13 March 2008 Issue Number 219

PRICE SUMMARY - MARCH 2008

NORTH AMERICA

Caustic Soda Spot (domestic) $450-460 dst fob

Spot (export) $480-500 dmt fob
Sodium Chlorate Crystal Market $490-550 st fd
Market C$590-650 mt fob
Sodium Hydrosulphite Powder Market 60-85 cts/lb fob
Market 75-115 C.cts/lb fob
Hydrogen Peroxide Liquid Market 100% 56-66 cts/lb fd
100% C$1550-1800 mt fd

EUROPE

Caustic Soda Liquid Domestic c315-330* dmt fd

Spot $380-390 c244-251 dmt fob
Sodium Chlorate Nordic Market c525-600 mt fd
Continental Market c525-575 mt fd
Sodium Hydrosulphite Powder Market c1000-1450 mt fd
Hydrogen Peroxide Liquid Market 100% c480-930 mt fd

FAR EAST

Sodium Chlorate Crystal List ¥240-340 kg fd

Sodium Chlorate Crystal Market ¥82-90 kg fd
Sodium Hydrosulphite Powder Market $1000-1600 mt c+f
Hydrogen Peroxide Liquid Market 100% ¥80-120 kg fd
Liquid Market 50% $400-450 (drums) mt c+f

* Q1 dst = dry short ton dmt = dry metric ton

Current US Dollar Equivalent: Current c Equivalent:

£: 0.493 ¥: 101.53 c: 0.643 £: 0.767 ¥: 158.63 $: 1.555

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March 2008 - BCR 219 Harriman Chemsult Ltd

NORTH AMERICA
Sodium Chlorate
The North American market is mostly stable and the tighter feel
remains in place. Some producers are virtually sold out but can
serve their regular customers on a normal basis. As a result,
there are no reports of serious supply constraints for contrac-
tually agreed quantities but it appears likely that there is very
little availability for additional enquiries.
The upward trend in demand over the past months has tight-
ened the market considerably and sellers consider the good
offtake as the main reason for the current market balance.
Sodium chlorate producers virtually sell their total output and
there are signs that the latest available inventory figure has
seen another decrease. Suppliers are depleting their invento-
ries in order the meet customer requirements and the good
global demand makes it difficult for producers to return to more
comfortable inventory levels. Moreover, there is some concern
regarding availability later during Q1 when several units will be
This was only a 0.7% increase from Q3 but a 14% rise over Q4
2006. This indicates that the upward trend has softened a bit
and that prices increased less steeply last year.
At the same time, prices in C$ have decreased due to the
strengthening of the Canadian Dollar. In Q4, sellers exported
at C$413/mt compared with C$454/mt during the first quarter
of 2007. This is almost a 10% decrease but the average import
price in 2007 was higher than in the previous year. While
fluctuations in 2006 were flattish, there was a steep upward
movement at the beginning of 2007 and levels have only fallen
slightly below the low of 2006.
USA, Sodium Chlorate Imports from Canada, 2001-2007
(000 mt/quarter)
165
420
150 400

P r ic e , U S $ /m t
undergoing maintenance. The recent production constraints 380
at Eka Chemicals’ unit at Moses Lake and Erco’s facility at 135
Buckingham have exacerbated the attempts to achieve any 360
improvement in overall availability. It is understood that both 120
units are recovering or are already back to normal and, as a
340
result, there are no longer reports of production difficulties at
present. 105
320
Buyers are hoping for some capacity expansions in the future
in order to improve the supply/demand balance. The capacity 90 300
expansion at Canexus’ unit at Brandon came onstream in H2 01 02 03 04 05 06 07
February and the capacity has risen from 264,000 mt/year to
295,000 mt/year. The impact on the North American market is
expected to remain low as the overall output has only increased Canada Sodium Chlorate Trade
slightly. While the total capacity amounted 1.86 million mt/year January-December, 000 mt
so far, the maximum output of sodium chlorate now is 1.89
million mt/year. The company is hoping to improve its own 2005 2006 2007
situation in the market and to rebuild stocks. This will also give
the seller the opportunity to meet some additional enquiries Imports 0 0 0
and increase the shipped volumes across North America.
Exports
The latest import figures of sodium chlorate into North America USA 608 564 518
are now available and it appears that the downward trend that Japan 42 48 57
has emerged over the past two years continues. Imports from Chile 0 18 17
Canada declined in Q4 2007 by almost 5% over Q3 and totalled Thailand 8 8 10
127,900 mt. This was the second lowest figure last year. While Brazil 7 3 4
levels in Q1 and Q3 were almost equal around 134,000 mt, Others 4 9 13
imports in Q2 were only 121,400 mt. 2007 was the first year
when imports on a quarterly basis were constantly below the Total 668 649 609
135,000 mt. As a result, yearly imports have dropped. While
around 563,700 mt sodium chlorate were shipped from Canada
into North America in 2006, it was only 518,000 mt the following Looking at the sodium chlorate trade balance of Canada, it can
year. This is a decline by 8%, which shows the somewhat be found that shipments into deep sea markets are largely
downward trend in imports. stable or underwent a slight growth. Exports to Japan have
risen by almost 16% as a consequence of the conversion to
Despite the lower number of shipments into North America, the ECF bleaching processes and higher chlorate demand, while
upward trend on pricing remains present. There has been a all other deep sea countries have seen minor fluctuations only.
sharp and steady rise since the end of 2006 and levels rose The US remains the main destination for Canadian material
further in all four quarters of 2007. In Q4 last year, the average but total exports have seen a further decline in 2007 down to
import price for material from Canada was around $420/mt. 518,000 mt.

2
March 2008 - BCR 219 Harriman Chemsult Ltd

The results at Chemtrade Logistics pulp chemical sector have

USA Sodium Chlorate Trade improved in the fourth quarter of 2007 and revenue has risen by
January-December, 000 mt $1.6 million. This was mainly due to a combination of higher
volumes and a rise in pricing for sodium chlorate. Moreover, the
2005 2006 2007 2006 result was impacted by the force majeure and the reduced
operating rates of approximately 70% in December but there
Imports were no reports of disruption to production in late 2007. As a
Canada 608 564 518 result, both EBIDTA and net earnings were higher than during
Others 0 0 0 the comparable period the year before. However, the total of
EBIDTA and net earnings was higher in 2006 than in the
Total 608 564 518 following year due to a rise on costs. Higher sodium chlorate
prices as well as larger volumes were not sufficient to offset the
Exports strong cost increase.
Thailand 6 5 5
Mexico 3 4 4 Tronox’s sales in the Electrolytic Chemicals segment have
S Korea 3 2 2 risen in 2007 to around $105.7 million compared with $101.5
Brazil 4 0 1 million in 2006. Sales on a quarterly basis have also risen and
Others 12 3 14 totalled $28.2 million in Q4 2007. This is almost an 18% rise
over the same quarter in 2006. While the segment created a
Total 28 14 26 $0.5 million operating profit during the last quarter of 2006, the
situation was somewhat worse one year later, when Tronox
Net Trade -579 -550 -492 posted a $0.9 million operating loss. The operating loss for the
year 2007 was $2.3 million compared with a profit of $25.3
million in 2006. The loss was mainly created by the reimburse-
Sales from US sellers have picked up following the softening ment of contributions for the perchlorate remediation, which the
in 2006. While exports to the main destinations are stable, the company received in the preceding year. Tronox’s electrolytic
amount of exports to very small markets has led to the rise in chemicals segment includes sodium chlorate, manganese
the total figure of 26,000 mt. For example, there have been dioxide, boron trichloride, elemental boron and lithium manga-
parcels to India and Chile, which have had the main influence nese dioxide.
on the above balance. Moreover, shipments to Brazil have
resumed and a small quantity has been moved to the country. USA (mostly a crystal market): $490-550/st fd

Several companies have published their financial results for

Q4 and the whole year of 2007. While some are reporting an
improvement in their financial performance, Tronox is report-
ing an operating loss. Rising costs were an issue for all
producers in 2007 as well as the rise in prices. Sellers were
looking for higher margins and there are reports of a slight
improvement by some companies.
Canexus has published good results for the year of 2007.
Revenue was 2% higher than the previous year and reached
C$413.6 million. Volumes in North America were somewhat
lower than in 2006 and the stronger Canadian dollar also
affected the result but these were both offset by price in-
creases. In North America, sodium chlorate sales were on an
upward trend and reached C$192 million compared with
C$189 million in 2006. Consequently, gross margins picked
up from 27% to 28%. The start up of the new capacity at Brandon
was successful in H2 February. It has been delayed several
times but as the project has now been completed, the low-cost
position of the company is extended further. The capacity is
now around 12% higher, which might create an additional
operating cash flow of C$10 million per year.
Hydrogen Peroxide
So far this year, the North American hydrogen peroxide market
has been consistently reported as very solid with offtake running
at a high level. Strong demand that was re-established in Q4
last year after a slightly quieter Q3 has continued this year. The
annual market growth rate for 2007 is put at 3-4%, a consider-
able improvement on 2006, and some feel that something
similar could be achieved in 2008 although there are many
grounds for caution so early in the year. There are no specific
reports of shortages but the market appears very tight at present.
This seems to be a result of the current high levels of demand
combined with some difficulties on the supply side. The second
half of 2007 saw a much larger than usual number of unplanned
plant shutdowns both in Canada and the USA. With a continuing
strong market and operating rates at a high level, it has been
difficult for producers to return inventories to a satisfactory level
to accommodate outages planned for Q2. The forward position
could be difficult depending on how demand levels develop
through the next few months.

