June 2009

Overview of the Specialty Chemicals Industry
Ethylene Dichloride
Ethylene-Propylene Elastomers
Isopropyl Alcohol (IPA)
Methyl Methacrylate
Polychloroprene (Neoprene) Elastomers
Polyvinyl Chloride (PVC) Resins
Vinyl Chloride Monomer
Chemweek's Business Daily
CEH Reports and Product Reviews in Preparation
PEP Reports Scheduled for 2009
SCUP Reports Scheduled for 2009

SCUP Report Abstract
OVERVIEW OF THE SPECIALTY CHEMICALS INDUSTRY
By Uwe Fink with Yosuke Ishikawa and Wei Yang

During the past 25 years, the developed economies flourished through a credit-driven consumption boom that ended with the outbreak of the U.S. subprime mortgage crisis. The availability of abundant, cheap credit, particularly in the United States, led to easier borrowing conditions and provided cash also to people with tarnished credit or low incomes. This group of people had not been able in the past to buy expensive property, cars and durable goods.

Most of their mortgages had been securitized by banks and sold to investors in complex debt obligations that were rated by credit agencies led by Moody's and Standard & Poor's. The mortgage meltdown started in the United States in the summer of 2007 as property values declined and borrowers defaulted on these subprime mortgages in increasing numbers. Foreclosures spiked and financial companies faced huge losses as these investments turned bad. The chaos in the U.S. housing market and structured finance spread into the wholesale markets in which banks raise short-term finance. The financial crisis reached a critical stage starting in September 2008, characterized by severely impaired liquidity in the global credit markets and insolvency threats to investment banks and other institutions. A general collapse of confidence became contagious and credit conditions globally froze as banks started hoarding cash and stopped lending to each other.

The government actions around the world in October and November 2008 were successful in stabilizing the banks and stopping panic withdrawals. However, they did not provide sufficient stimulus to get the banks lending again. Governments are trying to do that currently. It might take several months until the banks are lending money again in a significant way. Meanwhile, governments are also trying to bail out the auto industries, initiate infrastructure spending and implement tax cuts. However, it takes time for these actions to come through, meaning that the economic recovery might happen in 2010—not in 2009.

Several specialty chemical industry end-use market segments such as agriculture, water treatment, nutrition, household and personal care have showed more resilience to the economic crisis, while consumption in key manufacturing industries such as automotive, electronics and textiles has declined sharply worldwide.

Specialty chemicals segments have been affected very differently by the sudden financial and economic crisis. As shown in the graph, several specialty chemicals segments—construction chemicals, electronic chemicals, plastics additives, textile chemicals and specialty polymers—followed the downturn of their end-use industries. Other industries, including cosmetic chemicals, food additives, and industrial and institutional cleaners, suffered much less from the downturn.

The global specialty chemicals industry accounted for sales of $472 billion in 2008. The business segments in North America, Western Europe and Japan represent 65% of total specialty chemicals sales. As a result of the current financial and economic downturn, SRIC expects the global specialty chemicals market to shrink by approximately 4% to $451 billion in 2009. SRIC believes these economic conditions will continue until sometime in 2010 and then gradually improve. Some countries and regions will suffer greater declines than others and some will rebound earlier and faster than others. The specialty chemicals market in 2010 is estimated to reach about the same size as in 2008 and then gradually climb during the next three years to reach $530 billion in 2013.

According to the IMF, world GDP grew 5.2% in 2007, marking the end of the best four-year period of the global economy since the early 1970s. Growth slowed to 3.2% in 2008. However, as the recession spreads, global economic growth is expected to decline further in 2009. As a result of the globalization, rapid falloff in export demand is being felt worldwide. The economic crisis may not have bottomed out, so things could get worse before they improve. An important precondition for economic stabilization is that the housing markets bottom out in the United States, but that is not in sight yet. The massive monetary and fiscal policy measures and anticipated additional fiscal measures coming into force in 2009—more than $2 trillion in worldwide stimulus packages currently—will take time to impact the economy. However, together with low oil prices and interest rates and continued economic growth in emerging markets these measures will help the global economy heal and start to grow again sometime in 2010.

