The Advantage Newsletter — 7/25/2002

MARKET ANALYSIS UPDATE JULY 25, 2002

As the end of July nears, the implemented $50 per dry short ton caustic soda increase seems to be holding with little resistance. The noted exceptions reported by various chemical news wires are limited to a select few accounts with either old contract clauses inhibiting the full implementation, or accounts that may not have seen all the relief provided to the market prior to the turnaround. One point to keep in mind is the various chemical news wires report what they are being told by producers, distributors, as well as consumers. These same news wires regurgitate the news as they hear it and seldom gather all of the appropriate information. Whether it’s information provided by the producer, distributor, or end user, this information typically is slanted towards the outcome needed by the reporter of the information. A classic example of this is the end user who receives only $30 of the announced $50 increase, but fails to receive all of the relief given back to the market prior to the turnaround. This lack of information past through the marketplace via the chemical wires confuses the issue of the full effect of the $50 increase. Although there are some very good chemical reports that spend time and effort reporting supply demand balances, as well as important data pertaining to the marketplace, it is important to remember that not one of these organizations sell chlor-alkali products and therefore, truly are at the mercy of the information provided to them by their customer. As of late, too many of these organizations are spending time reporting unconfirmed rumors and data points in order to sell subscriptions. This form of sensationalizing is similar to what we see in our every day media in order to achieve high ratings. I feel confident to say that the $50 increase announced for July 1st was highly successful and only time will tell if it holds up. Market conditions today show and warrant operating rates in the low to mid 90’s. As summer comes to an end, and the normal seasonal up tick in operating rates begins to potentially waver, one must keep in mind the additional capacity being taken out of the market by Dow Chemical. Dow Chemical has announced an estimated 350,000 tons of capacity at their Plaquemine, Louisiana complex will be permanently shut down. In addition, there is an estimated 150,000 tons of further capacity being stripped from the market permanently from their Canadian operations. The timetable and exact quantities are estimated, but appear to be slated for removal during early fourth quarter of 2002. This in itself will artificially prop up effective operating rates. As a side note, we have seen an estimated 1.5 million tons of capacity stripped from the market place over the last eighteen months. Since the previous update, Aluminum negotiations have settled around $54 per dry short ton f.o.b. the gulf with little to no influence on the rest of the market. K.A. Steel Chemicals’ highest priority for the foreseeable future is to maintain above average inventories in all regions of the country due to the lack of new capacity expansions until 2005. With existing operating rates already in the mid 90’s, and with few positive signs of a full-blown recovery, K.A. Steel is concerned that as this recovery picks up consistent steam, it will take very little to hit maximum operating capacities. As this develops, we will see chlorine tighten up first, shortly followed by caustic soda. The implementation of the July 1st chlorine increase estimated between $125-$150 per ton was accepted in the market place by all.

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.