global prices to sell into, and higher U.S. coastal prices to compete against. Both of these situations suggest USGC prices will rise as well. To no surprise, then, spot prices for USGC material have already spiked significantly.

The events in Japan have affected global prices and have caused CMAI to raise caustic prices in our forecast. Because spot prices have responded so swiftly, we believe this provides the opening for USGC producers to implement the existing price increase of $40 more swiftly and completely. Buyers will push back, but the market is different today from just a few weeks ago.

2008 2009 2010

Japan Caustic Capacity 4,972 5,047 5,047Percent of Global Capacity 7% 7% 6%

Japan Caustic Exports 665 722 658Percent of Global Trade 8% 9% 8%

Japan Exports to Australia 517 547 520Percent of Australian Imports 28% 29% 27%

Annual Australian Imports 1,853 1,893 1,922

Japan Key Statistics: Caustic Capacity, TradeThousand Dry Metric Tons

Month AAP USGC

ChangeMonth-to-Month

Last yr's Price Comments

Oct 10 430 + 30 210 Price increase activity continues - 1st+ partial 2nd increaseNov 455 + 25 220 Tightness continues - partial 2nd increase, $50 delayedDec 470 + 15 220 Tightness continues- partial implementation $50 increaseJan 11 470 + 0 245 Stalled price efforts, new announcementsFeb 470 + 0 280 Stable market, looking for directionMar 470 + 0 295 Contract prices stable, global spot prices rising rapidly (Japan)Apr 510 + 40 350 Producers implementing $40, Japan problems increasing pricesMay 520 + 10 360 Implementing $60, global prices, Japan status better knownJun 530 + 10 360 Global prices at new levels, tightness remains an issueJul 530 + 0 370 New capacity in startup stages, coastal prices higherAug 530 + 0 370 Prices stabilizingat new higher global levelSep 510 - 20 400 First opportunity for buyer relief

2010-2011 U.S. Caustic Price Table

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We have looked at recent historical events in our region and can make some comparisons between Japan’s situation and hurricanes in 2005 and 2008 in the U.S. In 2005, the U.S. lost more than 25 percent of capacity to Katrina/Rita, and the market tightened considerably. Prices jumped from around $300 on the spot market to around $475 per dry short ton in two months. In 2008, the market was already tight and prices again shot upward. But, those were events in this region.

Japan has more of their capacity offline, as a percentage, than USGC producers had offline during 2005, and, until damage assessments clear the picture, for an unknown period. On the other hand, Japan’s total capac-ity is smaller than the U.S., so the loss of actual capacity is less than during the hurricanes. Furthermore, the losses are on the other side of the world, buyers here will point out. The reason we believe this event is important is because the Japanese plants are large suppliers to Australian alumina producers, who will now source material from around the globe. Chinese prices responded first…

TheCMAIAverageAcquisitionPriceforMarchis$470perDSTFOBUSGC,unchangedfromFebruary.The USGC CMAI Average Acquisition Price Index (AAP) is an average price index paid for contract vol-ume, whether it is negotiated monthly or quarterly, before discounts. On the topic of discounts, the level of discounting applied to the CMAI index is increasing over time, especially at annual contract periods. As discounts increase, the spread between price markers can differ from after-discount prices. Further, as prices increase, a twenty percent discount is larger compared to when prices are low, in actual dollars discounted.

Asian prices have moved up, reaching a reported $400 per dry metric ton level for April, with higher prices still to come. It appears the next shipments to arrive on the West Coast will arrive at much higher prices.

Our California price is an estimated average of prices in Northern California (San Francisco) and Southern California (Los Angeles). The California AAP index is posted at $410 per dry short ton, ex-tank. Higher freight rates and higher FOB prices from Asia have already nudged the coastal prices a little higher, but the crisis in Japan is creating a much larger jump in prices. There are more signs from Asia that material is still increasing in price. Recognizing the future pricing of arriving material, distributors along the West Coast are announcing price increases. The current price differential between FOB Asia and US West Coast no longer ‘works’, given costs of delivery, etc. Substantial price increases are ahead for buyers. Distributors have an-nounced two increases, roughly equaling $130 per dry short ton.

Prices along the East Coast have been on an upward trend in recent weeks, as we assess that recent import arrivals are landing at higher prices from Europe. The critical shortages of caustic in Europe have dissipated and very high spot prices in Spain and Italy have come down, but material sourced into the U.S. from Europe still reflects a rising trend. The Japan crisis has led to immediately higher spot prices from Europe and latest prices FOB Europe are also in the $400 per dry metric ton. This obviously implies much higher import prices on the East Coast once the material arrives. There is not much spot available, according to recent reports, and prices jumped quickly. Prices in the U.S. Southeast (USSE) for the month of March are $400-$420 per dry short ton FOB tank range. Again, distributors see higher input costs ahead and are announcing price increases.

In the Midwest and up north into Chicago, concerns over higher Gulf Coast prices are meeting up with worries over logistics. Flooding possibilities grow as the spring thaw arrives. Heavy snowfall and cold temperatures suggest possible flooding if a warm-up is rapid. Forecasters are projecting flooding in the upper Mississippi basin regardless, with serious flooding and disruptions a strong potential. Distributors have jumped in to ‘buy mode’ creating an apparent demand in excess of actual demand. In March, prices in the Midwest/Chicago region remained in the same price range as in February, and the Chicago AAP index was $560 per dry short ton ex-tank for the month.



SpotpriceshavespikedupwardquicklyinresponsetothecrisisinJapan. Spot activity was quiet early in March, even though overall flow into the export market remained healthy. Prices were indicating some downward movement, in fact. Supply of extra material into Brazil was a notable situation, but overall, the market was not able to break out of steady prices for several months. During the week of March 14, the market began to assess the Japan situation and prices moved rapidly.

Spot prices are moving upward as we close the month. Our report considers the latest available prices, but also indicates where prices were at the beginning of the month. At the low end of spot export, diaphragm material was reportedly being sold at $340 per dry metric ton in early March. At the time of this report, deals were done at the $410 per dry metric ton level, with offers in the $420+ range. Material was report-edly sold to Australia in the $380 per dry metric ton range soon following the Japan incident, but material is apparently no longer available at that level. The spot export range is wide at $340-$410 per DMT.

The spot export range is for large volume shipments from the U.S. Gulf Coast, typically ship or barge ship-ments. We attempt to identify repeatable values, not necessarily the absolute highest or lowest prices heard. Our spot price ranges do not differentiate membrane from diaphragm, but in today’s market, it can be assumed that the lowest prices are for diaphragm material, with the high end of the range being set by membrane. One key criteria we strive for is to characterize a price range that two freely negotiating parties on a true spot basis would be likely to settle within, excluding any deals that are particularly unique and not repeatable.

Domestic spot prices remained fairly quiet in early March and spiked quickly at mid-month. The price range for domestic material started at essentially January levels, with signs of weaknes on diaphragm. The market has been anything but quiet in the second half of the month, with late-month deals much higher than front-month deals. Our domestic spot price range in March is assessed at $340-410 per dry short ton. We stress that our range is for the month of March in total. At the end of the month, prices at the low end of the range were not remotely available.

Our range for overall spot, which comprises the highest and lowest ends from both export and domestic ranges, expressed in dry short tons, covers prices between $309-$410 per dry short ton.

