Procurement Update Adhesive Raw Materials

1
Procurement UpdateAdhesive Raw Materials
May 3, 2007 Fran Brady Procurement Director
2
PRECURSOR TRENDS
3
From One Barrel of Oil After Fuel - We get Gas
Liquid Feeds
4
Ethylene The Source of Chemicals
3 of the 7 left for Chemicals
5
Feedstock Supply Chain
Relationship North American View
CRUDE OIL / NATURAL GAS
REFINERY AND PETROCHEMICALS
Solvents
PROPYLENE
METHANOL
ACETIC ACID
ACRYLIC ACID
C5 RESINS
H2 DCPD RESINS
WAX
STYRENE
BUTADIENE
ETHYLENE
ISOPRENE
C9 RESINS
BLOCK CO POLYMERS
EVA
VAM
ACRYLIC EMULSIONS
PVA/EVA EMULSIONS
HOT MELT ADHESIVE
SOLUTION WATER BASED ADHESIVES
HOT MELT ADHESIVE
Rosin Ester
CTO
Rosin
6
Raw Material Precursors Crude OilOPEC belt
tightening crude hovering around 60.
1995 2004 10 - 30 per barrel 2004 2007
50 - 75 per barrel
7
Raw Material Precursors Natural Gas
1995 2000 1.5 - 4 mmBTU 2002 2007 4 -
11 mmBTU
8
Precursors (Alternative Value) Unleaded
GasFollows Crude OPEC supply tightening lower
inventory early driving season.
1995 2003 25 100/gal 2003 2007 125 -
230/gal
9
Ethylene, Propylene and VAM

• Propylene is a key feedstock for Acrylic Acid
  Acrylate Esters
• Ethylene is a key feedstock for VAM ,PVOH, EVA
  resins.
• Propylene has risen strongly in the first part of
  2007 and is back at 48c/lb the October price,
  prior to the 9c/lb drop in November. Prices
  expected to increase at least another 0.02/lb
  through Q2.
• Ethylene price has also risen steadily over the
  last 3 months and is expected to continue into
  Q3.
• VAM price is expected to remain stable through Q2
  but may see increases in Q3 due to rising
  ethylene prices.

10
Precursors Chemical Feeds
11
Allied Materials PolyolefinsAfter a long spell
of softness - Demand has picked up
12
HOT MELT RAW TRENDS
13
Ethylene Copolymers

• EVAs
• Supply No issues at EVA producers.
• Demand General demand for plastics has steadily
  increased into Q2.
• Price Ethylene continues to increase and
  derivative demand is improving. 6-8 price
  increases for EVAs announced for mid May
  following HDPE and LDPE.

14
Block Copolymers

• SIS
• Supply No issues at SIS producers.
• Demand Formulation changes increase use of WB
  Acrylic Tapes has had an impact. Short term
  supply outlook for SIS is good. Long term is a
  concern as there are few integrated sources of
  high purity isoprene.
• Price SIS price has softened as of Q1 moving
  into Q2 07. Quantities of off-shore materials of
  questionable quality are available.
• SBS
• Supply Butadiene in North America has tightened
  recently. Europe is balanced and exporting to NA.
  No supply issues with SBS producers.
• Demand North American demand is lower due to
  weakened automotive (tires hoses) and housing
  (roofing carpet). Road repair season has
  started causing fresh demand.
• Price Monomer costs have increased steadily over
  the last few months. Expect market increases for
  SBS by July 2007.

15
OILS

• Naphthenic Process Oils
• Supply Major supplier remains on 100 sales
  control
• Demand Huge new market demand in tires projected
  to tighten market further ramping up in Q3 07
  into 2008 to meet 2010 European deadline.
• Price Q1 remained stable but significant
  increases expected in second half of the year.
• Paraffinic White Oils
• Supply improving but still remains on
  allocation.
• Price no announcements for Q2 07 at the moment.
  Base oil prices are expected to increase in early
  Q2.

16
Tackifiers

• H2 HCs
• Supply No expansions planned in 2007. Most
  suppliers above 90 capacity.
• Demand Reportedly still strong globally
  particularly in Asia.
• Price Increased pressure with rising mogas and
  strong demand.
• Non H2 HCs
• Supply No expansions planned in 2007. C9 remains
  tight globally above 90 capacity. C5 resins
  are balanced.
• Demand Strong replacement activity for rosin
  esters H2 HCs
• Price C9 under pressure due to rising mogas
  value and strong demand. C5 similar but
  adequate supply may balance this.