Sales in South America were also somewhat higher than in
2006. Sales totalled C$90.7 million, which is an 8.4% rise over
the previous year. This was mainly due to higher prices for both
sodium chlorate and chlor-alkali.
For 2008, an minor increase of sodium chlorate capacity is
planned due to the fast growth of the market and Canexus is
benefiting from the investment opportunities in South America.
In contrast to the present positive picture for hydrogen peroxide,
the increasingly less favourable general economic conditions
in North America are a cause for concern for everyone. Signs
that the US economy is close to or in recession have increased.
Despite injections of liquidity by the Federal Reserve and the
strong likelihood of another reduction in interest rates, credit
markets have continued to deteriorate. Consumer confidence
is already at a low level but continues to be eroded by the

3
March 2008 - BCR 219 Harriman Chemsult Ltd

problems in the housing market with consumer spending also
increasingly affected by higher food and fuel costs, reducing
discretionary buying power. Crude oil prices reached a new
record in early March. Employment statistics show a fall in the
number of jobs. Prospects look relatively bleak.
Despite these ominous signs in the general economy, the pulp
and paper industry still seems to be running reasonably well
with the obvious exception of newsprint. North American
market pulp production is at a high level. One reason for this
is the low value of the US dollar. However, growth in the North
American industry has also been encouraged by difficulties in
other parts of the world. Pulp production in Finland has been
reduced by the imposition of escalating duties on pulpwood
exports by Russia. In Indonesia, the government ban on cutting
mixed tropical hardwood has led to lower pulp production since
mid last year.
Now, gains for the hydrogen peroxide market at the expense of
sodium hydrosulphite also seem a possibility. As discussed
elsewhere in this report, there has been a massive and
unprecedented worldwide rise in the price of sulphur as a result
of fertilizer shortages and the costs and prices of all its down-
stream products have been rising sharply, including sodium
hydrosulphite. This is expected to continue throughout 2008,
possibly longer, and could give short or medium term oppor-
tunities for substitute peroxide in some applications.
The official statistics from Statistics Canada for the total monthly
production of hydrogen peroxide in Canada have now been
published up to the end of 2007. They cover the four production
plants of FMC, Degussa, Arkema and Kemira representing
slightly more than one third of total North American hydrogen
peroxide capacity. There are no comparable public figures for
the USA.

The latest statistics show that North American printing and

writing paper markets in January were continuing to move in a Canada, Production of Hydrogen Peroxide
similar direction to 2007. Shipments of mechanical papers (mt 100%)
were up year on year by about 5% with freesheet down by about
3%. Higher demand for high brightness mechanical papers 2004 2005 2006 2007
should continue to benefit hydrogen peroxide consumption.
Q1 61,629 64,220 61,702 61,024
The offtake of hydrogen peroxide in Canada is continuing to be Q2 57,861 60,327 N/A 63,512
boosted by strong demand for BCTMP, which always requires Q3 61,603 60,127 62,009 56,332
a high unit consumption of peroxide in its production. The Q4 62,833 59,216 49,867 55,063
BCTMP business is very export oriented and shipments have
been growing firmly over the past five years mainly to Asia, Total 243,926 243,890 173,578 235,931
particularly China, mostly for use in boxboard. High levels of
demand from Asia last year allowed BCTMP prices to be Capacity Utilisation Rates
increased several times and this is continuing in 2008. In
February, prices in Asia rose by $30/mt and in Europe by $20/ Q1 96% 100% 96% 88%
mt to leave them more than 20% higher than at this time last year Q2 90% 94% N/A 91%
with a significant improvement in margins for producers, en- Q3 96% 93% 96% 81%
couraging full production. Q4 97% 92% 77% 79%

Several factors have acted to favour the BCTMP business in
Canada. Demand in China has been increased since mid-
2007 following the closure by the government of many small
polluting straw pulp mills. Disruptions in European BCTMP
production, especially in Finland as a result of shortages of
imported Russian wood and significantly increased costs,
tended to increase BCTMP demands from Canada throughout
2007. The start up of International Paper’s 200,000 mt/year
BCTMP mill at Svetogorsk, Russia in December 2007 may
ease this pressure depending on what portion of the output is
market pulp. However, the impact is offset by M-real’s closure
of its 105,000 mt/year BCTMP plant at Lielahti, Finland mainly
as a consequence of high wood costs. It has also become clear
that the progressive and now full integration by Sinar Mas of the
output of the 330,000 mt/year Meadow Lake, Saskatchewan
BCTMP mill, which it purchased in January last year, has
tightened conditions for BCTMP market pulp.
Since the beginning of 2007, technical experts have consid-
ered that some of the unexpected buoyancy in the peroxide
market has been the result of a gradual rebalancing of pulp
bleaching sequences a few points away from sodium chlorate
in the direction of hydrogen peroxide. Although the affect on a
mill by mill basis is small, some progressive incremental
growth in the total market is believed to have been achieved.
The driver for this has been mainly cost saving with the tighter
market and above average price increases for sodium chlorate
experienced in 2007. With chlorate prices having again risen
sharply in 2008, there may be further limited movement in the
same direction this year.
Average 95% 95% 90% 85%
The capacity utilisation rates in the table have been calculated
using published plant capacity data, amended by any later
changes notified by the producers. Details of the capacity of all
the hydrogen peroxide plants in North America were last
reported in Bleaching Chemicals Report in July 2007. Until the
end of 2006, the total capacity of the four plants in Canada was
taken as 258,000 mt/year (570 mlbs/year). The expansion of
Arkema’s plant at Becancour by 20,000 mt/year in November
2006 increased total Canadian capacity by about 7.5% and
North American capacity by about 2.5%. The new Canadian
capacity total of 278,000 mt/year was used to calculate average
utilisation rates for 2007.
The graph shows that there was quite steady production in
Canada during 2004 and 2005 close to the rate that might have
been expected at that time. In contrast, output in 2006 and 2007
appears to have been interrupted by a series of plant shut-
downs some of which were signalled at the time. In Q2 2006,
the production figure was unusually suppressed for statistical
confidentiality rules leaving a gap in the data.
The low output recorded for Q4 2006 appear to have been at
least partly the consequence of Arkema’s shutdown for its
expansion at Becancour, believed to have been close to a
month’s duration. In H1 2007, output returned to a more usual
level but was again affected by scheduled and unplanned plant

4
March 2008 - BCR 219 Harriman Chemsult Ltd

shutdowns in Q3 and Q4 2007 equivalent to nearly two weeks Natural Gas, NYMEX Henry Hub Price
closure in each quarter. The monthly data show significant
2007-2008, $/MMBtu Monthly Average
downward spikes in September and November. Overall,
Canadian production in 2007 was about 3% lower than two 9
years earlier in 2005 with no total output figure available for
2006.
8
Canada, Hydrogen Peroxide Production
2004-2007,(000 mt) 7
65

60 6

55
5
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
50

45
USA, Hydrogen Peroxide Trade
40 January – December, (mt as product)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07
2005 2006 2007