There is no change in the status of alumina agreements, now much more current and likely to trend with closer to spot prices. Prices are now negotiated on an on-going basis, remaining confidential and between parties. Prices into the alumina industry in the first quarter followed the recent pattern of individual agree-ments and settlements on a per-transaction basis. Those per-transaction prices have jumped due to several planned Japanese shipments being delayed or cancelled. Alumina producers experience extreme costs if operations are disrupted.

Margins for producers remain healthy and could increase sharply if caustic prices do react to the global situation created by the Japanese earthquake. Cash costs are stable in the U.S., and chlorine values have an opportunity to rise due to strong demand, and price increases are in place. Market (Supply/Demand): The market is expected to tighten due to demand for export material. The market in the U.S. remains reasonably balanced to tight, but not to the point that any market price movement has occurred in several months. The production side of the USGC ledger has been fairly strong and any excess caustic soda has been readily absorbed in the export market. Demand has been good and steady.

USGC material will be an option to replace volumes lost in Japan, and global markets are scrambling to rebalance. Without clear price direction in recent months, some distributors and large buyers have chosen to stay on the low side of inventories, unwilling to stock up in such a drifting market and miss the chance


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Reportfor falling prices. With a stronger price market now more likely, many of these buyers are suddenly inter-ested in parcels ahead of higher prices. So, as March has proceeded, there has been a surge in ‘demand’ following the Japan disaster, both for exports and for inventories here in the U.S.

Otherwise, we would characterize demand as good-to-strong, with most end-uses within normal ranges of activity for this time of year. It is too early for bleach season, however, and producers have been citing this seasonal demand as a reason for tighter markets ahead.

In ownership news, OlinpurchasedthefiftypercentofSunbeltthattheydidnotalreadyown. The caustic soda output from the Sunbelt JV has always been marketed by Olin, so this represents little change in the caustic market. Separately, PPGhasannouncedagreementhasbeenreachedwithEquaChlorforthepurchaseoftheLongview,WAfacility. The deal gives PPG greater geographic coverage and improved logistics.

Our quarterly view of the fore-cast for caustic demand shows much less growth in 2011 com-pared to the growth in 2010, but continued recovery from the recession. Pulp, alumina, and inorganics have already made most of the recession losses back, while in 2011 we anticipate the ‘Other’ category to continue good growth. This sector includes numerous end-uses in general manufacturing, which is lagging in the recovery. We will re-evaluate anticipated exports as Japanese outage news is available.

On an annual view, the figures that grab one’s attention on the Caustic Soda Scoreboard are related to the new capacity being installed in 2010-2012, with more on the horizon in 2013. The new capacity in 2010-2011 is related predominantly to vi-nyls (and exports or vinyls) and will generate more new caustic soda than domestic demand can consume.

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10 Q2 Q3 Q4 11 Q2 Q3 Q4 12 Q2 Q3 Q4

U.S. Caustic Soda Quarterly Demand

Net Exports 7.3*

Others 4.9*

Inorganics 1.7*

Soap/Det/Text 2.9*

Organics 4.4*

Alumina 3.0*

Pulp & Paper 2.2*

Million Dry Short Tons

forecast

Domestic Demand AAGR 10/11 = 3.0%

Domestic Demand AAGR 11/12 = 1.2%

~* %AAGR 2010-11

2010 2011 2012 10-11 11-12Capacity 13,229 13,820 14,279 4.5 3.3Production 11,373 12,107 12,220 6.4 0.9Imports 897 875 830 (2.4) (5.2)Operating Rate, % 86.2 88.0 86.3

Exports 2,067 2,175 2,223 5.3 2.2Domestic Demand 10,261 10,668 10,691 4.0 0.2Inventory Change (58) 139 136

U.S. CAUSTIC SODA SCOREBOARD 2010 - 2012

Thousand Dry Metric Tons% Change


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportThe balance of supply and demand will be met by the net trade balance, which will need to continue to shift toward greater export volume. Our supply balance takes additional exports to South America and the Caribbean into account as pulp and alumina expand, but these figures understate any short-term impact of the loss of production in Japan.

Newbrine-to-bleachprojectsareslatedfortheU.S. There are several smaller chlor-alkali projects just announced in the U.S. which continue to address the need for chlorine and bleach to be produced near the demand. Kuehne recently announced one such new project. They have inked plans to construct a modular plant in S. Kearney, NJ. Also, a new project was announced by FSTI and DPC Industries to install a salt-to-bleach unit in the Denver area, slated for start up in Q3 2011. These important projects reduce net chlorine transport as an important objective.

Demand is described as good in some circles, robust in others, but there is no outright bullish view on demand at the moment. Seasonal demand is still a few months away, but overall, demand is good enough to keep caustic flowing at a steady pace to buyers.

U.S.causticsodaproductionforFebruaryfellslightlyfromtheJanuaryoutput. February results were in line with expectations given relatively light outage activity. There was a brief stoppage at Canexus and planned outage work at Olin. Demand for chlorine has been good in PVC and other derivatives, and bleach season is yet to come.

For the year, production is well ahead of 2010. With a number of chlorine derivatives doing well in the export market, operating rates for chlor-alkali have been driven strongly in 2011 compared to 2010. At this pace, the industry is poised for back-to-back growth years, recovering substantially from the recession.

u.s. caustic soDa

COMPANy LOCATION PROCESS 2010 2011 2012 2013 2014Allied Universal Fort Pierce, FL (11) 10 30 ---- ---- ----Dow Freeport, TX (1) (66) ---- ---- ---- ----Dow/Mitsui JV Freeport, TX (2) ---- ---- ---- 440 440FPC USA Point Comfort, TX (2) ---- 48 144 ---- ----K2 Pure Solutions Pittsburg, CA (10) ---- 50 50 ---- ----Olin Augusta, GA (3) ---- ---- ---- (120) ----

Charleston, TN (2) ---- ---- ---- 110 ----Charleston, TN (3) ---- ---- ---- (160) ----

SHINTECH Plaquemine, LA (2) 15 163 ---- ---- ----Plaquemine, LA (2) ---- 265 265 ---- ----

Westlake Calvert City, KY (2) 35 ---- ---- ---- ----Geismar, LA (2) ---- ---- ---- 125 125

SubTotal - (1) Diaphragm cell (66) ---- ---- ---- ----TOTAL - United States (6) 556 459 395 565

United StatesCAUSTIC

Capacity Expansions/Closures(-000- Dry Metric Tons)



For 2011, the operating rate includes new capacity at Shintech as they have completed the startup of the remaining portion of their Plant I at Plaquemine. So, even though production is up over 2010 by almost seven percent percent, operating rates have improved less than that amount.

