1. Chlor-Alkali:
Shale Gas as a Cost
Driver
Joel Lindahl, Director Chlor-Alkali, Vinyls
Joel.Lindahl@ihs.com
SE TAWWA
December 2012

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Energy
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& Defense
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Power & Security
Utilities
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Financial
Agriculture
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Shipping
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4. World Chlorine Demand Growth
Vs. GDP Growth
Percent, %
10
Forecast
8
6
4
2
0
-2
-4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Chlor-Alkali Demand Growth GDP Growth
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5. Economy & Energy
Global economy enters another difficult period
• Eurozone real GDP to decrease Real GDP % 2010 2011 2012 2013
in 2012 and 2013 U.S. 3.0 1.8 2.2 1.8
• GDP Forecast for all regions Eurozone 1.8 1.5 -0.2 -0.0
revised downwards Japan 4.5 -0.7 2.4 1.3
• Weakened global economy China 10.4 9.3 7.7 7.9
exerts downward pressure on Brazil 7.5 2.7 1.9 3.8
many commodity prices- but
makes caustic short India 9.6 6.9 5.8 6.7
Russia 4.3 4.3 3.6 3.5
• Most GDP risks are on the
downside World 4.3 3.0 2.6 2.7
Updated September 2012
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6. Issues Shaping Chlor-Alkali
• North America
−Shale Gas Changing the Industry
• Asia
−Overcapacity Makes the Market
• Europe
−Challenges of Technology Conversion
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 6

7. Stranded Natural Gas vs. Global Oil
North America Energy Price Trends
Dollars Per MMBtu Gas as a % of Crude, BTU Basis
18 70%
16
60%
14
50%
12
10 40%
8 30%
6
20%
4
10%
2
0 0%
06 07 08 09 10 11 12 13 14 15 16
Crude (WTI) Natural Gas Gas as % of Crude
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8. Importance of Energy in Chlor-Alkali
Most of the World
Oil  Naphtha  Ethylene
EDC  VCM  PVC 
Oil  Electricity  Chlor-Alkali
Fabricated Products
Pipe/Siding & Other
North America & Middle East
Natural Gas  Ethane  Ethylene
EDC  VCM  PVC 
Natural Gas  Electricity  Chlor-Alkali
China
Coal  Carbide  Acetylene
VCM  PVC 
Coal  Electricity  Chlor-Alkali
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9. U.S. Shale Gas Changes Dynamics
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10. Stranded Liquids from Wet Shale Gas
Flow Into Gulf Coast Chemicals
Steam Crackers
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© 2012, IHS EIA 10

11. U.S. ECU Cash Costs – 2012 Membrane
Importance of Electricity
Salt/Chemicals
$27 • The key cash cost driver for
13% chlor-alkali is electricity
Electricity $80
38%
• Large scale producers in
North America derive
2011 Electricity Costs electricity from natural gas,
(Cents/kWh) through co-generation, the
North America = 3.0 structure of which forms the
Europe = 8.4 basis of our forecasts
Brazil = 7.3
• Chlorine isn’t directly
exportable, and needs to be
transformed into a derivative
Fixed $93 to become a global
Variable $9
45%
4% commodity- but caustic is a
classic global commodity
2012 Total ECU Cash Cost = $209/ECU MT
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12. ECU Cash Costs: Shale Gas Improves U.S.
Cash Costs, Dollars Per Metric Ton
600
550
500
450
400
350
300
250
200
150 Middle East
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
USGC ECU Cash Costs WEP ECU Cash Costs
NEA ECU Cash Costs CHI ECU Cash Costs
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13. Shale Gas Double Benefit to Vinyls…
Ethylene-Based Vinyls Flow
Oxygen
Electricity
OxyChlor
HCL
EDC
Caustic + Chlorine
Ethylene
Direct
VCM PVC
Chlor EDC
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14. How to Use Low Cash Costs-
Chlorine End-Use Applications
Others Vinyls
31% 33%
50+% Durable
Goods
(Infrastructure &
Housing)
Water
Treatment
6%
Pulp & Paper Organics
3% Chlorinated
Inorganics Intermediates 20%
2% 5%
2011 World Demand = 60.6 Million Metric Tons
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15. North America
Chlorine Net Equivalent Trade
Million Metric Tons
5.5
Net Exports Forecast
5.0 • Vinyl chain exports
4.5 are the derivative
4.0 of choice to move
3.5 low cost chlorine
3.0 and ethylene from
2.5 the region
2.0
1.5 • Cash costs of the
1.0 region bring the
0.5 opportunity to
0.0 compete globally
Chloroform EPI Methylene Chloride EDC VCM PVC
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16. Implication for Capacity: Shale Gas Advantage
Leads to Investment in Chlor-Alkali
Capacity
Producer Timing
(-000- MT Chlorine)
2010 12,480
Shintech Q4-2010 162
FPC Mid-2011 175
Shintech Mid-2011 482
Added Capacity
2010-2014 Dow/Mitsui 2H-2013 800
Westlake 2H-2013 350
OxyChem 2H-2013 183
Others Various 18
Total Announced Additions 2,170
2014 14,650
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17. Shale Gas – Broad Implications
• The Shale Gas Shift in the USGC is changing dynamics
− USGC cash costs of ECU production are lower relative to other regions
− Cash costs of EDC, VCM, PVC are lower
• New investments are based on exports of chlorine (as derivatives)
− Generating excess caustic soda production for this region
− Creating a trade shift for caustic soda - more net exports
• Creating a two-tier US industry
− Large multi-nationals integrate chains for exports
− Small, close -to -merchant producers serve more of the domestic
market, answering transportation concerns for chlorine
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 17