With growth in the Canadian peroxide market, net exports from Imports
Canada to the USA have been declining each year since 2000. Canada 38,874 36,920 45,685
In 2007, they were barely positive. In addition, a bulk import of Others 1,518 2,042 2,068
4,200mt of 70% product from Europe was required to cover a
scheduled maintenance outage during H2. Various plant Total 40,392 38,962 47,753
production difficulties may account for the relatively tight feel to
the whole North American market throughout 2007. It remains Exports
clear that the market is running sufficiently close to full capacity Canada 29,423 32,641 40,381
that the individual performance of any one of the ten plants can Mexico 14,458 13,011 13,237
have a significant impact on the supply demand balance of the Latin America 10,898 5,332 10,463
whole market within a quite short period of time. Clearly, the Europe 1,857 1,582 2,945
larger plants are of greater significance in this. Asia Pacific 731 771 1,128
M. East/Africa 356 246 388
The price of natural gas continues to be an important issue for
hydrogen peroxide producers and their customers that are Total 57,723 53,583 68,542
affected by energy surcharges as it has a direct impact on the
cost of raw material hydrogen. Nymex Henry Hub daily spot
natural gas prices were on an upward track throughout Febru- US trade statistics for the past three years are shown in the
ary reaching $9.4/MMBtu by the end of the month, the highest table. The volumes reported are mt as shipped and not as
price for more than two years. The average for the month was 100%.
$8.59/MMBtu, 8% higher than in January and 14% higher than
the February average last year. In early March, prices continued For the past eight years, the volume of US imports from Canada
to rise towards $10/MMBtu driven by cold weather and the has mostly been following a trend of gradual reduction while US
record prices for crude oil. exports to Canada have generally been reasonably steady. The
picture is blurred by the fact that the statistics are reported for
US stocks of natural gas at the end of February were about 4% product as shipped and not as 100%. However, the trend is so
above the five year average. Although storage levels are robust that it is unlikely to be changed by small movements in
currently above average, they are 10% lower than at this time the average concentration of the product shipped in either
last year having fallen from record levels at the start of the direction even over this quite long period.
heating season. Colder than expected weather since Decem-
ber has meant that stocks have run down more rapidly than Fundamentally, the trend seems to be the result of the growing
forecast and will be harder to replace in the summer. If the tightness in the North American hydrogen peroxide market over
weather remains cooler than normal in March, prices will the years and particularly in Canada. Shipments from Canada
continue to rise. Increased imports of LNG to rebalance the to the US market have been restrained because of lack of
market will also mean higher prices. Some previous price availability. Since 2003, the appreciation of the Canadian dollar
forecasts are beginning to look optimistically low. has played a part but the trend was already well established
before this became an important consideration. In H2 2007,
Published information shows that Solvay’s monthly energy there was an unusual situation as trade in both directions was
surcharge for March is $0.05/lb (100%) based on a natural gas at a much higher level than in recent years but remained in
closing price of $8.930/MMBtu. FMC’s energy system is quar- balance. As noted earlier, it appears that the reinforcement of
terly and the surcharge for Q1 based on a natural gas price of Canadian availability by the 20,000 mt/year (100%) expansion
$7.114/MMBtu will remain at $0.035/lb (100%) until the end of of Arkema’s Becancour plant since the end of 2006 was offset
March. Other producers do not currently publish this informa- by an increased level of plant shutdowns during the second half
tion. of the year.

5
March 2008 - BCR 219 Harriman Chemsult Ltd

few months. This is a worldwide phenomenon that was initially

USA, Hydrogen Peroxide Trade with Canada
expected to be of short duration. However, most experts are
2000-2007, (000 mt as product) now forecasting it to continue at least throughout 2008 and
40 probably into 2009.
35
30 In North America, sulphur prices are currently already about
four to five times their normal level and further increases are
25
expected in Q2. In Asia, notably in China and India, the price is
20 as much as ten times the normal level and there are, in addition,
15 serious availability problems. About 90% of worldwide sulphur
10 consumption is for sulphuric acid production. Global demand
5 for sulphuric acid has risen sharply because looming agricul-
0
tural shortages have significantly increased demand for ferti-
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 lizers and therefore for the sulphuric acid frequently used in
00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 their production.
Imports from Canada Exports to Canada
All downstream products based on sulphur have now suffered
a dramatic increase in production costs leading to exceptional
In 2007, imports from countries other than Canada were at a price rises. The impact has been most noticeable for sulphuric
similar level to 2006. However, at 1,189 mt, the volume of what acid as it is so widely used in industry but sulphur dioxide, all
appears to be specialist high-purity grade hydrogen peroxide sulphates and sulphites as well as sodium hydrosulphite are
from Japan was at about 75% of the level recorded last year. affected. In some cases, recent rises in caustic soda prices are
The price was also lower at $8.4/kg compared to last year’s adding to the problem. Sodium hydrosulphite prices have risen
average of $11.3/kg. all around the world. In North America, surcharges have now
been implemented on both imported powder product and
On the export side, shipments to Mexico in 2007 were running domestically produced solution. As noted in other sections of
at a similar level to 2006. Meanwhile, shipments to Latin this report, Chinese hydrosulphite prices in export markets
America, which were progressively reduced through 2006 to a have been increased in a series of rapid steps to rise by a total
low level, rebounded in 2007. However, as the graph shows of $400/mt since mid-January. European prices are also being
there was a significant revision in export destinations. In 2007, increased. It seems quite possible that further increases may
the emphasis of exports to Latin America was in Guatemala be required in Q2 if the situation does not improve.
where US hydrogen peroxide mainly replaced material previ-
ously supplied by South Korea. There was also a partial From a volume perspective, the North American sodium
recovery in exports to Chile from the much lower level in 2006. hydrosulphite market continues to be under some pressure,
mainly related to the progressive decline in newsprint produc-
USA, Hydrogen Peroxide Exports to Latin America tion, a trend that has now been firmly established for at least five
2004-2007, (000 mt as product) years. The ongoing contraction of the US textile sector also has
a negative impact. These factors are only partly mitigated by
4.0
reasonably steady offtake by the kaolin sector and some more
3.5 positive trends in areas such as mechanical paper and tissue.
3.0
2.5 As expected, the first statistics from the PPPC for the North
2.0 American Newsprint industry in 2008 showed another large fall
in newsprint consumption by US daily newspapers in compari-
1.5
son to the previous year. Consumption in January was 11.5%
1.0 lower than in January 2007. There were four Sundays in the
0.5 month in both years. The decline was close to the negative
0.0 trend seen in 2007, which averaged 10.8%.
Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07

Others Guatemala Colombia Chile

North America, Newsprint Statistics
January, ‘000mt
This year, there have been some unusual new exports. The
volume shipped to Ireland at 2,740mt was significantly higher 2007 2008 % chg
than in previous years. There were also noticeably increased
volumes to Asia, particularly China and South Korea. The lower Month
value of the US dollar may be significant in this. It seems US Dailies Consumpt. 545 482 -11.5
unlikely, however, that the short term availability situation in
North America will allow more than nominal increases in Shipments to N.A. 782 736 -5.9
shipments of product outside the region. Shipments Overseas 144 188 30.2

Production 1,013 910 -10.1

Sodium Hydrosulphite Mill Stocks 412 349 -15.3
US Publisher Stocks 810 675 -16.7
North American sodium hydrosulphite prices have been mov-
ing up since the beginning of the year in response to the Source: Pulp and Paper Products Council
unprecedented increase in the price of sulphur over the past