The Overview of the Specialty Chemicals Industry is a comprehensive report on the global specialty chemicals industry, including regional status and outlook for North America, Western Europe, Japan and China. It includes a review of the year 2008, covering the immediate as well as medium-term impact of the financial crisis, macroeconomic developments in the main regions, and trends for end-use industries. The report provides an analysis of changes in the specialty chemicals industry structure worldwide and for the four major regions, including success factors and opportunities for specialty chemical companies.

(For the complete June 2009 OVERVIEW OF THE SPECIALTY CHEMICALS INDUSTRY, visit this report's home page or see vol. 2 of Specialty Chemicals—Strategies for Success.)

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CEH Product Review Abstract
ETHYLENE DICHLORIDE
By Eric Linak

Ethylene dichloride (EDC) is used primarily for the production of vinyl chloride monomer (VCM), which in turn is used almost entirely for polyvinyl chloride (PVC) production. Global consumption of EDC grew by about 4.5% per year from 2004 to 2007, but fell significantly in late 2008 as a result of the economic crisis. Consumption in 2008 was about the same as that in 2005.

The following pie chart shows world consumption of EDC:

EDC is made principally by the direct chlorination or oxychlorination of ethylene. Most EDC plants are integrated with VCM plants. The VCM process generates considerable quantities of hydrogen chloride (HCl), which is then recycled in the oxychlorination process to generate more EDC. VCM can also be made by the hydrochlorination of acetylene. This process is considered obsolete in all parts of the world except China. China was aggressively adding VCM plants based on the acetylene process from 2000 to 2008, but interest has waned since mid-2008, when crude oil prices dropped significantly, making EDC a more economic feedstock for VCM.

EDC is produced by about 65 firms in approximately fifty countries. It is difficult to tabulate EDC capacities because many producers do not report EDC capacity, or report the stand-alone capacity or the direct chlorination capacity, but do not include the oxychlorination capacity because it only processes an HCl recycle stream.

Consumption of EDC will remain dependent on the growth of the PVC business and is expected to increase globally at an average annual rate of approximately 4.8% per year from 2008 to 2013. Geographic patterns will vary significantly, with the developed regions demonstrating slower growth rates than other areas. Major VCM expansions are planned in the Middle East, Russia and China, but many plans will be delayed or cancelled because of the 2008–2009 economic crisis. In China, expansion of acetylene-based technology has been curbed by the plunge in crude oil prices; the EDC route is also more environmentally friendly, produces higher-purity product, consumes 50% less energy and less water. As a result, the Chinese may satisfy growing demand for PVC by importing more EDC-derived VCM and/or PVC. However, if the price of crude oil increases significantly, the Chinese may install more acetylene-based VCM capacity.

(For the complete product review on ETHYLENE DICHLORIDE, visit this report's home page or see p. 651.5000 A of the Chemical Economics Handbook.)

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CEH Marketing Research Report Abstract
ETHYLENE-PROPYLENE ELASTOMERS
By Emanuel Ormonde with Masahiro Yoneyama

Ethylene-propylene elastomers (also referred to as EP elastomers) are the third-largest synthetic rubber consumed worldwide, after styrene-butadiene rubber (SBR) and polybutadiene rubber (BR). EP elastomers are characterized by their outstanding resistance to ozone, aging, weather and high temperatures. Moreover, they possess good low-temperature flexibility and have excellent electrical properties. These combined characteristics make EP elastomers particularly useful in certain automotive parts, single-ply roofing, appliance parts, polymer modification, wire and cable sheathing, as viscosity index improvers for lubricating oils, and in hoses and other miscellaneous applications. In addition, EP elastomers have lower densities than all other elastomers and plastics and can accept high loadings of reinforcing agents, fillers and plasticizers, rendering them an economical choice for a wide range of applications.