17
Tackifiers

• Rosin based
• Supply rosin supply has improved for domestic
  sources as imported materials continue to grow.
• Demand Seems to have come into balance as of
  late.
• Price Rosin has stabilized and has improved
  slightly.
• Terpene based
• Supply d-Limonene supply is now critical.
• Demand new higher margin applications (cleaners,
  fragrances, tires) taking most capacity.
• Price d-Limonene based materials will see
  significant increases in the second half of the
  year.

18
Summary Hot Melts

• HM Raw Supply Some polymers are less supply
  critical due to softer economy in Q4 06 / Q1 07.
  No significant new capacity in tackifiers in
  2007. Most tackifier suppliers looking for
  regular forecasts to meet customer needs. Process
  oils and paraffin wax will continue to be tight.
• HM Raw Prices New pressure is building as energy
  costs alternative values in motor gasoline
  begin to rise again.
• Demand Demand has begun to show signs of
  revitalization. Some demand generated from the
  move from petrochemical to natural based
  tackifiers.
• Supply chain focus remains critical.
• Major areas of concern naphthenic oil, H2HCs,
  C9 tackifiers Styrenated terpenes

19
WATERBORNE SOLUTION RAW TRENDS
20
Acrylic Monomers

• Suppliers targeted increases in Q1 2007 because
  of firmness in propylene and short oxo-alcohols.
  They were unsuccessful as a result of some
  softer demand for acrylic monomers and prices
  fell 2-6c/lb dependent on size of account and
  monomer, with larger accounts dropping less.
• Oxo-alcohols and propylene continue to put upward
  cost pressure into the supply chain and some
  suppliers have announced price increases for Q2.
• Some of the new capacity in Asia has been
  temporarily closed because they cannot secure
  oxo-alcohol to make the esters used in Adhesives.
• Price will be determined by the demand for
  propylene as a result of demand in the US
  economy.

21
Solvents

• Supply Issues
• N-Heptane 99 High Purity is still on force
  majeure. Regular Heptane is now on sales control.
• IPA, Toluene, MEK, and Acetone all went up 3-5
  cents/lb in Mar-Apr because of oil pricing and
  supply issues.
• Ethyl Acetate Major suppliers are seeking a
  3c/lb increase for Q2. Demand for ester solvents
  into many downstream markets has been sluggish.
  Producers could have difficulty passing through
  their increases. Recent downturns in housing
  construction are expected to stifle some solvent
  consumption.

22
Waterborne Raw Materials

• Defoamers/Surfactants Continued high feedstock
  costs, particularly process oils, continue to put
  pressure on suppliers to keep their prices up.
• Plasticizer suppliers announced a 5 cent a lb
  price increase effective 4/1. They also advised
  that there may be another later in the year.
  Plasticizer pricing has more than doubled in the
  last 3 years.
• Emulsions expected to remain stable through Q2
  2007.

23
Summary Waterborne, Solution

• WB Raws Supply Heptane and Oxo-alcohols remain a
  concern but most other raws have stabilized
  supply.
• WB Raws Demand Other than the housing market,
  demand has begun to show signs of revitalization.
  Prices of Raw Materials are determined by
  supply-demand balance and not cost. Suppliers
  will not give on price where markets remain
  tight.
• WB Raws Prices Key precursors such as ethylene
  and propylene have begun to increase steadily
  through Q1 into Q2.
• Supply chain focus remains critical.
• Major areas of concern certain solvents,
  benzoate plasticizer

24
Packaging Materials
PAPER The linerboard market increase
announcement for Q107 did not materialize.
Therefore, linerboard rolled over from Q406. A
further increase may still occur in 2nd quarter
which would drive our price of fiber drums and
corrugated cartons up further in Q307. HDPE
Poly drum prices for Q207 have fallen slightly
due to lower HDPE prices in Q107 vs. Q406.
Expect HDPE prices to firm however, Q3
07. STEEL Cold rolled steel prices have slid
further due to excessive inventories and
decreased steel demand from auto parts makers and
building product companies. Market is
forecasting a slight pick up in price for the
next few months. DIESEL Diesel prices have
begun to firm after falling off since Sept 06.
Cost effects on packaging should remain stable at
current levels.