18. Issues Shaping Chlor-Alkali
• North America
−Shale Gas Changing the Industry
• Asia
−Overcapacity Makes the Market
• Europe
−Challenges of Technology Conversion
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 18

19. Too Much Capacity-
China Drives for Self-Sufficiency
Capacity Additions, Million Dry Metric Tons
5
China’s Cumulative Capacity
4 Change = 27 Million DMT
3
2
1
0
-1
2000 2002 2004 2006 2008 2010 2012 2014
NAM WEP CHI
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20. 2012 World Chlorine Demand by Region
Africa/Middle Indian Subc.
East 4%
4%
CIS & Baltics NE Asia
2% 49%
Europe
16%
S. America
3%
N. America SE Asia
19% 3%
2012 World Demand = 62.2 Million Metric Tons
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

21. 2012 World Caustic Soda Demand
25%
12%
5%
Africa/
12% 14% Middle East
CIS & 3%
Baltics
S. America
15% Europe 2%
17% 6% Indian
15% Subc.
5%
N. America
18%
Product Segments
Pulp
Alumina
Organics SE Asia NE Asia
Soaps/Detergents/Textiles 7% 44%
Inorganics
Water Treatment
Others
Global Demand = 66.4 Million Dry Metric Tons
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22. Chlorine Operating Rates
Excluding Hypothetical Capacity
Operating Rates
100
• Recession and
95 massive overbuild in
China drove
90
unhealthy operating
85 rates
• Recovery in North
80
Global
America precedes
75 North America other regions
West Europe • Low capacity
70 Northeast Asia utilization in Asia
China has global
65
implications – high
60 cost region
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23. Arbitrage Yields a ‘Global Caustic Price’
$450 FOB
$410 FOB
Northeast Asia
USGC
$430 FOB
$94
Middle East
CFR Australia
February 2012 Spot Caustic Prices
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24. Energy and Caustic: Price Support
Caustic, U.S. Dollars per DMT Crude, U.S. Dollars per Barrel
600 130
500 120
110
400
100
2011 Avg = $106 per Barrel
300
90
200
Tosoh Explosion 80
2010 Avg = $78 per Barrel Japan Tsunami
100 70
0 60
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12
FOB NEA Spot CFR SEA Spot Dubai Crude Oil
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25. Regional Caustic Netbacks
Constant U.S. Dollars
U.S. Dollars • Caustic soda global
900
NAM WEP NEA xChina
price equilibrium will
800 occur in a bounded
700
range based on energy
costs in marginal
600 producing regions
500
400 • Chlorine contributes
little to revenue until
300
operating rates improve
200
100 • A cycle peak is forecast
in 2016/2018 once
0
operating rates improve
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 25

