PentaSul

Sulphuric Acid Market

Presented at

ISM Chemical GroupWinter Meeting 2008

Galveston, TXFebruary 28, 2008

rboyd@pentasul.com

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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?

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World Sulphuric Acid Supply Trends

0

50

100

150

200

250

85 90 95 0 5

elemental

smelter

pyrites

million tonnes

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Sulphuric Acid - End Uses

5% 3% 2% 2%

Phosphate Fertilizers

60%

Chemicals 11%

Ag. Chemicals 10%

Ore Leaching 7%

Phosphate Fertilizers Other Fert./Ag Chem.Ore Leaching Petroleum Ref.Rubber/Plastics Pulp & PaperPigments Chemicals

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SULPHURIC ACID in PHOSPHATE

SULPHUR - one tonne

SULPHURIC ACID - 3 tonnes

PHOSPHATE ROCK - 3 tonnes

PHOSPHORIC ACIDone tonne P2O5

PHOSPHATE FERTILIZERSDAP - two tonnes

0.5 tonne NH3

Up to $30/tonne acidof byproductenergy available

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Copper Price History

0

10002000

30004000

5000

60007000

80009000

10000

02 03 04 05 06 07

$/tonne

2.5 to 3.5 tonnes acid per tonne copper.

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Sulphuric Acid Long-Haul Trade 2006

0.5

0.5

1.2

0.6

0.1

0.4

2.3

0.50.5

Total Trade 11.8Seaborne 7.2Long-Haul 5.3

0.6

0.3

0.3

0.3

0.1

million tonnes

0.1

0.2

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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.

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Chile Sulphuric Acid Imports(million tonnes)

0 100 200 300 400

06-1

06-3

07-1

'07-3

other Peru

• 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.

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Spot Purchases for Chile Started the Upturn

SPOT PURCHASES FOR CHILE/PERU

('000 tonnes) December Transammonia U.S. Gulf 14 Transammonia Bulgaria 19 Transammonia/Chemtrans Sweden 18 Interacid Far East 40 Interacid Poland 15 BCT Chemtrade Sweden 10 BCT Chemtrade Poland 10 Norddeutsche Affinerie Germany 23 January Transammonia U.S. Gulf 14 BCT Chemtrade Far East 35 BCT Chemtrade Germany 20 Transammonia Spain 19 February Interacid Far East 50 Transammonia Far East 20 Interacid Far East 30 March Transammonia Far East 20 TOTAL 357

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Chile Imports Much More in 2007

CHILE: SULPHURIC ACID IMPORTS ('000 tonnes)

2005 2006 J-Nov,07

Mexico 151 188 58 Peru 107 100 428 Canada/U.S. - 16 14 India - - 48 Japan 162 102 301 Philippines 3 - 53 S Korea 69 96 245 Bulgaria 19 7 18 NW Europe 42 113 102

TOTAL 553 622 1,268

Chile’s long-haul acid imports surge, evenwith increased imports from Peru.

PERU: MONTHLY ACID EXPORTS ('000 tonnes)

Chile other Total January 17 - 17 February - - - March - 2 2 April 34 - 34 May 48 - 48 June 48 2 50 July 71 - 71 August 54 - 54 September 57 2 59 October 59 - 59 November 43 3 46 December 67 2 69

TOTAL 499 11 510

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Far East Sulphuric Acid Exportsmillion tonnes

0

1

2

3

4

5

2006 2007 2008

other

Asia/Oceania

Philippines

South Korea

Japan

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Japan, Korea both export more

JAPAN: SULPHURIC ACID EXPORTS ('000 tonnes)

2006 2007

U.S.A. 81 26 Chile 137 311 Namibia 21 14 China 843 678 India 196 264 Indonesia - 10 Philippines 197 267 Singapore 20 17 Taiwan 180 199 Thailand 33 45 Vietnam 15 14 Australia 134 107

TOTAL 1,857 1,963

Surging world prices attract more sales outside the region.Less to China.

KOREA: SULPHURIC ACID EXPORTS

('000 tonnes)

2006 J-Nov 2007

U.S.A. - 57 Mexico - 6 Brazil - 19 Chile 115 258 Venezuela - 7 Namibia 29 - China 1,312 1,085 India 51 165 Indonesia 45 36 Malaysia 93 28 Philippines 63 - Taiwan 1 8 Thailand 68 42 Vietnam - 26 Australia 149 198 other 3 4

TOTAL 1,930 1,940

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

JAPAN: EXPORTS TO THE U.S.A.

0

0.2

0.4

0.6

0.8

92 93 94 95 96 97 98 99 00 01 02 03 04

million tonnes

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China Sulphuric Acid Imports‘000 tonnes

0

500

1000

1500

2000

2500

00 01 02 03 04 05 06 07

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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?

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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.

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Sulphur Prices

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.

PentaSul

VANCOUVER - ADNOC(ME) PRICE COMPARISON

0

10

20

30

40

50

60

70

80

90

01 02 03 04 05 06

Vancouver

ADNOC

$/tonne

Late 2006 – sulphur prices were still declining!

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Major Suppliers Provide less Sulphur in Q1-2007

RUSSIA/VANCOUVER: QUARTERLY OFFSHORE EXPORTS

0

1000

2000

3000

4000

1 2 3 4 1 2 3 4

Vancouver Russia

'000 tonnes

2006 2007

Estimates

Vancouver 25% declineRussia 50% decline

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VANCOUVER/ADNOC PRICE COMPARISON

0

100

200

300

400

500

600

700

01 02 03 04 05 06 07

Vancouver

ADNOC

$/tonne

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

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DAP Price History

0.5 tonne sulphur per tonne DAP produced.