6
March 2008 - BCR 219
With low consumption in January, shipments to North America
were 5.9% lower than a year earlier. However, the year started
well for shipments overseas, which were 30% ahead of Janu-
ary 2007 with positive variances of 61% for Latin America and
32% for Western Europe. This meant that total shipments, at
924,000 mt were only 0.3% lower than January 2007. On the
other hand, North American production in January at 910,000mt
was 10.1% lower than January 2007 and consequently there
was another decrease in mill stocks. These reduced by
13,000mt during the month and finished 63,000mt lower than
a year earlier although at a similar level to January 2006.
Publishers’ inventories were 135,000mt lower than last Janu-
ary.
With the higher value of the Canadian dollar against the US
dollar over the past few years, a larger proportion of the losses
in production and plant closures that have occurred in North
America have tended to be in Canada rather than in the USA.
The graph shows linear trend lines applied to monthly produc-
tion in the two countries during 2006 and 2007. Projection of
these most recent figures show that the average rate of produc-
tion in Canada is now reducing by an annual 8.7% with US
production reducing at an annual rate of about 5.3%. If contin-
ued, the implication for 2008 is an annual loss of 560,000 mt/
year of production in Canada and 230,000 mt/year in the USA,
a total average reduction of 790,000 mt/year (7.3%) for North
America as a whole. It is inevitable that these trends will
continue to have a negative impact on the level of hydrosulphite
demand by the newsprint industry, particularly in Canada.
North America, Newsprint Production
2005-2007, (000 mt)
700
650
600
550
500
450
400
350
300
D J F M A M J J A S O N D J F M A M J J A S O N D
Canada USA Linear (Canada) Linear (USA)
It is reported that the first and second $20/mt instalments of the
phased $60/mt price rise for newsprint in Q1 were generally
implemented successfully in January and February with the
March increase also expected to go through. The situation has
been helped by AbitibiBowater’s progress in fulfilling its target
to shut down 600,000 mt/year of newsprint capacity during Q1.
However, AbitibiBowater has now surprised everyone by an-
nouncing a second $60/mt phased increase to follow imme-
diately in Q2. Many other newsprint producers have already
stated that they will follow this. Even if this second increase
were to be fully implemented, North American newsprint prices
would still be lower than those in Europe at the current ex-
change rate of $1.5 per Euro.
A requirement set by the US Department of Justice for approval
of the Abitibi Consolidated, Bowater merger was that the
375,000 mt/year, two machine Snowflake, Arizona recycled
newsprint mill should be sold. In mid-February, it was an-
nounced that this will be acquired by Catalyst Paper.
7
Harriman Chemsult Ltd
The statistics from the China Clay Producers Association have
recently been issued showing the kaolin production volume in
Georgia up to Q3 2007. The production in the first three quarters
of the year was about 5% lower than in the corresponding
period in 2006. Although this is a slightly more negative
variance than most of those seen since 2001, the graph
confirms that the overall tendency over the past few years has
been for a gentle decline in production levels. Although this
trend seems to be a rather negative indicator for this sector of
hydrosulphite consumption, it is not the only consideration as
ore selection, processing choices and higher brightness re-
quirements are also important elements determining the
amount of hydrosulphite consumed at each production site. It
is still generally reported that hydrosulphite consumption by the
kaolin sector has now remained quite stable for several years
despite this gradual erosion of the total production volumes in
Georgia. Although there are considerable economic and
business pressures on the kaolin industry, no immediate
change to this situation is expected.
USA, Kaolin Production, 2004-2007, (million mt)
1.50
1.45
1.40
1.35
1.30
1.25
1.20
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
04 04 05 05 05 05 06 06 06 06 07 07 07
There is increasing concern that the slowdown in the US
economy, largely stemming from the problems in the housing
market combined with much increased gasoline prices, which
are a consequence of record crude oil prices, are beginning to
put a brake on consumer expenditure with a negative impact on
the textile industry. Some initial indications of hydrosulphite
offtake by the textile sector in 2008 seem to confirm this
although seasonal factors may also be relevant. The effect is
expected to be more serious for home furnishings than for
apparel and the impact on the domestic industry may be
mitigated by reduced import pressure from the decline in the
value of the dollar, notably against the Yuan and the Indian
rupee.
The trade statistics up to the end of 2007 confirmed that the rate
of increase of US total textile imports slowed for the year in
comparison to 2006. In volume terms, total imports of textiles
and apparel grew by only 1.9% in 2007. This was lower than
the 2.6% recorded for 2006 or the 8.3% in 2005. Imports from
China grew by 15% to account for 40% of the total compared to
36% in 2006 and 33% in 2005. Shipments from Mexico and
Canada continued to decline. In 2007, volumes from Mexico
were down by 11% having already fallen by 12% in 2006.
Meanwhile, volumes from Canada were down 22% having
fallen by 19% in 2006. Apart from China, the biggest gain in
supplying US textile imports in 2007 was made by Vietnam with
an increase of 31%. The large increase was most likely the
result of Vietnam, which has very low labour costs, joining the
WTO at the beginning of the year. Apart from Mexico and
Canada, the largest losses were by Pakistan and South Korea.
March 2008 - BCR 219 Harriman Chemsult Ltd

The long decline in employment by the US textile and apparel A summary of US sodium hydrosulphite trade statistics for the
industry continued in 2007 at a similar rate to previous years. whole of 2007 is shown in the table together with a comparison
According to preliminary US Department of Labor statistics, against the previous two years.
seasonally adjusted employment fell between December 2006
and December 2007 by 20,900 (-11.4%) to 162,900 in textile
mills and by 6,400 (-3.9%) to 155,700 in textile product mills USA, Sodium Hydrosulphite Trade
while apparel industry employment fell by 20,200 (-9.0%) to January – December, mt
204,700. The total loss by the industry during the year was
47,500 (-8.3%) to 523,300. It seems sure that part of the 2005 2006 2007
reduction in numbers was due to improvements in productivity
although some of the remainder must have been the result of Imports
import related plant closures and reduced output. Canada 24,366 10,303 16,374
Europe 3,339 3,642 2,949
The latest statistics provided by the Federal Reserve Board on China 3,040 4,126 8,929
Industrial Production are shown graphically for textile and Other Asia 36 - 647
apparel categories. The first graph shows annual movements
over the past ten years, emphasising the loss of US apparel Total 30,781 18,071 28,899
production to imports over that period as well as the decline in
the production of US textile mills. Only the production of textile Exports
product mills remained relatively constant over the past decade Canada 6,017 6,889 382
although even that has shown some decline since2005. Mexico 962 641 165
South America 38 1 45
The second graph details the past three years by quarter. It Europe 145 258 3
emphasises the 19% fall in the production of textile mills over M. East/Africa - 1 -
the past two years as well as the 12% decline in the output of
textile product mills over the same period. The decline in the Total 7,162 7,790 595
housing market may be a relevant factor in this as well as the
movement of production overseas. According to this data,
apparel production has remained reasonably stable over the The major increase in imports from China in 2007 confirmed
past three years although the annual graph confirmed that it the long-term business arrangement between Chemtrade
suffered huge losses between 1997 and 2004. and ZhongCheng Chemicals by which Chemtrade closed its
Leeds, South Carolina powdered hydrosulphite plant at the
USA Textile Production Indices (Fed. Res.) end of 2006 and replaced this with material purchased from
(2002=100), 1997-2007 China.

180 There was a significant reduction in the previous level of

imports from Canada in 2006 when Chemtrade began to
160
supply part of its business in Maine through a dissolution facility
140 supplied from its Leeds plant. With the closure of powder
production at Leeds, there was a partial resumption of supply
120 from Canada in 2007.

100 Imports of powdered hydrosulphite from Europe remained

steady in 2007. As usual, they were mostly from Germany but
80
with a small tonnage from Italy and were little affected by the
60
change in Chemtrade’s supply arrangements.
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
After a break of four years, there were again imports of
Textile Mills Textile Product Mills Apparel
hydrosulphite from India in Q4 2007.

USA Textile Production Indices (Fed. Res.) USA, Sodium Hydrosulphite Imports
(2002=100), 2004-2007 2004-2007, (000 mt)
120
10
115
9
110
8
105
7
100
6
95
5
90
4
85
3
80
2
75
70 1
65 0
Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07

