Impact of Petroleum Pricing. Raw Material Market Dynamics for Metal Coatings

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1 Impact of Petroleum Pricing Raw Material Market Dynamics for Metal Coatings

2 Petroleum & Natural Gas Markets Have Direct and Indirect Impact on RM Costs Direct Raw Material Availability and Pricing Indirect Cost of Supplier Manufacturing Operations Transportation and Shipping Costs

3 Factors affecting Petroleum & Natural Gas Markets World Demand Geopolitical influence (e.g. Middle East) Import vs Export, transportation US Market Weather; Heating/Cooling, Tropical Storms Speculation, Futures Trading Government Regulation Refinery Capacity and competition for feed stocks

4 $80 $70 $60 $50 $40 $30 $20 $10 $0 Crude Oil Trends CRUDE OIL (West Texas Intermediate) April 2006 J a n A p r- 0 4 J u l- 0 4 O c t J a n A p r- 0 5 J u l- 0 5 O c t J a n A p r- 0 6 $/Barrel $72.88/ barrel

5 Natural Gas Trends $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 Average NYM EX Settlement P rices April 2006 $ $/MMBTU $1.809 $2.142 $1.901 $1.636 $2.591 $2.587 $2.108 $2.268 $3.886 $4.273 $3.221 $5.407 $6.119 $9.252 $7.474 Year

6 Crude Oil & Natural Gas are the Key Starting Materials for Solvents & Resins Crude Used for Naptha production Naptha feeds gasoline & oil production Also used for Ethylene and Propylene Natural Gas Energy fuel for electricity and heating Also used for Methanol, carbon black Principle RM for Ethylene and Propylene

7 Principle Petrochemical Feedstocks Butane Hydrogen Xylenes Crude Oil Refinery Reformer BTX Toluene ~30% Naptha Gas Oil Reformate Pygas BTX Extraction Benzene Ethane Propane Butane Steam Cracker Raffinate Propylene Natural Gas Gas Separation Unit Ethylene ~70% Methanol Butadiene

8 Resins and Solvents for Coatings can come from 3 Major Feedstocks Ethylene Benzene Propylene.Each Step in the Petrochemical production process creates competing products that drive supply and prices.

9 Ethylene Ethylene Dichloride Vinyl Chloride Polyethylene Synthetic Alcohols Ethoxylates (Surfacants) Polyvinyl Chloride Ethylene Alpha Olefins Ethylene Oxide PAOs Polyalphaolefins Ethylene Glycol Ethers Ethylene Glycol Ether Acetates Polyester Polyols Polyethylene Terephthalate Ethylene Glycols Ethanol Ethyl Acetate Antifreeze Ethanolamines Ethyl Benzene Unsaturated Polyester Resins 1,3-Propanediol Corterra

10 Benzene Unsaturated Polyester Resins Polystyrene Ethyl Benzene Styrene ABS, SAN, SBR, SBL Acrylonitrile Butadiene Styrene Styrene Acrylonitrile Styrene Butadiene Rubber Styrene Butadiene Latex Adipic Acid Nylon 66 Benzene Cyclohexane Caprolactam Nylon 6 Cumene Phenol Phenolic Resins Epoxy Resins Acetone Bisphenol A Polycarbonate

11 Propylene Cumene Phenol Methyl Methacrylate Polymethyl Methacrylate Polypropylene Acetone Direct Solvent Propylene Acrylonitrile Adiponitrile, Hexamethylenediamine Solvent Aldols MIBK DAA Etc. Propylene Oxide Propylene Glycol Ethers Isopropyl Alcohol Isopropyl Acetate Propylene Glycols Propylene Glycol Ether Acetates Butanol, 2-Ethylhexanol Butyl Acetate Polyether Polyols Polyurethanes Acrylic Acid Acrylates

12 Feedstock Price Trends U S $ / LB. Ethylene, Propylene, Styrene:10 year historial prices (April 2006) $0.90 $0.80 $0.70 *Styrene $0.50/lb. $0.60 $0.50 $0.40 $0.30 $0.20 Ethylene $0.49/lb. Propylene $0.47/lb. $0.10 $0.00 A p r A u g D e c A p r A u g D e c A p r A u g D e c A p r A u g D e c A p r A u g D e c A p r A u g D e c A p r A u g D e c A p r A u g D e c A p r A u g D e c A p r A u g D e c A p r * S TYR EN E - This is a one-t ime adjust ment made t o more closely ref lect price levels f or large and medium volume t ransact ions. THIS SHOULD NOT BE INTERPRETED AS A MARKET PRICE CHANGE. PROP ETH STY

13 Pricing pressure is similar for other Key Components used in the paint & coating industry Pigments Organic and Titanium Dioxide Additives Waxes, Enhancers, Fillers The ability to mitigate costs, and reject downstream price increases weakened during 2003 as producers tightened supply and long term contracts expired.

14 2003 When the Dam Broke! DOL Producer Price Index, Paint Materials (last 4 points are preliminary) Jan -03 M ar-03 M ay-03 Jul-03 S ep -03 No v-03 Jan -04 M ar-04 M ay-04 Jul-04 S ep -04 No v-04 Jan -05 M ar-05 M ay-05 Jul-05 S ep -05 No v-05 Jan -06 M ar-06 Date P P I, P aint M aterials

15 Key Points to Remember The Petroleum Market is Complex & Dynamic Global/Regional Economies and Politics Impacted by Capacity, Weather, Speculators Each Petro-product has its own demand dynamic Supply & Demand has shifted to a Seller s Market Price increases are successful due to a captive market and limited supply Price increase for feedstock=increase for resins, etc. Price will change when dynamics change

16 What can be done do to minimize cost escalation? Develop Good Supplier Relationships Based on Reliability & Best Value vs Competitive Stabilize supply during shortages, natural disasters Enables good due diligence when prices increase Establish Effective Supply Continuity Plans Enables competitive pricing for commodities Protects RM supply during price sensitive events Protects customers from stock out risks Helps Primary and Secondary Suppliers plan their business