Market Forecast: The outlook for the next several quarters is provided in the U.S. ECU Eco-nomics chart. A swift change in the forecast period is now reflected in the chart. We have raised our price outlook for the next several quarters reflecting higher global values that are occurring due to the series of events in Japan. This event is one of the ‘surprises’ a ‘surprise-free’ forecast could not predict. Below the surface of product prices, the next several quarters through 2011 are facing a rising base energy component, but it is the supply disuption in Japan that has generated the higher

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U.S. Chlor-Alkali Quarterly ECU Economics


forecast


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U.S. CAUSTIC PRODUCTIONCHLORINE PERCENT CUMULATIVE PERCENT NEW CMAIINSTITUTE CHANGE FROM MONTHLy CHANGE FROM NAMEPLATE

PRODUCTION PREVIOUS yEAR PRODUCTION PREVIOUS yEAR OP. RATE(-000- Dry ST/Day) (%) (-000- Dry ST) (%) (%)

2007 36.64 3.2 13,374 3.2 91.6

2008 33.04 -9.8 12,061 -9.8 82.1

2009 29.62 -10.4 10,811 -10.4 75.9

2010 J 32.26 17.7 1,000 17.7 83.0F 32.54 7.3 1,911 12.5 83.7M 34.64 38.6 2,985 20.7 89.0A 34.68 20.8 4,025 20.7 89.1M 31.06 11.3 4,988 18.8 80.0J 34.01 14.9 6,009 18.1 87.4J 34.19 7.7 7,068 17.0 86.9A 35.38 6.0 8,165 15.4 89.9S 35.57 13.9 9,232 15.2 91.1O 31.46 1.9 10,207 13.8 80.4N 32.75 2.6 11,190 12.7 83.7D 32.38 13.4 12,193 12.8 82.8

2010 33.41 12.8 12,193 12.8 85.6

2011 J 35.66 10.5 1,105 10.5 90.6F 33.73 3.6 2,050 7.2 86.4

Production Source: The Chlorine Institute Capacity Source: CMAI


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Reportprice scenario. Rising global oil prices affect ECU cash costs here very little until the price of natural gas is pulled upward. As a result, our model holds ECU cash costs reasonably flat in 2011, save for typical natural gas price seasonality. The price rise has both a short-term (significant) component and a longer-term impact (persistent) component.

We see the ability of USGC producers to export EDC, VCM and PVC ‘at will’ as the key to rising caustic soda production in this region. Our forecast remains ‘shaped’ the same as we have had for some time now, even though the tight conditions persisted longer due to global supply problems. We believe the Japan situ-ation will bring prices higher in Asia, allowing USGC producers to raise prices as well while maintaining arbitrage differentials as they are currently. Eventually, though, new capacity here will put downward pres-sure on prices, but the floor will have been raised in other regions.

As we approached the end of 2010, evidence that pulp and alumina have largely recovered (already) sug-gested that the upside for demand growth on chlorine exceeds the upside for caustic demand growth in 2011. Importantly, this view is not driven by domestic growth on the chlorine demand curve. Rather, it arises from the ability of the USGC producers to export chlorine in the form of PVC. Caustic demand has recovered earlier than chlorine demand in 2010 and further growth on the caustic side will be lower in 2011. Caustic demand growth in 2011will be far less than in 2010.

There is no change in our view that caustic capacities and chlorine export opportunities tied to export ad-vantaged vinyls production will add net additional caustic production. In the short term, we are forecasting that the vinyls chain will be operated at quite high rates, using exports as the key to greater production.

Shintech has started chlor-alkali capacity at Plaquemine, LA, but it is not known how hard this new capac-ity is running. Similarly, the Dow operating rate is being closely guarded. Around the mid-point of 2011 or earlier, Shintech will begin commissioning a much larger increase of capacity at their so-called Plant II, also in Plaquemine. We have also heard that Formosa’s new capacity in Point Comfort, TX, will likely be a mid-year event. Both companies have renewed incentive to bring this capacity online.

The result of these asumptions is a slowly declining caustic price profile in late 2011 and 2012, but from a higher price than we forecast last month. Until more is known regarding events in Ja-pan, it appears that higher prices are here for a lasting period.

The forecast of ECU values and cash costs over the next several years reflects our concern that in the next two to three years, new capacity will be added in the U.S. to support vinyls projects, gener-ating an increase in production of caustic soda. Now from a higher initial price, our view is such that

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U.S. Chlor-Alkali Annual ECU Economics


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Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Reportthe economy will not grow sufficiently to absorb all of the caustic soda readily, and prices for caustic soda will moderately decline during the period.

The outlook for the period would seem to indicate a greater reliance on exports, likely into South America, where pulp mill expansions are on the books. Export prices will need to be maintained at a sufficiently low price level so as to keep other producing regions out of the South American market. But other regions have raised prices in response to Japan, allowing USGC export prices to rise as well. Cash margins for producers are forecast to higher than previous forecasts through the period.

The PVC chain is benefitting from the U.S. natural gas advan-tage, which will allow producers to continue to export PVC (and EDC and VCM) at high levels. Other molecules tied to natu-ral gas are benefitting as well, including HDPE. These two polymers have differing demand profiles in the domestic market, but in the large diameter pipe market, both are suffering from a lack of construction spending in the U.S. The short-term outlook is for improving PVC economics in exports. Spot PVC prices are rising due to issues in Japan, a key PVC exporter.

The long-term view of the relationship between PVC and HDPE does show that as energy and ethylene prices increase, HDPE is affected more than PVC, but the competition between the two polymers keeps prices within certain historical bounds. We use this relationship of two competing polymers to establish long-term PVC prices. The PVC price drives the value of chlorine in the CMAI Asset Sharing Model, and is one of the forecast elements for chlor-alkali pricing.

With a cost advantage created by the low cost natural gas market here in the U.S., production of vinyl prod-ucts depends ultimately upon exports. Every caustic buyer in the U.S. today should be aware that without this advantage, there would be a severe shortage of caustic soda and prices would be extremely high indeed. It is exports of PVC that generate fully fifteen percent of all U.S. produced caustic soda.

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NAM PVC vs. HDPE Prices

NAM PVC Contract HDPE (Blow Molding)


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forecast



LATIN AMERICA CAUSTIC SODA by Joel Lindahl and Ana Gamboa

latin aMerica caustic soDa

Prices/Margins: DomesticcausticpricesinBrazilrolledoverinMarch. Contract prices stayed in the range between $540 and $700 per dry metric ton ex-tank for the third month in a row. Spotprices,onthecontrary,havefirmed, supported by tight market conditions, and are quoted between $450 and $460 per dry metric ton CFR Santos.

In Mexico, domestic contract prices rolled over from February in a range between $630 and $680 per dry metric ton. Price increases seem feasible for April, as caustic prices in the USGC have strengthened lately.

Market (Supply/Demand): Industry statistics for February show a deep cutback in Brazil’s production. Much of this is due to the power outage that affected the northeastern part of the country that month. Caus-tic production was only 85.4 thousand dry metric tons. The average operating rate for the industry was 67 percent. March operating rates were reportedly around 85 to 90 percent.

Domestic sales in February were down 15.2 percent compared to January 2011. Caustic shipments expe-rienced reductions across the board. The most affected was the chemical and petrochemical segment, with a 25 percent reduction versus January. As can be seen in the scoreboard, year-to-datedemandishealthybutdomesticsupplyhasbeentightin2011.