Textile Mills Textile Product Mills Apparel Canada Europe Other Asia China

8
March 2008 - BCR 219
USDC trade statistics have tended to underestimate
hydrosulphite exports in the past. However, the large reduction
in hydrosulphite powder exports in 2007 to Canada, Mexico and
elsewhere following the closure of Chemtrade’s Leeds pow-
der plant at the end of 2006 were confirmed.
Chinese export statistics have always appeared to be the most
reliable measure of the movement of sodium hydrosulphite
into North America from China. These are summarised in the
Deep Sea section of this report but the detail for the USA and
Canada to the end of 2007 is shown in the graph.
China, Sodium Hydrosulphite Exports to N. America
2000-2007, (000 mt)
18
16
14
12
10
8
6 It is not clear how successful the full $80/dst will be on the East
4 Coast, as a large volume of imported caustic soda is heading
2 towards the Eastern Seaboard in March/April. Supply is tight on
0 the West Coast, however, and the full $80/dst is likely to be
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
00 00 01 01 02 02 03 03 04 04 05
To USA To Canada
Although ZhongCheng Chemicals and other Chinese produc-
ers were previously active in the North American market, the
supply and marketing agreement made between ZhongCheng
and Chemtrade permanently changed the situation from Q4
2006. The 31,000mt shipped in 2007 was in line with expec-
tations and indicative of future levels.
Chlor-Alkali
The balance of the North American caustic soda market is
tightening. On 21 February Olin declared force majeure on
Sodium Chlorate
Sodium chlorate availability for spare product market remains
limited in the European market, while production at most major
plants is running normally and according to seasonal norms.
There have been recent cases of interruptions due to power
supply constraints but it appears that these have now been
resolved. Despite the good level of output at chlorate produc-
ers, the market has tightened further over the past few weeks
and both sellers and buyers consider the current situation as
exceptional. However, most suppliers are able to meet the
regular requirements of their customers but report that they are
struggling to meet any other occasional enquiries.
The main reason for the tense market balance is an increase
in demand. Offtake has picked up in Europe but also global
demand is on an upward trend. As a result, producers are
receiving a higher number of enquiries from European custom-
ers and have more export requirements at the same time.
Harriman Chemsult Ltd
caustic soda, in response to a series of unscheduled produc-
tion outages due to weather, technical and equipment issues
at several plants.
Contributing to the tightness are a number of turnarounds at the
end Q1 or early Q2, including maintenance outages at FPC and
Dow. Oxychem has already taken its Taft LA membrane line
down to convert it to KOH production.
Following the $50/dst announcement, OxyChem posted a
further $30/dst price increase at the end of February. Most
producers are targeting $80/dst but the implementation date is
subject to contractual terms. It is expected that the full $80/dst
will be in place in the market by 1 April. So far levels have risen
by around $50/dst at the US Gulf.
Regional markets have yet to respond to the $50/dst increase
but this is believed to be a function of time. Some suppliers have
increased prices by the full $80/dst since 1 March, but others
are only targeting $50/dst at this point.
H2 H1 H2 H1 H2
05 06 06 07 07 accepted in this market.
On 20 February OxyChem announced a chlorine price increase
of $35/st for delivery by pipeline and $50/st for rail delivery, with
immediate implementation or as contracts permit. With tangi-
ble pressure on chlorine balances, the market interpretation of
this is ‘defensive’, to avert further erosion. However, there are
signs in the market that chlorine pricing may be close to the
bottom of the current cycle.
US Chlorine Prices
Chemicals $295-305/st
Bleachers/Re-packers $300-310/st
Weighted average $300/st
EUROPE
While producers are supplying their regular customers nor-
mally to a large extent, those buyers looking for additional
material are desperate to secure sufficient quantities. Apart
from the very strong demand, there have been unconfirmed
reports of production issues recently which also might have
had an impact on overall availability. However, the effects of
interruptions to production are believed to be minor but have
contributed to the greater tightness in the market.
In the 2008 outlook, no significant change is expected in the
market and it is anticipated that there will be little spare product
available. Although the situation has worsened recently, there
are slight sings of relaxation due to a more balanced feel in the
pulp market. Pulp inventory has reportedly increased to close
to 30 days due to good wood availability.
As a result of the higher stock levels, sodium chlorate demand
is likely to soften. However, offtake is expected to remain strong
during the remainder of H1 2008 and close to the producers’
output figures. Consequently, an improvement in sodium
9
March 2008 - BCR 219
chlorate availability would not mean the return to a balanced
feel in the market but rather an easing of the extremely tight
situation at present.
Most companies have now published their financial results of
last year and state that 2007 was a strong year. Several market
players were able to achieve higher sales but also had to deal
with a sharp rise in costs, which was not offset by higher prices
in all cases.
Kemira is reporting that its operating profit in the pulp and paper
sector has decreased by almost 36% down to c66.8 million in
2007. At the same time, the sector’s revenue increased from
c993 million in 2006 to c1018 million last year. Demand has
been good over the past year and is expected to remain stable
during the coming months. The start of the new paper chemi-
cals plant in Uruguay was somewhat delayed but the facility has
now started operations. The plant has been constructed
following Botnia’s new pulp mill in Uruguay.
It has been a strong year for Sodra Cell with new sales records
due to a combination of higher volumes and an increase in
pricing. However, the results have been negatively impacted
by a storm last year that felled around 15 million cubic metres
of forest. The operating profit has risen from SK1.551 million
to SK1.669 million in 2007. The company also achieved higher
revenue, which has grown by almost 11% to SK17.794 million.
However, profit in the pulp business has dropped slightly due
to the rise in costs. Although capacity utilisation remained at
a high level, the producer was working with low inventory. Sodra
cell was successful in increasing its market share in Europe
as Canadian suppliers focussed on markets other than the
European one.
Botnia achieved a 5% increase on sales from c1.311 million
in 2006 to c1.371 million last year. At the same time, operating
profit decreased by 12% and totalled c186 million. However,
it remains well above the 2005 level of c79 million. Strong pulp
prices have had a positive impact on the results, while the
weaker US$ as well as the rise in raw material costs impacted
negatively on the 2007 balance. The financial position was
good throughout the whole year and pulp supply and demand
were largely balanced. Pulp deliveries have risen by 2%, while
production increased by 4% to 2.616 million mt. The new pulp
mill in Uruguay successfully started in Q4 and it emerged that
the cost of investment remained below the estimated figure.
The mill is producing material of high quality and the output is
exceeding expectations.
Stora Enso also increased its sales in 2007. The rise was 3.2%
and sales totalled c13.374 million last year. This was mainly
due to a combination of higher prices for wood products and a
higher number of deliveries of industrial and magazine paper
due to the healthy demand. In some segments, deliveries have
decreased. For example, fine paper deliveries have seen a
6.5% drop as the Berghuizer mill has shut down. There has
been an upward trend on operating profit, which increased by
c34.2 million up to c906 million. While it was significantly
higher in wood products, operating profit was lower in con-
sumer board, newsprint and magazine paper. In the outlook,
offtake for newsprint is expected to remain stable while there
might be a higher number of enquiries for fine paper.
M-real closed some capacity in 2007 and, as a consequence,
sales declined from c4.604 million in 2006 to c4.440 million.
The operating profit excluding non-recurring items has im-
proved and totalled c49 million last year. A combination of cost
saving measures, higher prices for uncoated paper as well as
10
Harriman Chemsult Ltd
a higher number of deliveries in the Consumer Packaging
business is seen as the main reason for the improvement.
However, the result was negatively impacted by the weaker
US$, the rise in pulp prices and the low selling price of coated
magazine paper. Paper deliveries declined by almost 6% and
amounted 3.9 million mt (2006: 4.2 million mt). In the outlook,
the company is expecting a rise in demand for its main products
in 2008 and is looking to increase prices for a number of
products in order to offset cost increases.
UPM has now published a more detailed report of its 2007
results and revealed that sales have increased over 2006 to
c10.035 million (2006: c10.022 million). There has been a
visible improvement in profitability last year, which was mainly
seen during H1. The effect slowed down during H2 as the rise
in costs was higher than anticipated. In addition, the strong
competition in the paper market prohibited the company from
raising prices for products other than newsprint and uncoated
fine paper.
The total cost increase amounted 3% over the previous year but
UPM was successful in reducing some variable as well as fixed
costs. Despite the reduction in paper capacity, the company
has invested in the remaining units in order to improve effi-
ciency. In 2008, demand is expected to remain good although
there is growing concern regarding the availability and costs of
wood fibre. Moreover, exports duties for wood from Russia are
expected to increase and the UPM is considering alternative
sources.
Nordic c525-600/mt fd
Continental Europe c525-575/mt fd
Hydrogen Peroxide
The European hydrogen peroxide market seems to have got off
to a reasonably strong start to the year continuing the uplift that
was seen in the last two months of 2007. In overall terms, last
year was seen as rather disappointing, with the market essen-
tially flat against 2006, a contrast to the 5% average annual
growth experienced over the previous five years. The difficulties
of the pulp and paper industry in the Nordic region, particularly
wood shortages in Finland, were a significant factor in slowing
growth in peroxide consumption although some conversion
from TCF to ECF bleaching also played a part. Wood shortages
as well as the spate of mill and plant closures announced over
the past few months are expected to continue to have a negative
impact on peroxide consumption by the pulp and paper industry
this year, mainly in the Nordic region.
Although peroxide demand is traditionally seasonally lower in
the first quarter in comparison to the final quarter of the previous
year, the reports that this year’s volumes are slightly ahead in
comparison to the same time in 2007 are seen as encourag-
ing. It appears that some of the difficulties in Finland are being
offset by better conditions elsewhere. Sweden has certainly
been much less affected by wood shortages and Germany is
also reported to be more positive than in early 2007. Although
Eastern Europe is still relatively small in relation to Western
Europe, it is experiencing strong growth. In addition, peroxide
offtake by International Paper’s new 200,000 mt/year BCTMP
plant at Svetogorsk, Russia, which started production just at the
end of 2007, will go some way towards offsetting a part of the
volume reductions in Finland last year.
Although there is interesting growth in many of the other
March 2008 - BCR 219 Harriman Chemsult Ltd

applications of hydrogen peroxide, particularly by the chemical

industry and in environmental applications, the health of the Total European Hydrogen Peroxide Production Capacity
pulp and paper sector remains as the most important factor in End-2007
generating a strong market for hydrogen peroxide. There is little
doubt that the European pulp and paper industry is progres- Producer No. plants Kmt/year
sively coming under increased pressure. The high value of the
Euro is very unhelpful in dealing with growing imports from Solvay 7 370 29%
North America and increasing availability of pulp mainly from Evonik Degussa 4 250 20%
South America against a backdrop of static or weakening Eka 3 178 14%
demand for paper in Europe. Recent reports on the problems Atofina 2 155 12%
of Norske Skog and speculation about its possible take over by Kemira 3 142 11%
UPM or Stora Enso could signal the start of a new round of FMC Foret 2 115 9%
consolidation in the European pulp and paper industry. Smaller producers 4 48 4%

