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May 2005 Headlines

The developing subtle downward shift in pricing within Asia and the impact of the weaker Euro are affecting the calculation of a weighted average global methanol price trend. The PCI - Ockerbloom & Co., Inc. "Global Methanol Trend Value" (GMTV) for May continues to show the effects of the shift that was seen starting last month. For May, we calculated that the market has declined approximately 2% in overall pricing, with the Global Trend Value dropping slightly to $263 USD/tonne. A review of forward market developments has some further market price weakness potentially impacting in June and the second quarter.

The slight decline in crude oil pricing and return to warmer temperatures triggered a fall in US natural gas prices to levels that many still feel are too high. The US Gulf-Houston Ship Channel Natural Gas FERC Index for May declined approximately 7% to $6.50 USD/Mbtu. The May 12th release of US natural gas data by the US Energy Information Administration (for the week ending 6 May) showed a slowed recovery in stock levels for the sixth week in a row. For the week ending 6 May, US natural gas stock levels were reported at 1509 Bcf, up only 54 Bcf from the previous week. As of the close of business on 11 May, the daily US Gulf Henry Hub cash natural gas price was $6.64 USD/Mbtu, a slight increase from the level quoted last week.

The May 26th release of US natural gas inventory levels, as issued by the US Energy Information Administration (for the week ending 20 May 2005), showed a strong and steady increase in stocks. Weaker spot pricing at the end of April resulted in a downward adjustment in the US Gulf-Houston Ship Channel Natural Gas Index to $6.50 USD/Mbtu for May. For the week ending 20th May, US natural gas stock levels were at 1692 Bcf (billion cubic feet), up 93 Bcf from the previous week. Stock levels remain strong, being 22% greater than the 5-year average and now only 15% greater than the level posted for this week last year. In previous weeks, forward gas pricing was running at a strong premium to daily gas pricing, but this has readjusted downward lately.

Methanol production facilities in the greater European market continue to experience some disruptions. Early in May, the Romanian Viromet facility (225,000 tonnes/year) shut down due to heat exchanger problems. The plant was out for approximately 1 1/2 weeks. In Libya, reduced operating rates, down approximately 20% of capacity, continue to impact supplies in the Mediterranean region. The MSK Kikinda methanol/acetic acid facility in Serbia restarted at mid-May following a 3-month shutdown to all operations. The "force majeure" on supplies that was in place has been removed for both methanol and acetic acid. In a side note, three potential buyers have submitted bids on SVZ's holdings, which include Schwarze Pumpe's 140,000 tonne/year methanol facility. The bidding process is scheduled to conclude in July.

Methanol Holdings (Trinidad) Limited (MHTL) announced that they secured financing for their joint venture Oman methanol project from German bank Kreditanstalt fur Wiederaufbau (KfW). The 3,000 MT/day unit, to be located in Sohar, is the first phase of the project, with the second phase being the construction of a second 3,000 MT/day methanol unit at the same site. MHTL has a 50% share in the project, with partners MAN Ferrostaal AG (20%) and Omzest's OMHC (30%).

The first three months of production and trade data is mostly available. Total Q1 2005 domestic Chinese methanol production was slightly in excess of 1.2 million tonnes, up nearly 19% over Q1 2004, but only 4% over the total Q4 2004 level. Imports in Q1 2005 declined approximately 13% versus Q4 2004 and down 19% from the same period last year. Net available Chinese methanol volumes (production plus net trade) from Q1 2005 were flat compared to the Q4 2004 period, but up 9% versus the same period in 2004.

Japanese imports of methanol through the first quarter of 2005 are averaging approximately 4% above the same time period in 2004, with the total being slightly above 470,000 tonnes. Korean Q1 2005 methanol imports have also increased strongly, averaging approximately 7% above Q1 2004.

The Senate got down to business in May in an effort to pull together their proposal for US energy policy. The Senate Energy and Natural Resources Committee completed their work on the bill on 26 May, but avoided the more controversial concerns, such as drilling in the Alaskan Wildlife Refuge and MTBE liability protection. However, the bill did contain an ethanol provision, mandating that 8 billion gallons of ethanol be in the nation's gasoline pool by 2012. The bill is anticipated to go to a full Senate vote in June. Whether MTBE liability will be addressed at that point remains to be seen, as a number of senators have vowed publicly to fight inclusion of the provision. This could lead to a heated conference when the Senate and House later try to reconcile their two energy proposals.

Eastman Chemicals announced that it has agreed to license its proprietary acetyl co-production technology to Saudi International Petrochemical Company (Sipchem) for their proposed acetyls complex to be built in Al-Jubail, Saudi Arabia. Eastman's technology will allow for a cumulative 460,000 tonnes/year in acetic acid and acetic anhydride production. Under the agreement, the terms of which were not disclosed, Eastman will also provide technical support and market the acetic anhydride produced at the facility. A 2008 start-up is being targeted.

Borden Chemical, Incorporated and Resolution Performance Products LLC announced their intentions to merge, along with Resolution Specialty Materials LLC, under the name of Hexion Specialty Chemicals, Incorporated. The merger will make Hexion the world's largest producer of thermosetting resins. Affiliates of private investment firm Apollo Management, LP, which is planning an initial public offering of Hexion stock, own the three companies.