The caustic soda supply from local producers in Latin America in 2010 was approximately 2.4 million metric tons. Domestic demand, for that same period, was just above four million metric tons of the chemi-cal. The self-sufficiency rate stands at 58 percent; this means that local producers have the ability to cover the demand for 58 percent of the domestic market. The rest is covered by imports. The average operating rate from 2005 to 2010 was 81.3 percent. In the next five years, CMAI expects operating rates to increase to close to 90 percent, as demand for caustic keeps growing in the region. Solvay Indupa, in 2009, and

• DomesticcausticpricesinBrazilrolledoverinMarch.Spotpriceshavefirmed• Year-to-datedemandishealthybutdomesticsupplyhasbeentightin2011

LATIN AMERICA CAUSTIC SODA HIGHLIGHTS

BRAZIL CAUSTIC SODA SCOREBOARDyTD February 2009 - 2011

-000- Dry Metric Tons09-10 10-11

Market Factor 2009 2010 2011 % Change % Change

Capacity 270 270 270 0.0 0.0Operating Rate, % 79.0 90.6 72.9Production 213 245 197 14.7 (19.5)

Imports 157 147 195 (6.4) 32.5Exports 5 6 5 8.2 (18.2)

Apparent Demand 365 386 387 5.7 0.3


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportCarbocloro, in mid-2008, did the last increases in capacity in the region. Even with the CariSal project in the pipeline for 2013, the self-sufficiency rate in Latin America is estimated to drop to 53 percent by 2015.

Trade: Caustic imports into Brazil in February reached 96.9 thousand dry metric tons. This volume came from different sources. From the U.S., 66.6 thousand dry metric tons arrived. Imports from China and Tai-wan added 23.0 thousand dry metric tons. Product from West Europe totaled 5.7 thousand dry metric tons. Imports coming from Peru equaled 1.6 thousand dry metric tons. CMAI estimates suggest that around 20 percent of the U.S. caustic imports were spot transactions. We expect imports to be lower in March as local producers achieve better operating rates.

Latest official trade statistics in Mexico show December 2010 imports at 9.2 thousand dry metric tons, representing a 270 percent increase over November figures. November imports were only 2.5 thousand metric tons, the lowest monthly import figure in 2010. Most of them sourced from the U.S. During March 2011, estimated caustic soda imports through the port of Altamira were 2.0 thousand dry metric tons, while imports through Tuxpan were 3.0 thousand dry metric tons.

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Production Net Imports Self-Sufficiency Operating Rate

Latin America Caustic Soda Self-Sufficiency

Million Dry Metric Tons Operating Rate

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forecast



MIDDLE EAST

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Chlorine Value (EDC Netback) Contract Caustic (Alumina)ECU Cash Margin ECU Value


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Middle East Chlor-Alkali Annual ECU Economics

EDCU Methodology

2011 2012Qtr-2 Qtr-3 Qtr-4 Qtr-1

ENERGyMDE Electricity (Cents/Kilowatt hour) 1.30 1.30 1.30 1.30 1.32Fuel Value (US$ / MMbtu) 0.75 0.75 0.75 0.75 0.75Crude Oil, Dubai (US$ / Barrel; FOB / Fateh, UAE) 110.00 107.33 101.00 102.08 103.91

Current Price

MIDDLE EAST CAUSTIC by Marguerite Morrin

MiDDle east caustic soDa

Market (Supply/Demand): To-date, reports suggest that the new chlor-alkali plant in Iran is not run-ning at full rates. As discussed last month, we see some shipments from Iran coming into Italy, which is causing a bit of disturbance in the market.

In spite of the recent political unrest in Egypt, a new 200,000 metric ton per year PVC plant is expected to be running by mid-year. However, Trust Chemical has not received a permit to move ethylene through the Suez Canal, and the new PVC plant will depend, at least initially, on imported EDC.

Trade: The Middle East as a region is a net exporter of caus-tic soda. Africa, meanwhile, is a net importer of caustic soda. Many African countries import caustic soda in solid form. This is due to the poor logistics

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Middle East Chlor-Alkali Quarterly ECU Economics

EDCU Methodology

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Nigeria Ghana Other Africa


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China Solid Caustic Soda Exports to AfricayTD January


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Report MiDDle east caustic soDa

in these countries and the fact that there are many small customers in this region spread over a large geography. In recent years, the Chinese have developed market share in this region at the expense of traditional European suppliers. In 2010, Chinese exports to this part of the world fell. In 2010, Chinese exports of solid caustic soda to Africa totalled 168,000 dry metric tons, which was 21 percent down on 2009 total. We just have one month’s trade for 2011 so it is difficult to extrapolate any trends. In Janu-ary exports from China to Africa totalled just 10,000 dry metric tons versus a monthly average level last year of 14,000 dry metric tons.

2011 World Chlor-Alkali Analysis

The 2011 world chlor-alkali analysis will function as your most versatile source of manufacturing, marketing, economic and forecast information with data presented over 11 years (2005-2015) and ac-cess to CMAI’s online capacity and supply/demand databases.

www.cmaiglobal.com

CMAI - Headquarters1401 Enclave Parkway, Suite 500

Houston, TX 77077 USATel: 1-281-531-4660Fax: 1-281-531-9966

Regional OfficesDubai - Düsseldorf - London

New York - Shanghai - Singapore - Bangkokchemicals - Plastics - fibers

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VINYLS HIGHLIGHTS• MarketsentimentforEDCwasrelativelyweak,butthehighenergyandfeedstockpricesare

keepingofferlevelsfirm• Asiapricesfortheentirevinylschainarenotjustreactingtohighercashcosts,butalsothe

psychologicalimpactoflargescalelossproductioninKashimaandChiba• ThePVCmarketisinprettygoodshapedemand-wiseinEurope• EuropeanPVCpricesarelaggingethylenepricechanges• PositiveoutlookforPVCdemandinEuropein2011and2012• EuropeanPVCexportstoweakenin2011,2012• InNorthAmerica,totalVCMsalesin2011areforecasttobeabouteightpercenthighercom-

pared to 2010• IntheU.S.,EDCexportpricesforMarchmoveduptoarangeofabout20.00to21.00centsper

pound

VINyLS

ASIA by Eddie Kok

Prices/Margins: PVC price sentiment strengthens amidst worries of supply constraints as a result of unscheduled plants shutdown in Japan. Japanese producers export substantial amounts of PVC to China. The March 11 earthquake and tsunami that hit Northeastern Japan caused devastating damages to infra-structure and plants, particularly those that are located in the Kashima area. The affected PVC and VCM plants are listed below. The percentage of shutdown capacity for PVC appears to be very substantial and will likely have an impact on the short-term supply/demand balance in the region. FPC Taiwan was the first to increase its offer price to $1,140-$1,150 per metric ton CFR China for April shipments. Response from Chinese buyers appears to be swift, with a number of deals done with little resistance to the $50 per metric ton increase.

Meanwhile, the tight supply situation for VCM coupled with feedstock cost pressure has allowed VCM shipments for March to settle firmer at $940-$945 per metric ton CFR Asia, or about $40 per metric ton higher than February’s level. The extent of VCM production losses in Japan due to the earthquake and tsunami appears to be substantial. At the time of writing, we are unable to ascertain the time it will take for these VCM capacities to recover. Based on statements issued by related companies, the damage to infra-structure and utilities complex appear serious, and most affected plants in Kashima will need some time to resume normal operations. This loss VCM capacity is mostly tied to captive usage for downstream PVC,

vinyls

Company Location




Kashima VCM Kashima 600 Shutdown May be down for several months 19.5 2.2

Keiyo Monomer Chiba 200 Operational Low operating rates 6.5 0.7


Japan VCM Operating Schedule Update - Plants Impacted


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Report vinyls

with very little meant for the merchant market. While the net effect on the merchant supply is expected to be minor, the already tight VCM market may experience the psychological impact of these losses. We expect VCM offer level for April shipments to reach $1,000 per metric ton level.