26. ECU Margins Differ Widely
U.S. Dollars Per ECU Asset Share Methodology
500
North America ECU Margin • Combining the caustic
West Europe ECU Margin prices set in high cost
400
Asia ECU Margin
regions with North
American cost position
300
generates good ECU
margins there
200
• Europe high cost
100 inhibits investment for
technology upgrades
0
• Asia overcapacity
-100 persists
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 26

27. Issues Shaping Chlor-Alkali
• North America
−Shale Gas Changing the Industry
• Asia
−Overcapacity Makes the Market
• Europe
−Challenges of Technology Conversion
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 27

28. Europe’s Compounding Issues
• Europe has structural differences from other developed
regions
− More fragmented Industry
− Many smaller units, resistance to closures
− Significant installed mercury capacity
• Regulatory Pressures
− Mercury conversion target date
− REACH complexity, cost
− CO2 abatement, cost
• Weak Margin environment
− High cost of energy
− Middle East Producers on one side, USA on the other
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29. West Europe Needs Investment
Chlorine Capacity, Million Metric Tons
12
10
8
6
4
2
0
05 06 07 08 09 10 11 12 13 14 15
Mercury Diaphragm Membrane
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30. Given Shale, China, Europe…
Caustic Soda Regional Roles Defined
Weak cost
Growth region
position,
but extreme
Needs investment,
overcapacity
Price setter
New low-cost
Higher cash costs,
position,
Price setter,
Growing reliance
Marginal
on exports,
production
Investing
Largest volume
import demand,
Price taker
Price equilibrator
between regions
Large import Price Taker
demand, Fabulous cost
Higher cash cost structure
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31. Outlook for Caustic Trade
Global Caustic Soda Net Trade, Thousand Dry Metric Tons
3759
2948
2799
2467
295
289
1586
145
1109
West Europe
1132
United States Northeast Asia
569
528
Southeast Asia
Middle East
South America
Net Trade Flows
2007
2173
2588
2012
3297
1633
1848
2017
2482
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32. U.S. Caustic Soda Net Trade
Million Metric Tons Percentage
• Net exports must
4 25%
increase to handle
the additional
20% caustic generated
3
by chlorine chain
15% exports
2
10%
• Imports on our
East/West coast will
1 decline
5%
• Exports will become
0 0% a significant
07 09 11 13 15 17
percentage
Imports Exports Net Exports as % of Total Demand
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 32

33. Closer to Home… U.S. Market Transforms
• Chlorine transportation costs are changing the industry
• Liability and cost structure of rail transport is changing
economics of the industry
• Merchant supply moving near merchant demand
• Rising influence of regional production
• Shipping acid, bleach preferred over chlorine
• Chlorine burners abound
• ‘High strength’ bleach travels farther
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 33

34. Closer to Home… U.S. Market Transforms
• Consider these new names in the industry in recent
years…. there is a reason
• Bleach Tech, Trinity, Odyssey, Kuehne, K2 Pure,
Colorado Salt, Allied Universal
• All service a specific regional market
• Consider these statistics in recent years…there is a reason
• 1995 ~24 producers Top 10 = 92% of capacity
• 38 % of chlorine internally consumed
• Today ~16 producers Top 10 = 95% of capacity
• 52 % of chlorine internally consumed
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 34

35. Closer to Home… U.S. Market Transforms
• Industry morphing into two tiers
• Integrated players do not sell chlorine
• Merchant producers smaller, local
• Consolidation continuing- now occurring in the
distribution sector
• Rise of the acid market
• Demand into shale gas is new parameter
• Value of acid to market is higher
• More ‘on purpose’ acid in the market
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 35

36. U.S. HCL Prices- Shale gas ‘Pull’
Delivered Midwest
Dollars Per Solution Short Ton, Delivered
325
300 HCL 20 Be Forecast
275 HCL 22 Be
250
225
200
175
150
125
100
75
50
25
0
07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 Q3 13 Q3 14 Q3
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37. Conclusions…Where to Now?
• We see 2013 as similar to 2012
• Economies sluggish, energy unchanged….
• Some variation around prices, but no major shift
• Chlorine, caustic prices remain ‘bounded’
• Incidents and temporary events drive
• New capacity arrives, but does new production-NET?
• Input costs to water treatment….
• Don’t expect major price relief or escalation
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 37

38. Thank you!
Available now- Vinyls and
Chlor-Alkali World Analyses
Available Soon- Global
Chlor-alkali Cash Cost
Curves