The following pie chart shows world consumption of EP elastomers:

In 2008, North America, Western Europe and Asia accounted for 26%, 25% and 34% of world consumption of EP elastomers, respectively. The United States (accounting for all North American production) was the largest exporting country, followed by the Republic of Korea and Japan. China's EP elastomer imports have been growing rapidly, and in 2008 the country was the largest single importing country, with imports accounting for close to 90% of the country's consumption.

Consumption of EPDM in automotive applications is the major use for EP elastomers (including the EP content of thermoplastic olefins), accounting for approximately 45–55% of global demand. EP elastomers are used for various body and chassis parts, radiator and heater hoses, and door and window weatherstripping. Thus, the growth of EP elastomers depends heavily on the growth of the automotive industry, which was severely impacted by the 2008–2009 financial crisis.

The supply of EP elastomers was not tight in 2008. The world operating rate during this time period was 75% on average. The current capacity as of early 2009, however, will not be sufficient for the 2013-and-beyond demand for EP elastomers. This situation will be alleviated some by capacity expansions as well as the expected new EP elastomer units in the Middle East (mainly Saudi Arabia) and possibly Asia in the near future, but the market is still expected to be tight in 2013.

As of March 2009, thirteen companies produced ethylene-propylene elastomers at seventeen sites around the world. Of the U.S. producers, only Dow Chemical Company and ExxonMobil Chemical Company have captive ethylene and propylene production. In Western Europe, ExxonMobil Chemical Company and DSM Elastomers have integrated feedstock positions, while other producers purchase raw materials or have only limited captive supplies (Polimeri Europa). In Japan, all of the EP elastomer producers are associated with a petrochemical center that operates olefins units.

(For the complete marketing research report on ETHYLENE-PROPYLENE ELASTOMERS, visit this report's home page or see p. 525.2600 A of the Chemical Economics Handbook.)

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CEH Product Review Abstract
ISOPROPYL ALCOHOL (IPA)
By Elvira O. Camara Greiner and Yoshio Inoguchi

Use of IPA in direct solvent applications accounted for 62% of total IPA demand in 2008. IPA is also used in surface coatings, inks, pesticide formulations, electronic applications, reagents and as a processing solvent in the production of resins.

Global IPA-based acetone production is expected to decrease with the increase of phenol capacity (acetone is a coproduct of phenol by the cumene peroxidation process). It is estimated that IPA-based acetone will no longer be produced in Western Europe after 2010. Worldwide IPA consumption is forecast to grow at an average annual rate of 1.0–1.5% during 2008–2013.

The following pie chart shows world consumption of isopropyl alcohol:

In 2008, global supply/demand was relatively balanced as demand decreased because of the weakened global economy. As of late 2008/early 2009, the acetone market has been tight as a result of its coproduct phenol's decreased demand (and hence production). This could lead to increased IPA consumption for competing applications, particularly chemical intermediates. Supply/demand and feedstock (propylene) costs have had and will continue to have the greatest effect on IPA pricing.

(For the complete product review on ISOPROPYL ALCOHOL [IPA], visit this report's home page or see p. 668.6000 A of the Chemical Economics Handbook.)

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CEH Marketing Research Report Abstract
METHYL METHACRYLATE
By Sebastian N. Bizzari

Methyl methacrylate monomer (MMA) is by far the most important methacrylic acid ester. It is a colorless, volatile, flammable, liquid that is slightly soluble in water. It polymerizes readily upon heating in the presence of a free radical initiator to form polymethylmethacrylate (PMMA) resins, which have excellent transparency, strength and outdoor durability. MMA is also copolymerized with other monomers (vinyl acetate, acrylate esters or other methacrylates); the bulk of consumption is in acrylic polymers.