MarketbuyingsentimentforEDChasbeenratherweak,butthehighenergyandfeedstockpricesarekeepingofferlevelsfirm. Concluded deals for March delivery were reported at a level of $520-$540 per metric ton CFR Asia. There were limited spot deals done for China as buyers in the vinyls sector preferred to stay on the sidelines. EDC affordability continues to be an issue for Chinese vinyls producers. Buyers bid level was reported at $500 per metric ton or lower. Those that were able to switch feedstock may prefer VCM instead. There was some activity in the non-vinyls sector where EDC deals as high as $550-$560 per metric ton were reportedly concluded, largely done by traders to cover short position. Offers on the table for April/May delivery continued to firm, with sellers asking level pegged at $550 per metric ton CFR China. A similar offer level was reported for other Asian destinations.

Market (Supply/Demand): Pricesforthewholeofvinylschainarenotjustreactingtohighercashcostsnow,butalsothepsychologicalimpactof largescalelossproductionduetounscheduledshutdowninKashimaandChiba. From a supply perspective, VCM appears the tightest amongst the vinyls molecules. VCM inventory is running low and there is very limited availability of merchant volume for export. We expect Japanese producers to give what supply is available priority to domestic requirements. There was also a report of VCM lines outages in Southeast Asia, further tightening supply in the region. Supply/demand balance for EDC seems less tight as the Chinese vinyls sector demand dwindles due to afford-ability issues. On the supply side, additional merchant volume availability from Taiwan, South Korea and deep-sea sources will keep EDC availability sufficient to meet demand.

Cash Cost /Margins: On the back of strengthening oil prices and an outlook that supports continuous demand growth for energy, CMAI rolled out a new set of higher energy forecast in February. These changes have a rather significant impact on the entire vinyls chain cash cost structure. The quarterly cash cost graph above highlights the impact on our forecasted VCM costs over the next two years period. The historical cash cost trend of VCM for the period from Q1 2009 to Q1 2010 has gone through a phase of sharp increases within a short period of time. VCM cash costs only started to ease during Q2 and Q3 2010 when regional

Company Location






Shin Daiichi Chiba 80 Operational Low operating rate due to power supply issue. 4.1 0.3

Shin-Etsu Kashima 550 Shutdown May be down for several months 27.9 2.1

Taiyo Vinyl Chiba 100 Operational Low operating rate due to power supply issue. 5.1 0.4


Japan PVC Operating Schedule Update - Plants Impacted



ethylene prices declined. Crude oil prices and ethylene values have been holding rather firm since then. With CMAI’s up-ward adjustment on the energy forecast, our previous outlook of a relatively flat cash cost period has turned much higher for 2011 and 2012. This new VCM cash cost forecast is about $40-$50 per metric ton higher for this year, but for 2012, this has es-calated to about $80 per metric ton higher than our previous forecast. This higher cost sce-nario will support a higher price forecast for VCM. Coupled with the tight supply/demand situa-tion, VCM market prices are set to stay at a high level for some time.

WEST EUROPE by Marguerite Morrin

Market (Supply/Demand): ThePVCmarketiscurrentlyinprettygoodshapedemand-wiseandwithadistinctlackofcheapimports and some producers not producing, such as Oltchim in Romania and Vinyls Italia. Most plants are running very well, however. PVCproducersinEuropehavenotbeensuccess-fulinpassingalongthecostincreasesoriginatingfromhigherethyleneprices. For March 2011, PVC contract prices are forecast to gain €25 per metric ton, which will bring the pipe grade S-PVC reference contract price to €1,130 per metric ton free delivered. Current domestic spot prices are estimated to be approximately €860 per metric ton free delivered. The April outlook is for fairly stable prices due to the recent drop in crude oil prices.

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Northeast Asia* Quarterly VCM Cash CostU.S. Dollars Per Metric Ton

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* Excludes China

2010 2011 2012 10/09 11/10 12/11Capacity 6,284 6,221 6,204 -4.8 -1.0 -0.3Operating Rates, % 83.5 83.0 85.2Production 5,246 5,161 5,288 9.0 -1.6 2.5Imports 325 400 399 -7.8 23.0 -0.3

Domestic Demand 4,497 4,714 4,939 4.2 4.8 4.8Exports 1,073 858 748 10.9 -20.0 -12.9Total Demand 5,570 5,572 5,687 5.4 0.0 2.1

10/09 11/10 12/11GDP Growth 1.7 1.6 2.0Growth in Industrial Production 5.2 3.0 2.9

West Europe PVC Scoreboard-000- Metric Tons Percent Change

Percent ChangeEconomic Indicators



In 2010, domestic demand for PVC in West Europe grew by about 4.2 percent versus 2009. The PVC trade situation was also favorable for West European producers last year, supporting an overall increase in PVC production of around nine percent. We are forecasting that domestic demand for PVC in West Europe will continue to recover over the next two years as the recovery from the recession continues in the region. However, based on our understanding of the relative economics for PVC producers in Europe versus other regions, and the global PVC capacity schedule, we are expecting that the export opportuni-ties for PVC will weaken while imports will be higher than in 2010. This trade situation will mean that the growth in total PVC demand and therefore production may not be so strong.

NORTH AMERICA by Steve Brien

Prices/Margins: PVC sellers have announced a 3.0 cents per pound PVC increase for March and another 3.0 cents per pound increase for April. With short term ethylene prices increasing, PVC sellers need a price increase to cover costs. PVC producers continue to export as much resin as feasible and it appears that high levels of PVC exports will continue for the next few years. PVC domestic demand remains very low.

VCM cash costs reached a low point in 2009, primarily due to high caustic prices combined with lower ethylene prices. The monthly trend for VCM cash costs shows increasing cash costs in 2011 and 2012, mainly due to higher ethylene prices. This increase in cash cost is due solely to the forecast for slightly higher natural gas prices on average in 2011 and 2012 compared to 2010. Ethylene prices are expected to increase over the next several years as energy prices edge upward, which, in turn, will raise VCM cash costs.

The VCM asset-share cash cost takes into account the chlorine value, which is developed from a model for integrated chlor-alkali to vinyls producers. The asset-sharing method assumes that revenue from sales of caustic and PVC are shared across the chlor-alkali to PVC asset chain, according to the capital employed by each step in the chain. The integrated producer benefits from the steep increases in caustic prices, which drive the contained chlorine value lower, or vice versa as caustic soda prices drop. As a result, the

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U.S. Monthly VCM Cash CostsCents Per Pound Dollars Per Metric Ton

forecast



calculated VCM cash costs were significantly reduced as caustic prices reached historical highs during 2008 and remained high in early 2009. As the value derived from caustic sales diminishes, the cash costs of VCM rise, as was experienced during the transition from 2009 into 2010.

In 2009, VCM domestic demand plummeted; however, domestic demand for VCM in 2010 was about nine percent above the 2009 levels. Total sales of VCM in 2010 were about 7.7 percent higher than the 2009 levels. Even though VCM domestic demand and exports are picking up, volumes are not yet back to 2008 levels. TotalVCMsalesin2011areforecasttobeabouteightpercenthighercomparedto2010.

