The Advantage Newsletter — 5/09/2007

KA Steel Chemicals (KASC) is proud to announce the launch of our new and improved web site http://www.kasteelchemicals.com/. This site has been built and modified for the sole purpose of establishing an informed outlet for our customers to receive market information. Over the years, our valued customers have requested certain features for their use.This site has incorporated the latest Google technology for satellite viewing of various chlor-alkali locations. Also, please take time to look at the new Eurochlor website for market information in Europe. There is a direct link to their website under "Industry Info" / "Helpful Links".

Any questions or suggestions to further improve this site are welcome. Please contact Samantha Murdock @ 630.243.2287 or samanthamurdock@kasteelchemicals.com

Changes in market conditions have forced suppliers of chlor-alkali derivatives to reevaluate their existing forecast. Dynamics have changed dramatically in the past six months, warranting a review of the KASC forecast for the foreseeable future.

European inventories continue to be less than adequate and the need to export to the US East Coast is opportunistic at best. Product to the East Coast trickles in compared to the pace established in 2005-2006. An occasional parcel from Asia finds its way through the Panama Canal towards the East Coast depending on imbalances in Asia, from supplier to supplier at any given time. Asian supply today to the East Coast is sporadic and cannot be counted on to be consistent.

Domestic suppliers from the Gulf have utilized their large pool of inventory over the past 2 years to pick up supply to the East Coast, where the Europeans have left off. This has reduced the inventory in the Gulf to critical levels. This, coupled with Dow Chemical's shut down of their world scale capacity in Western Canada; further exacerbated the supply side situation for Dow Chemical.  Dow Chemical leaned heavily on Asian imports as well as their Gulf Coast system to supply their Western Canada customers. As Asian supply shifted for the West Coast and prices have risen, Dow Chemical leaned heavily on their plants in the Gulf. The Canadian rail strike also compounded the situation by giving producers into Canada less turns on their railcars, further stretching their fleet.

Domestic demand for caustic soda continues to show signs of strength. Dow Chemical has been on 100% order control for its customers for the past few months as supplies have tightened. With this, producers have announced another round of increases for caustic soda. Coming off a successful increase of $40 for April 1st, Dow Chemical has announced a $50 increase slated for the June/July time frame. Oxy, as well as Formosa, have followed suit. This increase is a reflection of strong demand and critically low inventories, as well as strong exports due to the soft value of the dollar. This increase holds well as a negotiating tool for alumina negotiations slated to begin this month for the second half of the year.

Shintech will bring online their 300,000 tons of capacity sometime in the first quarter of 2008. This capacity, on a caustic basis, will be heavily offset by the announced shut down of Oxy's membrane caustic plant in Taft, LA estimated to be 214,000 dry short tons. Recently, Westlake announced that they were seeking a chlorine permit for a plant in Louisiana, rated at around 360,000 tons of chlorine. We are told, if built, this plant would be operational around 2010. It is KASC's belief, as this develops and if it develops, this plant would put enormous pressure on Northern producers of chlorine, shipping to the Gulf via railcar, to consider shutting down their facilities. Their plants in Niagara Falls as well as Eastern Canada are very uspect as far as survivability.

Pressure is beginning to mount for the consumer receiving chlorine via rail, as well as the rail industry itself. As more of these Westlake/Pioneer projects develop and more chlorine is fed to the consumer via pipeline, the overall pressure for Northern chlorine plants may force further plant closures. KASC will keep you posted as further developments occur.