General economic conditions in Europe are gradually becom-
ing more difficult. The situation is made worse by the likelihood
that the USA is already in recession. Eurostat has reported that
EU-27 economic growth in 2007 was 2.9% with Eurozone
growth at 2.6%. This was lower than the previous year mainly
because of the slowdown in consumer spending in Q4. Retail
sales were better in January this year but the underlying trend
is weak. Although activity in the service sector has improved
slightly this year, indices show that manufacturing is slowing
in Europe. The greatest difficulties are in Southern Europe,
which is now seeing a significant slowdown.
The rate of inflation in the Eurozone continued at a record 3.2%
in February, well above the preferred level of just below 2%. This
still leaves the ECB with the policy dilemma of needing to
increase interest rates to control inflation but without further
slowing growth. The pressures on the economy are intensify-
ing with high commodity prices, the price of crude oil at a record,
tighter credit conditions and the Euro at a record level of over 1.5
US dollars. Although the Eurozone recorded a significant trade
surplus in 2007, there are concerns that this is now being
quickly eroded by the high exchange rate.
At the beginning of March, Arkema announced that it is planning
to double the capacity of its hydrogen peroxide plant at Leuna,
Germany to 80,000 mt/year by mid-2010 at an investment cost
of Euro 40 million. Arkema believes that this investment is
necessary to boost its position in Europe and continue to meet
growing demand from the pulp and paper industry. The
company sees the plant as being ideally located to serve
growing markets at the heart of Europe. The capacity increase
is equivalent to about 3% of the current European total.
This announcement was made almost exactly on the anniver-
sary of Arkema’s similar notification that it intended to increase
the capacity of its Jarrie plant in France by 10%. That expansion
became operational in Q4 2007. In the announcement, the
company also called attention to its expansions at Becancour
in Canada by 20,000 mt/year in 2006 and at Shanghai by 40,000
mt/year due on stream in the middle of this year. When all these
expansions are completed in mid-2010, Arkema’s worldwide
capacity will be 440,000 mt/year in five plants. Arkema will then
be the only world producer with all its plants exceeding a
Total Nameplate 25 1,258
Total Effective Capacity (95%) 1,195
Apart from the companies mentioned in this table, there are
believed to be three producers in Russia. Khimprom has a
capacity around 20,000 mt/year and there are two very small
others, one of which is still believed to use an electrolytic
process. Information on this is very sparse and there are no
reports of any of this product being shipped outside Russia.
Production in the Ukraine stopped about ten years ago.
Eastman, Sokolov certainly closed its plant in the Czech Re-
public in mid-2004. In any case, all of these have been excluded
from the table, as have Negev Peroxide in Israel and the two
Turkish producers, as they are not strictly in Europe although
they still supply small quantities of hydrogen peroxide to the
European market.
Based on this information, the total nameplate capacity of the
25 hydrogen peroxide plants in Europe is currently 1,258 kmt/
year. It is, however, generally acknowledged that the effective
capacity of these plants is substantially lower than this figure.
Under current conditions, a reduction of 5% from nameplate is
believed to be a reasonable estimation and total effective
European hydrogen peroxide capacity at the end of 2007 was
1,195 kmt/year.
The average capacity of the hydrogen peroxide plants in Europe
is currently slightly over 50,000 mt/year. There are economies
of scale and the last 20 years has seen the progressive closure
of a number of smaller, older and less cost effective units with
the concentration of the business into the larger plants. The
distribution of the number of plants in each size range is shown
in the graph.
Europe, Hydrogen Peroxide Plant Capacities
Number of plants in each size range, (000 mt as 100%)
8
7
6
Number of plants

capacity of 70,000 mt/year.

5
Total European hydrogen peroxide production capacity figures 4
for the end of 2007 are summarised in the following table. The 3
statistics have been updated from published information and
best estimates where company data are not available. 2
Aragonesas, Belinka, Pulawy and Oltchim are summarised in 1
a separate category as smaller producers. Oltchim’s plant in
0
Romania has a notified capacity of 6,000 mt/year. There have 0 - 19 20 - 39 40 - 59 60 - 79 80 - 99 100+
been previous suggestions that this plant is no longer in
Size range (000 mt as 100%)
production but this has not been verified.

11
March 2008 - BCR 219 Harriman Chemsult Ltd

The changes in European peroxide capacity that have been been increased since 2000 at a significantly slower rate than
announced over the years since the beginning of 2000 are the expansion of the market. Apart from 2007, when there was
detailed in the next table. In the first four years, the only changes no growth, the European market was growing at an average rate
were FMC Foret’s expansion at Delfzijl at the end of 2001 and of 4-5% over that period.
the restart of Degussa’s mothballed smaller stream at Ant-
werp, which brought back about 40,000 mt/year to the market Europe, Total Hydrogen Peroxide Capacity
in 2002. In 2004 and 2005, the capacity additions were all in Changes since 2000, (000 mt as 100%)
the Nordic region and directed at the growth in demand from the
1,300
pulp and paper industry. In Continental Europe, the small
improvements at Povoa and Rozenburg were offset by the 1,275
closure of Eastman Sokolov. 1,250

1,225
European Hydrogen Peroxide Production Capacity 1,200
Changes since January 2000
1,175
Year Plant Kmt/year 1,150
Degussa, Antwerp line 2 out of mothball

Implemented 1,125

1,100
2000 - - Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

2001 FMC Foret, Delfzijl (expansion) 15 In March, the first product is expected to be produced by the new
230,000 mt/year hydrogen peroxide plant being built at Zandvliet,
2002 - - Antwerp by Solvay in conjunction with BASF and Dow Chemical
as feedstock for propylene oxide production using HPPO tech-
2003 - - nology. The associated propylene oxide plant is scheduled to
come on stream in May.
2004 Solvay, Povoa (improved technology) 3
2004 Kemira, Rozenburg (debottleneck) 2 This new hydrogen peroxide plant stretches technology, being
2004 Eastman, Sokolov (plant closed) -5 twice the size of any single stream hydrogen peroxide plant in
2004 Eka, Bohus (debottleneck) 7 the world today. Its first priority will be to supply the necessary
2004 Kemira, Helsingborg (debottleneck) 8 feedstock for propylene oxide production reliably. There is a
theoretical surplus, which may eventually become available but
2005 Eka, Alby (debottleneck) 8 the plant is not currently linked to Solvay’s logistical and supply
2005 Finnper (improved technology) 45 network for the general market and this will only be a consid-
eration for the future.
2006 Solvay, Torrelavega (plant closed) -24
2006 FMC Foret, Delfzijl (debottleneck) 15
UK, Hydrogen Peroxide Trade
2007 Arkema, Jarrie (expansion) 10 January – December, mt as 100%

Notified 2005 2006 2007

Imports
2008 Solvay, Antwerp (for propylene oxide) 230 Sweden *7,259 *6,511 *5,144
Spain 3,318 2,675 2,915
2010 Arkema, Leuna (expansion) 40 Netherlands 1,111 2,751 1,556
France 1,973 1,575 1,300
Belgium 990 1,851 2,250
In 2006, it was expected that Continental European capacity Germany 702 875 887
would again be boosted by the debottlenecking at Delfzijl. Italy 43 1 4
However, Solvay’s mid-year decision to close its high cost Israel 53 - 1
Torrelavega plant in Spain, partly in response to its earlier Others 30 24 58
expansion at Finnper, meant that total capacity fell by a net 9,000
mt/year. Arkema’s 10,000mt/year expansion at Jarrie was the Total 15,479 16,263 14,115
only change in 2007.
Exports
The chart shows the development of European hydrogen Finland 2,304 1,906 493
peroxide capacity in the eight years from January 2000 to the Belgium 1,289 889 1,200
end of 2007. On present information, nameplate capacity will Ireland 113 87 323
have increased over this eight year period by a total of 84,000 Others 131 83 192
mt/year, from 1,174,000 mt/year to 1,258,000 mt/year. The
increase over the period is 7.2%, an average of less than 1% Total 3,837 2,965 2,208
per year. Correcting this for the recovery of Degussa’s
mothballed stream at Antwerp in 2002 and progressive im- * From Swedish export statistics
provements in plant effectiveness leads to a conclusion that the
rise in effective capacity over the period was 140,000 mt/year,
equivalent to a little over 1.5% per year. In Europe, capacity has United Kingdom imports and exports of hydrogen peroxide