Construction/remodeling activity, automotive applications and original equipment manufacture account for approximately 80% of world MMA consumption. Demand for these markets is greatly influenced by general economic conditions. As a result, demand for MMA largely follows the patterns of the leading world economies. The markets for MMA are largely captive; many large producers consume 50–60% of their production captively, mainly for polymethylmethacrylate resins (PMMA) or surface coatings.

The following pie chart shows world consumption of methyl methacrylate:

World consumption of MMA grew at an average annual rate of 3.6% during 2005–2008, down from 5.0% during 2002–2005, the result of weaker demand caused by a sluggish global economy, especially during 2007–2008. Strong Asian (excluding Japan) demand in all applications boosted overall demand during 2005–2008. World consumption is forecast to grow at an average annual rate of 3.3% during 2008–2013. Continuing significant-to-rapid demand growth in Asia for PMMA electronic applications (flat screen televisions and liquid crystal displays) and surface coatings, and in Central and Eastern Europe, Africa and the Middle East for surface coatings, will balance out moderate growth in the Americas and Western Europe.

(For the complete marketing research report on METHYL METHACRYLATE, visit this report's home page or see p. 674.4500 A of the Chemical Economics Handbook.)

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CEH Product Review Abstract
POLYCHLOROPRENE (NEOPRENE) ELASTOMERS
By Thomas Kälin with Masahiro Yoneyama

Polychloroprene rubber (CR), also known as neoprene, was the first commercially successful synthetic elastomer, synthesized accidentally in 1930 in a DuPont laboratory. First named Du Prene, the elastomer went on the market in 1931. Polychloroprene is produced in a variety of grades in both dry and latex forms. Dry grades of CR are normally used in industrial and automotive rubber goods such as hoses and belts. Latex grades of CR are used in waterborne adhesives and dipped goods. At present, polychloroprene is produced commercially in the United States, Germany, Japan, Armenia and China.

Polychloroprene is noted primarily for its high strength and excellent resistance to ozone, flame and weathering, as well as good resistance to abrasion, oxidants, oil and aging. However, it tends to be higher priced than other elastomers, has only fair dielectric properties, a mediocre resistance to low temperatures and loses resilience above 120°C. Because average under-hood temperatures in automobiles have been increasing, auto producers have been substituting competing elastomers; thermoplastic elastomers compete heavily in these markets, offering the additional advantage of recyclability.

The following pie chart shows world consumption of polychloroprene elastomers:

Global polychloroprene consumption is forecast to grow at an average annual rate of 1.0% through 2013, with Taiwan showing the highest growth at 5.9% and Mexico the lowest with an estimated decrease of 3.9%. Consumption in Western Europe, Japan and the Republic of Korea is expected to slowly decline.

World demand for CR has decreased in recent years because of its relatively high price and increasing substitution from competing elastomers such as EPDM (ethylene-propylene diene monomer rubber). This trend has been most notable in the automotive sector, which represents about 20% of global consumption.

(For the complete product review on POLYCHLOROPRENE [NEOPRENE] ELASTOMERS, visit this report's home page or see p. 525.3200 A of the Chemical Economics Handbook.)

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CEH Product Review Abstract
POLYVINYL CHLORIDE (PVC) RESINS
By Eric Linak

The general performance characteristics of PVC plastics include mechanical toughness, fairly good weather resistance, resistance to water and many chemicals (including strong mineral acids), inherent fire retardancy, fairly good electrical insulating properties, tendency to decompose upon exposure to intense light or high heat, tendency to emit toxic vapors upon decomposition, and thermoplastic character; that is, PVC plastics that contain little or no plasticizer tend to be sensitive to impact at low temperatures. Additives can mitigate some of these shortcomings.

PVC is the most versatile of all thermoplastics. It can be converted either into rigid products of considerable strength and hardness or into flexible articles when compounded with plasticizers. Rigid applications accounted for 65% of total consumption and provide most of the growth opportunities.

PVC is a global product, manufactured by over 100 companies in approximately fifty countries. Practically all incremental capacity during 2005–2008 was installed in China, and to a lesser extent, India and the Middle East.