TAMPA DAP PRICE$/tonne f.o.b.

100

200

300

400

500

600

700

800

03 04 05 06 07 08

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Sulphur supply was less than expected in 2007

‘000 tonnes

Forecast

Revised Estimate

Canada gas 6,225 5,500

Kazakhstan 2,350 1,600

China gas 480 80

Saudi Arabia 2,750 2,450

U.S. oil 7,350 6,950Source: IFA/FRC

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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.

ANNUAL GROWTH IN SULPHUR PRODUCTION - %

0

2

4

6

8

10

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

all-forms elemental

forecast

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0

10000

20000

30000

40000

50000

60000

70000

80000

1990 1995 2000 2005 2010 2015

Oil Gas OS+other Mined China Demand

World Elemental Sulphur Production and Demand

‘000 tonnes S

Forecast

2% 7%13%

22%25%

China as % World demand

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World Sulphur Balance & Price Forecast

-2

-1

0

1

2

3

4

5

6

7

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

0

50

100

150

200

250

300

350

400

450

S/D balance

Vancouver fob

Price Forecast

(million tonnes) US$/tonne

Revised January 2008

Source: IFA/FRC

?

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North AmericaSulphuric Acid Market

Struggle to obtain offshore imports

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US Sulphuric Acid MarketUNITED STATES SULPHURIC ACID BALANCE

(million tonnes H2SO4)

2006 2007 2008 Revised Prelim. Forecast Production 29.21 30.05 30.30 - from smelters 2.27 2.30 2.30 - from sulphur 26.94 27.75 28.00 Recycled 3.15 3.15 3.15 Net Imports 2.30 2.40 2.50 Total Supply 34.66 35.60 35.95 Consumption 34.66 35.60 35.95 - fertilizers 21.91 22.75 22.90 - other 12.75 12.85 13.05

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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.

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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.

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US Imports – Ocean Going Now Minimal

Rail deliveries from Mexico depressed in 2006/7.

U.S. SULPHURIC ACID IMPORTS ('000 tonnes)

2005 2006 J-Nov,07 Canada 2,006 1,980 2,122 Mexico 505 300 230 Chile 116 16 - Peru 10 - - W.Europe 53 137 - Bulgaria 19 - - Poland - 14 - Indonesia - - 15 Japan 31 39 - S Korea - - 29 Other 43 43 -

TOTAL 2,783 2,529 2,400

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Mexico – Acid Availability Poor

MEXICO: SULPHURIC ACID EXPORTS ('000 tonnes)

2005 2006 J-Oct,07 U.S.A. 494 307 296 Chile/Peru 243 225 58 other 5 4 4

TOTAL 742 536 358

Mine strikes curtail acid availability for Southwestern US market

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Canada - Sulphuric Acid Balances

Sulphuric Acid Balance 2006 million tonnes H2SO4

Prodn. 4.8 - smelters 3.2 - elemental 1.6Cons. 2.8 - fertilizers 1.5 - non ferts. 1.3

Net Exports 2.0Dom. Purchases 0.9

2.7

2.10.8

2.0

2.10.1

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0

0.5

1

1.5

2

2.5

3

3.5million tonnes

U.S.Imports

U.S.Exports

CanadaExports

North America Sulphuric Acid Trade 1980 - 2006

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Latin America the Key Import RegionLATIN AMERICA NET SULPHURIC ACID IMPORTS ('000 tonnes)

2005 2006 2007 2008 2009 2010 2015 2020 Argentina 18 50 120 120 120 120 120 120 Brazil 477 478 500 500 500 500 500 500 Chile 85 492 750 1,200 1,205 1,460 1,300 1,200 Cuba 287 320 400 450 450 0 0 0 Mexico -723 -510 -650 -625 -600 -575 -450 -450 Peru 39 30 -350 -700 -650 -750 -430 -100 Venezuela 86 96 100 100 100 100 100 100 Others 52 70 70 70 70 70 80 100 Total 320 1,026 940 1,115 1,195 925 1,220 1,470 Mexico to US 500 300 300 500 500 500 400 400 Chile adj. 500 400 200 Total (adj.) 370 1,326 1,240 2,115 2,095 1,625 1,620 1,870

Taking account of Mexico’s exports out of the region and Chile’s higher than expected net imports, Latin Americanimports will be even stronger than forecast.

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Long term US acid balance shows few offshore imports

2006 2007 2008 2009 2010 2015 2020

UNITED STATES SULPHURIC ACID BALANCE

Thousand tonnes

Consumption 34652 36005 37250 37600 37700 38000 37500 Fertilizers 21900 23250 24175 24500 24500 24500 24000

Industrial 12752 12755 13075 13100 13200 13500 13500

Recycled 3150 3150 3150 3150 3150 3150 3150

Production 29200 30450 31600 31850 31550 32050 31750

Elemental 26935 28150 29300 29550 29250 29750 28950

Other 2265 2300 2300 2300 2300 2300 2300

Imports 2539

Exports 237

Net exports -2302 -2405 -2500 -2600 -3000 -2800 -2600

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US Acid Prices May Track SulphurSULPHURIC ACID PRICES

Relative to Sulphur

0

20

40

60

80

100

89-2

90-2

91-2

92-2

93-2

94-2

95-2

96-2

97-2

98-2

99-2

00-2

'01-

2

'02-

2

'03-

2

'04-

2

'05-

2

'06-

2

'07-

2

Tampa

C. FL Sulphur

© PentaSul

But only when global smelter acid surpluses need to be absorbed hereOr when sulphur-based acid is part of merchant supply.

$250-270In 2008

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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.

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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.