The graph of EDC economics is designed to model an integrated chlor-alkali producer who is able to sell EDC and caustic soda and retain all of the caustic soda sales benefit. In the case of EDC manufacturing, integrated producers are able to enjoy high margins on EDC, even at low EDC netback prices, when caustic prices are high, or vice versa when caustic soda prices are low. The EDC cash cost is a function of raw material costs, conversion costs, and a calculated benefit from caustic sales.

vinyls

U.S./Canada VCM Scoreboard2010 - 2012

Million Pounds10-11 11-12

MARKET FACTOR 2010 2011 2012 % Change % Change

Capacity 19,263 20,043 19,941 4.1 (0.5)Supply* 15,683 16,976 17,639 8.2 3.9Domestic Demand 14,137 15,216 15,859 7.6 4.2Export Sales 1,545 1,760 1,780 13.9 1.1Total Sales 15,683 16,976 17,639 8.2 3.9Operating Rate, % 81.4 84.7 88.5Effective Op Rate, % 83.5 86.9 90.7* Includes Imports

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EDC Total Cash Cost EDC Export Contract Price, FOB EDC Margin

U.S. Monthly EDC EconomicsIntegrated - Full Caustic Soda Credit


forecast


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportIntheU.S.,EDCexportpricesforMarchmoveduptoarangeofabout20.00to21.00centsperpound. Integrated chlor-alkali to EDC margins increased in late 2008 and early 2009 as caustic soda levels moved upward. In early 2010, caustic soda prices were lower and ethylene prices were on the rise, which brought down margins in export EDC. Currently, ethylene prices are on an increasing trend for early 2011. EDC prices are based on contract export pricing, and the short-term EDC forecast in the U.S. is expected to fol-low changes in cash costs in Asia.

2010 U.S. EDC sales moved upward by about seven percent compared to sales in 2009. In 2011 U.S. EDC are forecast to move upward by about four percent, which is indicative of the lower energy and raw materials that now exist in the U.S. compared to other parts of the world. However, EDC sales are not yet back to the levels seen in 2008. More EDC capacity is being added, which will keep operating rates from increasing significantly.

vinyls

U.S./Canada EDC Scoreboard2010 - 2012

Million Pounds10-11 11-12

MARKET FACTOR 2010 2011 2012 % Change % Change

Capacity 36,544 39,071 39,956 6.9 2.3Supply* 26,995 29,216 30,387 8.2 4.0Domestic demand 25,535 27,607 28,667 8.1 3.8Export Sales 1,460 1,609 1,720 10.2 6.8Total Sales 26,995 29,216 30,387 8.2 4.0Operating Rate, % 73.9 74.8 76.1Price, cents/lb. 15.9 14.6 13.3 (7.9) (9.3)* Includes Imports



POTASSIUM HyDROXIDE by Joel Lindahl

PotassiuM hyDroXiDe

POTASSIUM HYDROXIDE HIGHLIGHTS

• Marketshareprotectionhasresultedinlessthanthefullimplementationoftherecentprice increase

• Thepricerangefor45percentliquidKOHinMarchis$30.50-$37.50per100wt.,down slightlyfromamonthago,butupyear-to-date • AshtaChemicalhasnewownershipresultingfromaninvestmentfromMexico

Prices/Margins: Keeping pace with margins in a weak market is often difficult, as producers can once again attest. KOH producers have been experiencing margin erosion from rising KCL prices, but it is very difficult for producers to achieve improved prices. The KCL producers are pushing higher KCL values, which is creating the need for rising KOH prices among the producers. However, operating rates are quite low in the industry (despite the relatively encouraging comments regarding demand, below) and participants cannot afford to lose volume.

Producers announced KOH price increases of between $3.00 and $4.00 per 100wt. for 45 percent solution KOH and are in the process of refining their price increase approach in an oversupplied industry. It is still too early to suggest that this round of price increase efforts is complete, as producers continue to match competitive offers in order to maintain market share.

Dependingupontheregionandthemarket,andthestartingpricerelativetothemarket,theimplementa-tionofthepriceincreasehasbeenvaried. We assess that the $4.00 per 100 wt. level of a price increase has not been implemented to anyone, and most battles are over how much of the $3.00 per 100 wt. increase is being installed.

As we are hearing of implementation ranging from zero increase to approaching $3.00 per 100 wt., we are adjusting the degree of producer success on this price increase downward. The average increase may have started out higher and has experienced some ‘give-back’. We believe the average net move in prices is ap-proaching $2.00 per 100 wt.

As we mentioned in the report last month, we believe all KOH producers have been or will be impacted by KCL price increases that have been implemented by the major industrial grade KCL producers. Buyers remain skeptical that KCL prices have been creating margin pain for producers, but most buyers seemed resigned to higher KOH prices nonetheless. Meanwhile, KCL price increases continue to be announced into the agricultural grades of KCL.

We assess that the industry average pricing adjusted slightly in March and we place the pricerangefor45percentliquidKOHof$30.50-$37.50per100wt. Buyer feedback in the months ahead will tell whether the price increases erode through market share competition.

Market (Supply/Demand): The U.S. KOH capacity table continues to evolve. AshtaChemicalsan-nouncednewownershipinapressreleaseattheendofFebruary. The new ownership is based in Mexico, and the ownership change marks an important point in the history of the plant in Ashtabula, Ohio.



As one of the ‘final few’ remaining mercury cell technology chlor-alkali assets in North America, specu-lation regarding the future of the Ashtabula plant seemed to always be prevalent in the marketplace. Pos-sibilities centered more on status quo unless forced by legislation (or outright closure) more often than the likelihood of conversion to newer technology.

Ownership by a non-producer would seem to indicate that a brighter future is likely for the plant. Any entity investing in the plant would be aware of the need to convert technology, and would not buy the assets just to close them, in our view. Therefore, we conclude that the Ashta plant will ultimately receive the capital funding necessary for a conversion project, when the timing is right. KOH buyers should see this as a positive development, as Ashta will remain in the business and remain separate from the other producers already operating in North America.

We are including the U.S. KOH Capacity Changes Table in the report this month. The table indicates the nominal capacities of the U.S. operations and shows the changes underway over the years. The change at Ashta is ownership only at this point, while changes in technology and capacity are underway as an-nounced recently by Olin.

The KOH industry, over a period of ten years, will have undergone some rather amazing changes. Conver-sions, closures, expansions and ownership changes have transformed the industry a number of times.

Demand for KOH is looking up. A winter that was marked by a number of major snow and ice events just does not seem to want to give way to spring—good for KOH demand. As winter does turn to spring, the spring agriculture demand will unfold. Expectations this year are for strong (if not very strong) demand.

High crop prices (futures) are encouraging use of nutrients, additives and treatments. We are quickly returning to an environment in which farmers are readily incented to apply more nutrients and more crop protection to their fields. Further, some agriculture consumers of the K molecule have reduced or skipped applications in recent seasons while crop prices were low, and cannot afford to repeat the strategy this year.

Demand for KOH in 2011 will be higher than in 2010, a welcome change for producers. However, the increase in demand will not be able to replace the demand destruction and permanent shift to other alka-lis that has occurred in recent years. Therefore, we do not foresee a return to high operating rates in the industry or a threat that supply availability will become an issue for buyers.