The following pie chart shows world consumption of PVC:

PVC consumption is highly dependent on the construction market, as about 70% of world consumption is for pipe, fittings, siding, windows, fencing and other applications. It has increasingly been used as a replacement for traditional construction materials such as wood and metals, so its growth has been above that experienced by the overall construction industry. In industrialized countries, demand will be strong for piping and fittings, especially for telecommunications and natural gas. In the developing world, PVC pipe will grow rapidly, particularly for infrastructure for drinking water, sewage and drainage. Other leading rigid applications are siding, windows, fencing and packaging sheet. In North America, PVC is mainly used for pipes and sidings, while in Europe and Asia, most use is for pipes and window frames. Builders in Japan have begun to use more PVC windows, in part because of their superior insulating properties to reduce heating and cooling costs. Demand is growing strongly in China for construction materials as well as consumer goods. Flexible PVC is used for film and sheet, wire and cable insulation, floor coverings, synthetic leather products, coatings and many other consumer goods. Demand for flexible PVC has declined in the industrialized world, but continues to rise in certain countries such as China and India.

Health and environmental issues, and even product image, have been major concerns for the worldwide PVC industry. In Europe, concerns over plasticizer toxicity have led to substitution of DOP with diisononyl adipate (DINA) and other substitutes such as DINP, that incur less objections. Solid waste disposal and the potential for recycling are among the major issues facing PVC and other plastics today. PVC forms dioxins and other potentially harmful compounds during solid waste incineration. PVC producers, especially in Europe, have been developing methods for recycling. In addition, some large retailers are requiring suppliers to use non-PVC packaging because of recycling concerns.

(For the complete marketing research report on POLYVINYL CHLORIDE [PVC] RESINS, visit this report's home page or see p. 580.1880 A of the Chemical Economics Handbook.)

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CEH Product Review Abstract
VINYL CHLORIDE MONOMER
By Eric Linak

Vinyl chloride monomer (VCM) is used primarily for the production of polyvinyl chloride (PVC) homopolymer and copolymer resins. From 2004 to 2007, global consumption of VCM grew by about 5.5% per year as a result of strong demand for PVC, mainly for construction end uses. In 2008, the global business started strong but after October, deteriorated significantly as a result of the global economic crisis. In the United States, industry operating rates were about 50% in December 2008 and January 2009.

The following pie chart shows world consumption of vinyl chloride monomer:

Consumption of VCM will remain dependent upon the performance of the PVC business, which is expected to increase globally at an average annual rate of 5.4% from 2008 to 2013 as the world recovers from the economic crisis of 2008–2009. Growth rates in such developing regions as the Middle East and China will be considerably higher than in traditional developed economies like Western Europe, North America and Japan.

VCM is made principally by the pyrolysis of ethylene dichloride (EDC); the EDC is derived from ethylene, which is made by the cracking of natural gas or crude oil fractions. Most VCM units are integrated with EDC production. In China, most VCM is produced by the hydrochlorination of acetylene; the acetylene is produced from calcium carbide which in turn is derived from coal. This process became more attractive from 2003 to mid-2008 when crude oil prices rose significantly. However, in the latter part of 2008, crude oil prices fell by two-thirds, making the EDC route more attractive. By the end of 2008, China was importing EDC-derived VCM and PVC while many acetylene-based VCM producers were operating at very low rates.

Major VCM expansions are planned in the Middle East, Russia and China, but many plans will be delayed or cancelled as a result of the economic crisis. In China, expansion of acetylene-based technology has been curbed by the plunge in crude oil prices; the EDC route is also more environmentally friendly, produces higher-purity product, and consumes 50% less energy and less water. As a result, the Chinese may satisfy growing demand for PVC by importing more VCM and/or PVC, depending upon crude oil prices.

(For the complete product review on VINYL CHLORIDE MONOMER, visit this report's home page or see p. 696.6000 A of the Chemical Economics Handbook.)

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