12
March 2008 - BCR 219
during the whole of 2007 are shown in the previous table
together with a comparison against the previous two years. The
statistics show mt as 100%.
For a reason that is unclear, UK statistics for imports of
hydrogen peroxide from Sweden have now been substantially
understated for number of years. In the table, Swedish export
statistics to the UK have been substituted as they are believed
to be more accurate.
Between 2000 and 2003, there was a strong increase in
hydrogen peroxide imports into the UK driven by growth in the
volume supplied from Sweden, which peaked at over 9,000 mt
in 2003. After 2004, this volume stabilised at close to 7,000 mt/
year and has been gradually falling since then. The product
from Sweden is imported mainly if not wholly by Eka to supply
part of the demand of the pulp and paper industry in the north
of England as well as the requirements of companies associ-
ated with the Akzo Nobel group located in the UK.
UK, Hydrogen Peroxide Imports
2000-2007, (000 mt as 100%)
12
10
8 been increased by £400/mt since the end of January on top of
6
4 Although there could be some future impact from the volatile
2 appears to be relatively stable in volume terms. Offtake by the
0 pulp and paper industry is expected to strengthen as the year
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2
00 00 01 01 02 02 03 03 04 04 05 05
Others France Spain Netherlands
Imports from Spain have been steady and close to 3,000 mt/
year with a regular supply to the pulp and paper industry in the
south of England. Imports from the Netherlands increased
significantly in 2006 as Kemira also began to supply a share
of this business although the volume was reduced in H2 2007.
Imports from France have been reasonably steady for some
years close to 1,500 mt/year. The imports from Belgium are
sporadic and appear to be mainly inter-site movements within
the Solvay group. The average prices of the material from
Germany and Italy indicate that this is mainly special or elec-
tronic grade. Imports from Israel to the UK distribution market
were at one time quite significant but fell into decline at the end
of 2004 with minimal volumes imported since then.
On the export side, the volume supplied to Finland, mainly in
late 2005 and early 2006, was part of Solvay’s support to the
Finnish market during the capacity expansion at Finnper.
Exports to Belgium also seem to be inter-site movements by
Solvay.
Sodium Hydrosulphite
Since the beginning of the year, it has seemed inevitable that
European sodium hydrosulphite producers would be forced to
react to the unprecedented increases in world sulphur prices
that have occurred over the past few months. In Europe, the
price of sulphur now appears to have risen to about four or five
times its normal level over a relatively short time period. In parts
Harriman Chemsult Ltd
of Asia, notably China and India, the increase has been even
larger. At first, this was expected to be a short-term phenom-
enon but fears are now increasing that the high level of prices
could continue throughout 2008 and into 2009. The impact on
the production costs and prices of a whole range of commodi-
ties has already been very severe. A very large escalation in the
price of sulphuric acid has been most generally noticed but all
products derived from sulphur are affected including sulphur
dioxide, sulphates and sulphites as well as, of course, sodium
hydrosulphite.
Now BASF has taken a lead in Europe by announcing that it will
be increasing the sales prices for its hydrosulphite worldwide
by at least Euro120/mt or the equivalent in local currency. The
increase will be effective from 1 March or as soon as contracts
allow. It seems certain that other European producers will
follow with a similar move. This increase is additional to the
modest price rise initiatives that were made in Q4 last year but
which left average prices for the early part of 2008 little changed
compared to 2007. This was before the full impact of escalating
sulphur prices became apparent.
Significant price increases for hydrosulphite have already been
implemented in other parts of the world. In North America,
temporary surcharges started to be introduced towards the end
of January. In Asia, the price of Chinese hydrosulphite has now
the $200/mt increase implemented mid-2007.
price situation, the European sodium hydrosulphite market still
H1 H2 H1 H2 progresses following the usual seasonally lower Q1. The
06 06 07 07 overall level of European newsprint production is essentially
Sweden flat despite capacity reductions by the major producers. The
difficult business environment for the textile industry continues
to be a negative factor but demand from this sector for European
produced hydrosulphite could be enhanced by price and avail-
ability problems for imported Chinese hydrosulphite.
An extract from the statistics issued by CEPIPRINT on the
European mechanical paper industry for newsprint in January
is shown in the table. CEPIPRINT noted that European de-
mand for newsprint in January remained very similar to the
previous year in both Western and Eastern Europe. Shipments
to Europe were down by 2.9% on last year because of the
continuing rise in imports as North American producers con-
tinued to take advantage of the weak dollar and the differential
between European and North American price levels. In com-
parison to January 2007, there was strong double digit growth
in exports to both Asia and Africa.
Europe, Newsprint Statistics
January, ‘000mt
2006 2007 2008
Month
Total shipments 955 940 931
To Europe 827 832 808
Outside Europe 128 108 123
European Demand* 857 863 864
* Partly estimated
13
March 2008 - BCR 219 Harriman Chemsult Ltd

These comments show consistency with the situation at the

end of 2007 and with the comments of newsprint producers in EU-25, Textile and Clothing Imports
their year-end reports. In 2007 as a whole, newsprint demand January – September, (million mt)
in Europe was only marginally down with growth in Italy, Spain
and most of Eastern Europe but some decline in the UK and 2006 2007 Chg
Germany. Total Imports

On the other hand, deliveries from the European industry were Textiles 4.47 4.84 8.4%
down by 2% because imports from Canada recovered to their Clothing 3.24 3.38 4.0%
2005 level having fallen in 2006. These trends seem likely to
continue in 2008. During H2 2007, European newsprint pro- Textiles & Clothing 7.71 8.22 6.5%
ducers became increasingly concerned about the supply de-
mand balance in Europe and determined to take action to Of which:
improve this. The temporary and permanent capacity reduc- Imports from China
tions announced by major European producers for 2008 amount
to about 1 million mt/year or about 7.5% of total European Textiles 0.89 1.10 23.9%
newsprint capacity. Clothing 1.19 1.45 21.6%

Europe, Newsprint Total Shipments (CEPIPRINT) Textiles & Clothing 2.08 2.55 22.6%
12-month Moving Total, (000 mt)
Source: Eurostat
12,300

12,200
In 2006, total imports of textiles and clothing into EU-25 coun-
12,100 tries grew by 6.1% by volume with textiles increasing by 4% and
12,000 clothing by 9%. The latest confirmed European statistics up to
the end of Q3 2007 again show that the rate of growth has
11,900 accelerated this year. Part of the reason for this may be that Q1
11,800 2006 was an exceptionally below trend figure, inflating growth
in 2007. Nevertheless, it is clear from the last four years data
11,700
that the upward trend is in excess of 5% per year. European
11,600 textile production has been eroded because of this.
JAN. APR. JUL. OCT. JAN. APR. JUL. OCT. JAN. APR. JUL. OCT. JAN.
05 05 05 05 06 06 06 06 07 07 07 07 08
EU-25, Textile and Clothing Imports, (million mt)

There has been no firm news on the final outcome of the 3.0
discussions between newsprint producers and their custom- 2.9
ers on the level of price increase for 2008. A modest decline 2.8
from last year’s level is predicted. Although newsprint mill and
machine closures have significantly improved the supply de- 2.7
mand balance in Europe, prices remain significantly higher 2.6
than in North America. 2.5
2.4
Since the capacity reductions announced in North America for
Q1, principally by AbitibiBowater, prices there have been rising 2.3
strongly, potentially reducing the difference. However, this has 2.2
been partly offset by the high and still appreciating value of the Q1 Q2 Q3 Q4
Euro, which continues to put pressure on European prices and
2005 2006 2007
encourages further growth in competitive shipments from
North America.
The total volume of textile and clothing imports into EU-25 in the
Although there has been pressure on the European textile first nine months of 2007 was 6.5% higher than in the same
industry for a long time, business conditions have become period in the previous year with textiles growing by 8.4% and
more difficult over the past three years following abolition of clothing by 4.0%. China was a major beneficiary of the growth
textile quotas at the beginning of 2005. The disadvantage of the in imports with a total increase of 22.6%. Its textiles grew by
European industry has been increased by the 25% apprecia- 23.9% and clothing by 21.6%. Between the first nine months
tion of the Euro against the US dollar over the past two years to of 2006 and the same period in 2007, China moved from a
now exceed $1.5 per Euro. 27.0% share of EU-25 imports to a 31.0% share, taking 92%
of the growth in volumes.
This has increasingly made the European market a more
attractive destination for Asian textiles than the USA. All parts The average year on year price of all textile and clothing imports
of the European textile industry have experienced pressure on fell by slightly less than 2% in Euro terms in the first nine months
domestic volumes and prices, loss of export opportunities and of 2007. Chinese clothing prices were about the same but
the transfer of production facilities elsewhere. Some countries textiles fell by about 10%. Product mix factors may have played
in southern Europe such as Italy, Spain and Portugal have felt a part in this.
the effects more than elsewhere and this has had a larger
impact on their domestic hydrosulphite demand. The latest statistics giving details of Chinese hydrosulphite