PotassiuM hyDroXiDe

Company Location Process 2011 Capacity 2007-08 2008-09 2009-10 2012-13 2013-14

Ashta Ashtabula, OH Mercury 60 ---- ---- ---- ---- ----

ERCO Port Edwards, WI Membrane 95 ---- ---- 95 ---- ----Port Edwards, WI Mercury ---- ---- ---- (81) ---- ----

Olin Charleston, TN Membrane ---- ---- ---- ---- 153 153Charleston, TN Mercury 130 ---- ---- ---- (130) ----

Oxy Muscle Shoals, AL Mercury ---- (165) (55) ---- ---- ----Taft, LA Membrane 290 217 73 ---- ---- ----

Total Capacity 575Net Capacity Changes (18) 18 14 23 153

United States Potassium Hydroxide Capacity ChangesThousand Dry Metric Tons



Alumina Prices: As of March 28, average spot prices for alu-mina increased from last month. The CMAI composite spot average increased to $398 per metric ton FOB. Alumina prices in China have been relatively stable; the imported spot price has inched up to 3,000 yuan at Qingdao port of Shandong prov-ince. China’s domestic alumina refineries were not affected by the energy saving and emission reduction in Q4 last year. So, alumina stocks have increased somewhat in China. The expec-tation is that spot alumina prices will increase as we see demand steadily picking up. Another variable to consider that may influence the alumina spot price is the financial market’s appetite to have aluminum new exchange-traded funds (ETF) for the metal.

Alumina Market (Supply/Demand): Alumina demand is driven almost entirely by demand in the aluminum market. As a result, it is critical to monitor the latter industry. Chinesealuminumsmeltersarenowboostingproduction. The restart of the idled aluminum capacity is underway, and the release of that capacity is gradual. It is expected that Chinese aluminum smelters will increase buying of alumina in the coming weeks. As 2011 is underway, China’s restart of idled aluminum production will begin to trigger further alumina imports.

In addition, alumina producers in the western hemisphere are looking to cater to all of the new aluminum smelter startups in the west as well, but the problem is that the market is tight for alumina. There were several aluminum smelters that started up this year as discussed below, and as demand has jumped so have rising costs, leading to expectations of a higher alumina spot price.

ALUMINA/ALUMINUM HIGHLIGHTS

ALUMINA / ALUMINUM by Horacio Correa

• TheCMAIcompositespotaverageincreasedto$398permetrictonFOB• Chinesealuminumsmeltersarenowboostingproduction• China’sautosalesrose13.8year-over-yearinJanuarytohit1.89million• UnitedCompanyRusalwillnotrestartaluminaproductionatitsidledAluminaPartnersofJa-

maicaLtd.(Alpart)• Alcoaisrestarting200thousandmetrictonsofprimaryaluminumoutputintheU.S.market• TheLondonMetalExchange(LME)3-monthofficialaluminumpriceincreased2.2percentfrom

theendofFebruarytoMarch28

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typical contract alumina price range


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportUnitedCompanyRusalwillnotrestartaluminaproductionatitsidledAluminaPartnersofJamaicaLtd.(Alpart),duetotheinefficienttechnologyoftheplant. However, Rusal does still plan on starting up opera-tions at West Indies Alumina Co. (Windalco), a subsidiary of Rusal. Windalco has two alumina refineries located in Jamaica. One of the two plants is Ewarton Works. Ewarton Works’ annual alumina capacity is 600,000 metric tons per year. Ewarton Works re-started in June of last year. This year, Windalco’s second alumina plant facility, Kirkvine Works, is scheduled to re-start in July. Rusal has currently indicated that they expect to produce 225,000 metric tons of alumina this calendar year. If expectations are met, we can expect to see an approximate 825,000 metric tons of alumina from Windalco’s alumina refineries.

Aluminum Prices: TheLon-donMetal Exchange (LME)3-monthofficialaluminumpriceincreased2.2percent from the end of February to March 28. The official March monthly average price was $2,578 per metric ton, which was up $47 per metric ton from February 2011. The price is still up com-pared to March 2010 by about 14.8 percent year-to-date.

Aluminum Market (Supply/Demand): Chinese aluminum smelters have started to begin full production in February, but we must still keep in mind that as production ramps up, China’s Twelfth Five-Year Plan was released on March 5, 2011. China’s Five-Year plan is used as a strategic tool to map their strategy for economic development, set growth targets and launch reform in order to ensure China reaches their maximum growth potential. As part of the Twelfth Five-Year Plan, China expects to reduce their energy consumption and CO2 emissions, along with many other milestones they plan to achieve. Nonetheless, the plan falls in line with their attempt to bridge their growth gap of Chinese household consumption.

On the demand side, China’s auto sales rose 13.8 year over year in January to hit 1.89 million, a new record on a monthly basis, according to China Association of Automobile Manufacturers. In addition, the Chinese government ended tax breaks for purchases of small cars at the end of 2010 and re-imposed a ten percent tax at the beginning of this year. The tax breaks, introduced in 2009, were used to buoy domestic demand amid the economic slowdown; these tax breaks had boosted China’s auto market and helped it overtake the U.S. as the world’s largest in 2009 and 2010.

Aluminum production in China is heavily affected by the Chinese government, as we observed in the fourth quarter of 2010. Decisions to shut down inefficient smelters was a must in order to reduce their energy consumption and meet government guidelines. How much the Five-Year Plan will affect the aluminum industry will be determined by China’s demand for the base metal over the years to come. As we have indicated in our charts below, China’s aluminum per capita consumption will potentially increase at an ap-proximate ten percent year-over-year. However, government officials are trying to reduce consumption, as

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LME 3-Month Aluminum Average Monthly Price


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Reportindicated by the quota system, to limit new car licenses from January 1, where only 240k new cars will be registered in the city of Beijing this year compared to the 800k that were on the streets in Beijing last year.

On a global basis, regional alu-minum demand has been driven by China. China’s aluminum demand has increased 83 per-cent in four years, and in 2010 had approximately 40 percent of the aluminum demand in the world.

In February, China’s aluminum output reached a near all-time high of 46,607 metric tons, as Chinese aluminum smelters continue to ease back into full production with energy cuts fading. China’s record alu-minum all-time high monthly production is 46,876 metric tons, according to the National Statistic Bureau, a difference of 269 metric tons. As we observe aluminum production starting to increase in 2011, Chinese alu-minum producers are only 0.05 percent above their aluminum production from 2010.

In addition to China picking up the smelter production, Alcoa isrestarting200thousandmetrictonsofprimaryaluminumoutputintheU.S.market, while domestic competitors, Ormet Corp and Century Aluminum Co., move forward with their own potline re-starts.

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Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Report soDiuM chlorate / PulP

• FibriamadeaBleachedEucalyptusKraft(BEK)pulppriceincreaseannouncement• Theshipment-to-inventory(S/I)ratioforglobalpulpwasuptoanaverageof1.132forthe

monthofFebruary• AsthetsunamiandearthquaketakeatollontheJapaneseindustrialproducers,thereis

ongoingconcernonhowthisdevastationwillaffectthepulpandpaperproducersglob-ally

• Canexusannouncedaglobalsodiumchloratepriceincrease• Sodiumchlorateproductionandoperatingratesimprovedsharplyin2010alongwithpulp

industryoutput,andtheoutlookfor2011isacontinuationofveryhighproductionlevels

SODIUM CHLORATE / PULP HIGHLIGHTS

SODIUM CHLORATE / PULP by Horacio Correa

PULP

Prices/Margins: The graph titled “North American Pulp Chemicals” shows price trends for several products related to pulp in the North American market, including natural gas, caustic soda, sodium chlorate, and the NBSK list price. We chart the U.S. Gulf Coast natural gas burner tip price as a marker for natural gas prices in other regions. Gas prices influence the energy costs for chlorate and chlor-alkali plants.

