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Announcements

09/03/08 - Market Update after Hurricane Gustav

Sept 3 2008

Hurricane Gustav arrived in the state of Louisiana and thankfully did not bring the level of havoc and destruction as was witnessed by Katrina almost exactly three years ago. While the results were certainly not as severe, there are still many issues to overcome during the next few days and weeks as a result of this massive category 3 storm.

Almost every chlor-alkali producer in the U.S. Gulf was forced to shut down production in preparation for the storm. At this time approximately one million people are without power in Louisiana. Five producers report that issues related to power, labor and logistical problems are at the forefront. Several producers are fully idled. The re-start date for these plants could be only a few days or as long as a few weeks. In the end it is estimated that perhaps as much as 12,000-14,000 short tons of chlorine is out of production currently as a result of multiple manufacturing plants being negatively impacted by Gustav in the gulf coast. Realizing that the market is already short in supply of caustic this will only force producer inventories to be utilized immediately once transportation service returns.

During the month of August producers were successful in increasing pricing by an additional $160/dst and also set the stage for a September 1^st increase of an additional $130/dst. At this time it has become truly unknown as to exactly how high the price for this commodity will conclude. Demand for caustic soda remains very stable while exports are actually up by 18% in the first half of 2008 versus 2007.

The Midwest region experiences a much higher cost than the coastal markets and this is not news to anyone as this region is supplied for the most part via the U.S. Gulf producer.

The easing of the Natural Gas price into the $8/+ mmbtu range, a 40% drop since July 1st has resulted in surge in ECU profit margins for U.S. chlor-alkali producers across the board.  Imports continue into the coastal markets and are priced at a large cost advantage over fob U.S. Gulf offers.

The general idea going forward is that PVC demand remains anemic in the U.S. and that if exports begin to slow at all then chlorine-operating rates will decline quickly as large producers are forced to throttle backward. In the end there are not many positive signs for any retreat in caustic soda 50% pricing as the 4^th qtr approaches. K.A.Steel will continue to provide up to date market information related to the producer storm production activity and how this impacts supply of material.