After the Crisis: What’s Next?Chemical Market Outlook for 2010

Joseph ChangGlobal Editor

Societe de Chimie Industrielle, New YorkFebruary 17, 2010

V- or W-shaped Recovery? The New Volkswagen (VW) Syndrome

*Communicatrix**Intimate Strangers – unseen life on earth by Cynthia Needham (about microbes)

“Volkswagen Syndrome”

“Yellow Volkswagen Syndrome” = bringing something to mind all of a sudden brings it into your field of vision*

“Volkswagen Syndrome” = when scientists make assumptions about similarity based only on appearance**

1946 1979

ICIS Petrochemical Index

The OECD CLI + 6 and Global Industrial Production

% Y/Y Change (3MMA)

Source: OECD, various national statistical agencies, ACC analysis

Economic Outlook: Pros and Cons

Pros Global economic recovery, led by BRIC countries Global industrial production turning up Low interest rates, recovering financing market Recovering global equity markets Q4 earnings show recovery

Cons High unemployment rates Potential looming commercial real estate defaults Sovereign debt crisis in Greece China putting the brakes on credit expansion

Q4 2008 EPS Q4 2009 EPSVolumes

YoY

Dow Chemical ($0.63) $0.18 +10%

DuPont ($0.28) $0.44 +10%

Eastman Chemical $0.05 $1.14 +12%

PPG Industries $0.41 $0.86 ---

Celanese ($0.40) $0.50 +16%

Source: Companies

Earnings and Volume Trends

Majors/Diversified 2009 EPS E2010 EPS % Change Stock price* P/E (2010)

Dow Chemical $0.59 $1.48 +151% $27.79 18.8x

DuPont $2.02 $2.35 +16% $32.47 13.8x

Celanese $1.69 $2.76 +63% $29.94 10.8x

Eastman Chemical $2.54 $3.49 +37% $57.86 16.6x

Specialties E2009 EPS E2010 EPS % Change Stock price* P/E (2010)

Nalco $0.89 $1.36 +53% $21.98 16.2x

Cytec Industries $1.32 $2.21 +67% $37.62 17.0x

PPG Industries $2.93 $3.86 +32% $59.16 15.8x

FMC $4.15 $4.62 +11% $54.91 11.9x

Albemarle $1.90 $2.62 +38% $35.32 13.5x

Arch Chemical $1.86 $2.00 +8% $27.99 14.0x

Lubrizol $7.55 $7.78 +3% $71.62 9.2x

AVERAGE 14.3x

*As of the close of February 9, 2010Source: Yahoo! Finance, ICIS Chemical Business

Wall Street Crystal Ball 2010

A Tale of Two Cities

Out of 70 North American companies under coverage by Moody’s, 2/3rds are in the high-yield (junk) category (under BBB-)

S&P ratings downgrades outnumbered upgrades 28-6 in 2009

30 out of 65 companies rated by S&P at in the B to CCC categories – highly leveraged!

North American chemical industry credit quality

Kicking the Debt Ball Down the Road

Company LBO vintage Debt/EBITDA (LTM)

SABIC Innovative Plastics 2007 9.9x

Cognis 2004 9.0x

Hexion Specialty Chemicals 2004 8.8x

Momentive Performance Materials 2006 8.7x

PQ Corp. 2007 8.0x

MacDermid 2007 7.2x

LyondellBasell Industries 2007 7.0x

Brenntag 2004 6.4x

Kraton Polymers 2003 5.2x

INEOS Group 2005 4.8x

Source: Standard & Poor’s, stats from 2008

Vintages Gone Bad

Company Rating

Monsanto A+, Stable

Air Products A, Stable

Praxair A, Stable

Sigma-Aldrich A, Stable

Ecolab A, Stable

DuPont A, Negative

Sherwin-Williams A-, Positive

PotashCorp A-, Negative

FMC BBB+, Stable

Cabot BBB+, Stable

PPG Industries BBB+, Negative

Grade A Credits

Source: Standard & Poor’s

Financing Market: Haves and Have-nots

Investment-grade firms: Can raise money on bond market at decent rates

Junk-rated firms: Mostly frozen out of the bond market.

Refinancing often requires renegotiating with lenders

Financing Market ThawingDebt Issuance 2009 Through Q3

January Lubrizol issues $500m in 10-year notes with 8.875% coupon –

replaces 4.625% notes

July Cytec issues $250m of notes due 2017 at 8.95% – some

proceeds used to repay 5.5% notes

August Olin issues $150m in notes at 8.875% Air Products issues $400m in notes at 4.375% Praxair issues $450m in notes at 4.5% Dow Chemical issues $2.7bn in various debt instruments

September Cabot issues $250m in notes at 5% Airgas issues $400m in notes at 4.5% PotashCorp issues $1bn in notes at 3.75% to 4.875%

Common denominator – all investment-grade companies!

Junk Rising

October Solutia issues $400m in notes at 8.75% NOVA (owned by IPIC) issues $700m in notes at

8.375% to 8.625%

November Koppers issues $300m in notes at 7.875%

December: Georgia Gulf issues $500m in notes at 9%

Mergers & Acquisitions – Back to the Table in 2010

M&A in the Works

Air Products launches hostile $5.1bn bid for Airgas

Braskem to buy Sunoco Chemicals for $350m Reliance initial bid for LyondellBasell (latest

estimated at $13.5bn) shot down as target looks to restructure

Dow’s Styron business for sale; company pursuing “asset light” strategy for basic chemicals and plastics

Mexichem buys INEOS Fluor, with operations in North America and Europe

Chemtura’s PVC additives business sold to SK Capital; another could be in progress

South Korea’s Lotte Chemical buys Artenius UK

Joseph ChangGlobal Editor

360 Park Avenue SouthNew York, NY 10010

(212) 791-4224joseph.chang@icis.com

Thank you!