FibriamadeaBleachedEuca-lyptusKraft (BEK) pulp priceincrease announcement. On March 14, Fibria informed cus-tomers worldwide that BEK pulp would rise $30 per metric ton, effective April 1. The $30 price hike would raise its list price in North America to $930 per metric ton, in Europe to $880 per metric ton and in China to $780 per metric ton. In addition, Northern Bleached Softwood Kraft (NBSK) market pulp pricing this month in the U.S. rose $30 per metric ton. U.S. NBSK pulp price rose to $990 per metric ton and Southern Bleached Softwood Kraft (SBSK) increased to $950 per metric ton, also up $30 per metric ton. Bleached hardwood prices did not change from last month. NBSK producers set increases this month at $980 per metric ton in Europe and $890-$900 per metric ton in China. Current sentiment in the market is that pulp producers are looking to see higher NBSK increases coming due to upcoming maintenance downtime, and since demand has not let up, prices for NBSK will be going up as well.

Theshipment-to-inventory(S/I)ratioforglobalpulpwasuptoanaverageof1.132forthemonthofFeb-ruary, showing a strong, steady increase over the course of 2010 from the low of 0.572 seen in November

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Natural Gas (USGC Burner Tip, $/MMBtu) Sodium Chlorate ($/Mton del'd)AAP (USGC $/DMT) NBSK Pulp ($/Metric ton del'd)

North America Pulp ChemicalsDollars Per Metric Ton Dollars Per MMBtu

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Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market Report2008. In 2010, globalmarketpulp shipmentswere upby 15percent over 2009. Invento-ries have been on a decreasing trend since 2008 on an annual basis, although end-of-year in-ventories in December were 12 percent higher than in December 2009. As we notice in our ship-ment to inventory ratio chart, shipments picked up at the end of 2010 while inventory levels declined, leading to a tighter market heading into 2011. An S/I ratio below 1.0 typically indicates a weak market. How-ever, anytime there is an inverse relationship of rising shipments and falling inventories, it is an indication of a strengthening market.

Market (Supply/Demand): AsthetsunamiandearthquaketakeatollontheJapaneseindustrialproduc-ers,thereisongoingconcernonhowthisdevastationwillaffectthepulpandpaperproducersglobally.Since the port of Sendai was the major import port for Japanese paper producers, Japan’s production of paper has taken a hit; hopefully, these pulp and paper producers’ mills will come back on-line later on in the year. Unfortunately, this unexpected turn of events will affect global pulp producers and Japanese imports as well. Logistically, Japan would import wood chips from North America, South Africa and Australia, however, with the potential of receiving docks and pulp mills being offline for an unknown amount of time there are concerns as to how long these ports will be unavailable. We hope to see these pulp and paper mills back on-line as soon as possible. Current estimates indicate that approximately 20 percent of Japan’s total integrated pulp capacity, 55 percent of BSK pulp and 15 percent of BHK market pulp production will be unavailable. Currently, Japan’s market share in the pulp industry is approximately five percent of global market pulp shipments.

In addition, due to this devastation, a possible alternative for Japanese paper producer’s clientele will be looking to fulfill their contracts with potential North American paper producers while Japanese producers look to get their mills back up and running. On the demand side of paper, North American paper producers have an opportunity to meet Japanese clientele demand, but for woodchip producers, imports into Japan will be unavailable in the short term. On a positive note, this devastation would create an opportunity for North American paper producers to meet Japanese clientele paper demand.

A list of pulp and paper plants are down due to the Tsunami and earthquake, but to list some of the larger pulp and paper producers we have obtained information indicating that Mitsubishi Paper Mills Hachinohe Mill, which produces 585 thousand metric tons of bleached hardwood Kraft pulp (BHSK) and softwood kraft pulp (NBSK), was heavily impacted. In addition, Nippon Paper’s mills, Ishinomaki and Iwanuma, are off line. The Ishinomaki mill made 643 thousand metric tons of wood pulp and 1.1 million metric tons of graphic and specialty paper.

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4.2

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

06 M M J S N 07 M M J S N 08 M M J S N 09 M M J S N 10 M M J S N 11

Shipment to Inv Ratio Shipments

Shipments to Inventory Ratio Shipments, Million Metric Tons

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Pulp - Shipments & Shipment to Inventory Ratio


Global Fibers & Feedstocks Report Special FocusChlor-Alkali Market ReportSODIUM CHLORATE

Prices: With high operating rates and a tight supply demand balance as the backdrop to discussions, it is no surprise that SCL valuations are an issue between buyer and seller. Producers have been implementing an announced $60 per dry short ton price increase since October, and have been reasonably successful. We assess that SCL prices have moved upward since the third quarter of 2010 by roughly $40 per dry short ton, distributed over the period in a variety of patterns.

Despite the apparent gap remaining between announced price increases and the achieved price increases, a continuation of the present supply/demand dynamics would seem to indicate further price announcements could be in store.

Currently, Canexus announced a global sodium chlorate price increase. Canexus has increased the price of sodium chlorate by $50 per metric ton in Canada, US and international shipments. This price increase is due to cost increase of basic material that have impacted Eka Chemicals cost structure.

Market (Supply/Demand): In the market news for sodium chlorate, Eka Chemicals is positioning itself as the supplier for one of the world’s largest pulp mills located in Brazil and other Brazilian pulp producers. Towards the end of January, Akzo Nobel announced that Eka Chemicals, which is a business unit within Akzo Nobel, would invest 90 million Euros in order to cater to Brazil’s El Dorado Celulose e Papel mill located in Tres Lagoas City. Eka Chemicals will be building a sodium chlorate production unit to supply the projected demands of the El Dorado mill, which has been designed to accommodate three pulp lines.

Demand for sodium chlorate (SCL) is following the pulp industry rebound trend and is strong. Expecta-tions for 2011 are for continued strong demand, but since pulp capacity is operating at reasonably high rates already, there is little upside to SCL demand growth in the domestic markets. Exports from this region are being incented by relatively low energy costs, overall, and are continuing to flow. As we reported last month, exports are higher and are anticipated to reach higher levels in 2011.

Sodiumchlorateproductionandoperatingratesimprovedsharplyin2010alongwithpulpindustryoutput,andtheoutlookfor2011isacontinuationofveryhighproductionlevels. SCL operating rates are estimated to be riding around the very high 90 percent level, reflecting the balance that has been crafted in the last year or so. Key to the high operating rates is obviously the remarkable improvement in the pulp production level since 2009, but there has also been ‘right-sizing’ in the SCL manufacturing base in North America.

Operating rates are actually on the higher end of industry comfort levels, according to some participants. The industry incidents that occurred in 2010 that resulted in Force Majeure are on buyers’ minds, and knowing that there is essentially no slack capacity remaining is creating some uneasiness. Further, warm weather impedes electro-chemical unit capacities, so the summer months will potentially reduce production capacity. Inventories through the supply chain are likely low throughout due to the strong demand and operating issues of 2010.

soDiuM chlorate / PulP

global chlor-alkali market report_summary

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