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  1. Sulphuric Acid MarketPresented atISM Chemical GroupWinter Meeting 2008Galveston, TXFebruary 28, 2008 rboyd@pentasul.com

  2. Sulphuric Acid – a hot market!! • In the US prices have tripled to an all-time high in the last twelve months, from $50-70/st to $150-250/st cfr customer tank. • Why did they get so high? • Have they peaked? • When will the market turn? • Is this a structural change? • How low will prices go and when?

  3. World Sulphuric Acid Supply Trends

  4. Sulphuric Acid - End Uses

  5. SULPHURIC ACID in PHOSPHATE Up to $30/tonne acid of byproduct energy available SULPHUR - one tonne SULPHURIC ACID - 3 tonnes PHOSPHATE ROCK - 3 tonnes PHOSPHORIC ACID one tonne P2O5 PHOSPHATE FERTILIZERS 0.5 tonne NH3 DAP - two tonnes

  6. Copper Price History 2.5 to 3.5 tonnes acid per tonne copper.

  7. Sulphuric Acid Long-Haul Trade 2006 1.2 0.3 0.5 0.2 0.5 2.3 0.5 0.3 0.1 0.4 0.6 0.1 0.6 0.3 0.5 Total Trade 11.8 Seaborne 7.2 Long-Haul 5.3 0.1 million tonnes

  8. Market Developments • A spike in import demand in Chile in late 2006 started the acid price surge. • By mid-2007 world sulphur prices started to move as well. • Not fully reflected in the United States until Q1-2008. • Sulphur increase began to be passed through to US sulphuric acid buyers.

  9. Chile Sulphuric Acid Imports(million tonnes) • Growth in first-quarter 2007 based on expected arrivals from Peru. • Q2-2007 shows imports from other sources returning to more manageable level. • And Q3 even more so.

  10. Spot Purchases for Chile Started the Upturn

  11. Chile Imports Much More in 2007 Chile’s long-haul acid imports surge, even with increased imports from Peru.

  12. Far East Sulphuric Acid Exportsmillion tonnes

  13. Japan, Korea both export more Surging world prices attract more sales outside the region. Less to China.

  14. Japan needed the US as a swing market until it developed China

  15. China Sulphuric Acid Imports‘000 tonnes

  16. New Acid Supply(‘000 tonnes) • Bulgaria – expansion complete to add 170. • Egypt – 420 imminent. Displaces around 200 imports from India. • Finland – 340 by January 2008. Part from Harjavalta expansion part from Growhow. • Namibia – 300 end-2010. Displacing 225/250 imports. • Chile – Altonorte up 300 Q1-2009. • Cuba – 400 end-2009. Displacing imports. • Peru – Doe Run up 315 by end-2009. New exporter. Cajamarquilla up 280 in 2010. Ilo up 500 in 2010?

  17. New Acid Demand(‘000 tonnes) • Turkey – Caldag will look for start-up tonnes in 2009. • Finland – Talvivaara needs 280-320,000 t.p.a. from 2010. • Cuba – Debottlenecking prior to new acid plant completion in 2009. • Philippines – Doubling of Coral Bay Nickel will add 260 to import demand Q2-2009. • U.S.A. – Freeport needs 250-350 for Safford, AZ. • U.S. Gulf/Mexico – Phosphate producers could use a lot more if affordable. • Chile – Gaby among several imminent projects.

  18. Why are sulphur prices high? Production(supply) development slower than expected as projects slow to come online on labor and cost constraints. Canada and Russia exports fall in Q1 2007. Strong demand by China. Phosphate market shows strength. Does this signal a fundamental change in pricing structure? Probably not. Higher costs raise price floor level. Production restrictions will eventually be removed. Domestic sulphur production in China will grow and reduce the need for imports. Sulphur Prices

  19. Late 2006 – sulphur prices were still declining!

  20. Major Suppliers Provide less Sulphur in Q1-2007 Estimates Vancouver 25% decline Russia 50% decline

  21. ADNOC posting (fob) $240/tonne November 1st $360/tonne December 1st $495/tonne January 1st $600/tonne February 1st Accelerating rate of price increases: $54-$100 – elapsed time 5 months $100-$200 – 4 months $200 - $600 – less than 4 months

  22. DAP Price History 0.5 tonne sulphur per tonne DAP produced.

  23. Sulphur supply was less than expected in 2007 Source: IFA/FRC

  24. More sulphur in the longer term, but slightly reduced growth to reflect delays in the short term All forms; sulphuric acid, SOX, Ammonium sulphate, etc.

  25. World Elemental Sulphur Production and Demand Forecast ‘000 tonnes S 25% 22% 13% China as % World demand 7% 2%

  26. World Sulphur Balance & Price Forecast US$/tonne ? Source: IFA/FRC Revised January 2008

  27. North AmericaSulphuric Acid Market Struggle to obtain offshore imports

  28. US Sulphuric Acid Market

  29. North America - Recent Developments • Total absence of sea-borne imports in first-half U.S. imports. Four cargoes booked for second half by Interacid/SATCO. • Martin adds 400 t/day production in Texas. • DuPont in start-up at El Paso. • FCX 20-30,000 t.p.m. requirement for Safford started January 1, 2008 - not covered.

  30. North America – Late Breaking News • Southern States to add 200,000 t/yr. capacity at Wilmington, NC, bought gently-used old burner from US ordinance plant. • Chemtrade Logistics decides not to sell after lengthy bidding process. • Vale Inco tenders sulphur products marketing, stays with Chemtrade. • Vale bids for Xstrata. Canada competition?? • Martin to build 400 t/day merchant plant at Beaumont.

  31. US Imports – Ocean Going Now Minimal Rail deliveries from Mexico depressed in 2006/7.

  32. Mexico – Acid Availability Poor Mine strikes curtail acid availability for Southwestern US market

  33. Canada - Sulphuric Acid Balances Sulphuric Acid Balance 2006 million tonnes H2SO4 Prodn. 4.8 - smelters 3.2 - elemental 1.6 Cons. 2.8 - fertilizers 1.5 - non ferts. 1.3 Net Exports 2.0 Dom. Purchases 0.9 2.0 2.1 0.8 2.7 0.1 2.1

  34. North America Sulphuric Acid Trade 1980 - 2006

  35. Latin America the Key Import Region Taking account of Mexico’s exports out of the region and Chile’s higher than expected net imports, Latin American imports will be even stronger than forecast.

  36. Long term US acid balance shows few offshore imports

  37. US Acid Prices May Track Sulphur $250-270 In 2008 But only when global smelter acid surpluses need to be absorbed here Or when sulphur-based acid is part of merchant supply.

  38. North America – Points to Watch • How FCX acid procurement for Safford via Martin goes, impact on Southwest balance. • Implications of Vale and Xstrata’s cooperation in Sudbury area – or a merger of the two? • Construction of new spent acid regeneration capacity to service refinery expansions. • Use of any sulphur-based capacity in the US in next phosphate downturn in the merchant acid market.

  39. Summary and Market Outlook • Prices in the US have tripled in 12 months. • Caused first by world demand for imports bidding up the price, driven by strong end- product prices. • Then the ‘sulphur effect’ later in 2007 was additive. • All markets look set to remain strong through 2008. • During 2009 new supply of smelter acid and sulphur will begin to materialize and the market should turn. • Sulphuric acid prices in the US should be back below $100/st by 2010, but will not return to the sub-$50 range. Reason: the US will be supplanted by China as the ‘dumping ground’ for the next round of smelter acid surpluses.