The Advantage Newsletter — 10/8/2003

MARKET ANALYSIS UPDATE October, 8, 2003

The October 1ST price increase of $40 pdst for caustic soda has been officially rescinded. Many consumers had their opinion that this increase was weak at best. Most customers today still have the perception that the market is long, with distribution as well as producers sitting on high inventories. This perception has been fed by quarterly increases since July of 2002 that have only witnessed partial success or even failed attempts throughout 2003. Consumers have not been convinced of the reasoning or rational provided by the producers for these increases. This has led to an attitude from the consumer that displays no real concern or fear of a price increase actually standing firm. Although this perception can be understood by many the contrary is closest to reality. It is K.A. Steel Chemicals belief that the caustic soda market has become much more balanced over the last six months. Inventories have become lower within distribution to take advantage of soft caustic prices. As inventories lessoned and various producers experience unique problems of their own, such as hurricanes along the Texas coast line, black outs in the northeast, planned and unplanned outages, caustic inventories can no longer be perceived as long. Dow is currently experiencing evaporation problems at their Freeport Texas facility. Formosa Plastics permanently shut down their Louisiana facility and are experiencing production problems at their Texas facility which has resulted in a loss of capacity. All of the above, as well as reduced European imports have produced a much more balanced market. As long as operating rates remain in the upper 80’s it is our belief this balanced trend will continue. It is quite possible as we enter 2004 operating rates will pick up and coincide with any kind of economic upturn therefore creating once again incremental caustic until demand catches up to supply. Remember, typically as GDP (Gross Domestic Product) grows so will (Cl2) chlorine demand thus more caustic soda in the market. It is important to note that if the Oxy and Vulcan merger does indeed take place one would only expect further rationalization of capacities for the industry. Since 1999 this industry has seen well over 2 million tons of capacity shut down or idled. Any further rationalization in today’s climate could further shorten the caustic soda market. Currently it is apparent that supply overall is still working to coincide with demand.

The K.A. Steel ADVANTAGE offers insight into current trends and essential market analysis allowing you to make insightful, well-timed purchasing decisions. With K. A. Steel, customers have the benefit of knowing what K. A. Steel knows. Our customers receive timely coverage of trends in the industry as quickly as the information emerges.