14
March 2008 - BCR 219 Harriman Chemsult Ltd

exports to Europe by country of destination are shown in the
table for the whole of 2007 with a comparison to the previous
two years. The data are summarised on a half-yearly basis in
the graph over the past eight years. Usually, the volume in the
first half has tended to be stronger than in the second half. This
was again the case in 2007 but total shipments in H1 were the
highest ever recorded with exceptionally large movements to
Germany and to the Netherlands. In contrast, the volumes
recorded in H2 were the lowest since before the year 2000.
Shipments to Italy, which are usually quite consistent, were
abnormally low with movements to other European countries
also heavily reduced. This sharp fall in the volume of imports
was associated with the significant increase in price levels.
Chinese Exports of Sodium Hydrosulphite to W. Europe
January – December, (mt)
2005 2006
The distributor/textile market in Southern Europe is very quickly
sensitive to price.
For many years, the price of Chinese hydrosulphite entering
Europe has tended to be low in comparison to the normal
European price level. With Chinese prices quotes in US
dollars, the increasing strength of the Euro has accentuated
this difference. Chinese hydrosulphite prices tended to be
lower than elsewhere partly because of lower costs in China
but also as a result of overcapacity and consequently over-
intensive competition between different Chinese producers,
which reduced returns to unrealistic levels. This situation
began to change in 2007 mainly as a result of the Chinese
government’s decision to shutdown heavily polluting or very
energy inefficient production. Three polluting hydrosulphite
plants in China were closed by the government in H2 2007,
reducing the level of over-capacity. The resulting reduction in
availability allowed prices to rise in Chinese domestic and
2007 export markets.

Italy 1,276 1,387 889 China, Sodium Hydrosulphite Exports to W. Europe

Spain 646 550 497 2000-2007, Average Price Index (H2 2003=100)
Portugal 393 382 279
175
Greece 195 63 101
Germany 191 140 418 165
Netherlands 140 232 263 155
Belgium 40 - 43
145
Others 27 37 60
135
W. Europe 2,908 2,791 2,550 125
115

The volume of Chinese hydrosulphite imported into Western 105

European domestic markets has generally been very stable, 95
averaging in the range 2,500-3,000 mt/year, comparatively H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2
00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07
small in relation to the total European market. The volumes
imported have been concentrated into Southern Europe, par-
ticularly Italy, Spain and Portugal where the market is oriented The impact of the significant mid-year increase in the price level
towards small textile users, often supplied through distribu- of hydrosulphite exported to Europe is clear from the graph. In
tors, and willing to use product supplied in small drums with fact, a comparison of Q4 with Q2 prices shows an overall
little if any technical back-up. This is of little interest in Northern increase of 50% during the course of H2 2007. Hydrosulphite
Europe where supply is required in IBCs or as a solution. production costs have been increasing in China as a result of
generalised cost inflation, because of the accelerating appre-
ciation of the Yuan against the US dollar and as a consequence
China, Sodium Hydrosulphite Exports to W. Europe of the reduction in export VAT rebates.
2000-2007, (mt)
2,000 However, since Q4 2007, the massive increase in world sul-
1,800 phur prices has been the most important factor driving price
1,600 rises. Sulphur prices in China are now estimated to be an
1,400 unprecedented ten times their level one year ago. A return to
1,200 the normal level of price is not now expected in 2008. In
1,000
consequence, Chinese hydrosulphite producers have in-
800
creased export prices by $400/mt since the beginning of 2008.
600
Since the explosion at the hydrosulphite plant of Zhejiang
400
200
Huidelong at the end of February as noted in the Deep Sea
0 section of this report, availability in China has been critical. It
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 therefore seems likely that European imports of hydrosulphite
00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 from China in 2008 will be at a much lower volume and much
Other W. Europe Spain/Portugal/Greece Italy higher price than in previous years.

It seems likely that the higher imports into Netherlands and
Germany in H1 2007 were exceptional and through an interme-
diary. These volumes declined to the usual level in H2. In
contrast, it appears that the sharp reduction in import volumes
in H2 2007 was a response to the decision of Chinese export-
ers to increase their prices by an average of $200/mt mid-year.
Chlor-Alkali
The caustic soda market continues to be affected by supply
constraints and the balance of the market has tightened.
Several producers have been hit by production issues in Q1,

15
March 2008 - BCR 219
including Akzo, Dow and Vestolit. A number of other suppliers
are understood to be struggling with low inventory due to earlier
and ongoing production outages.
As a result, the market appears to be tightening. Since the start
of Q1 producers had been reporting low inventory levels and
difficulties in supplying customers but until fairly recently,
buyers did not appear to be affected by any supply issues.
However, their perception of the market appears to be chang-
ing, as the tightness seems to be filtering through to the
distributor and end-user levels of the market.
The tighter market conditions would appear to support produc-
ers’ aspirations for higher caustic soda prices. At the end of
February a Northwest European major announced a c45/dmt
price increase on caustic soda for Continental Europe and a
£30/dmt rise for the UK, with immediate application or where
terms permit. This has been followed by a c50/dmt price
Sodium Chlorate
Sodium chlorate imports into South Africa have seen another
significant rise in 2007. This was mainly due to the improve-
ment in performance following the restructure of business at
domestic pulp mills. For example, the operational perform-
ance at Mondi’s PM31 paper machine at Merebank has im-
proved significantly. As a result of upgrade works, production
at the site in Richard’s Bay has also improved and output picked
up by 4% in 2007.
South Africa, Sodium Chlorate Imports, 2000-2007
14
12
Imports, (000 mt)
10
8
6 strongly in 2007, driven by rapidly increasing demand from the
4 completed in H2 2006 by Arauco at its Nueva Aldea mill and by
2 CMPC at Santa Fe together added just over 1.6 million mt to
0 300
00 01 02 03 04 05 06
Other Canada Finland
Due to the increase in output sodium chlorate requirements in
South Africa are now somewhat higher and the most recent
figures are showing a clear upward trend in imports. In total,
around 13,100 mt of material were shipped into the country in
2007 and this is a 25% rise compared with the previous year
(2006: 9,800 mt). Finland remains the main importer but the
countries share has decreased considerably. While Finnish
producers were importing around 8,300 mt in 2006, the total
amount in 2007 was 6,700 mt. At the same time, shipments
from Canada were about four times higher. The level has risen
from 1,500 mt in 2006 to 6,200 mt in the following year.
Canada’s share on chlorate imports into South Africa was
rather low over the past years but reached an equal level to
Finland’s share in 2007. While virtually all material in 2006 was
of Finnish or Canadian origin, shipments from other countries
Harriman Chemsult Ltd
increase announcement, effective 1 April. Although there have
been no further official announcements yet, it has emerged that
other producers are also looking to raise prices by c40-50/dmt
in Q2. In Italy, producers have announced a c20/dmt price
increase, effective 1 March, in response to the tighter supply
conditions.
The shipping market has been actively traded in recent weeks.
European suppliers are reporting strong demand from the
Americas and several parcels have been fixed for end of
February or early March loading. Spot export price ideas are
moving upwards and there are indications of fixtures at around
$400/dmt fob or above.
Chlorine production in January amounted to over 910,000 mt,
roughly in line with the same month last year. Average daily
production in January 2008 saw a 1.3% rise over the previous
month.
DEEP SEA
have resumed last year. There were some small quantities
from Germany and China last year but these were accounting
for less than 2%. As the upward movement of imports is mainly
due to the improvement of profitability, it is expected that
shipments will level off around the current import amount.
Prices are also on an upward trend and have reached a new
record level. In 2007, the average import price was $491/mt; an
almost 14% rise over 2006. This is a much steeper rise than
seen in the past years, when the average growth rate varied
around 2-4%. The only exception was 2001/2002 when levels
have seen a similar rise to the one last year. It is expected that
the upward pressure continues over the coming months but a
somewhat slower growth rate appears to be likely.
500
450 Hydrogen Peroxide
Price, $/mt
400 The hydrogen peroxide market in Chile continued to grow
pulp and paper industry. The two major new pulp projects
350
Chile’s market pulp output, increasing it by about 50% to a new
total close to 5 million mt. This added a significant increment
07 to Chile’s annual hydrogen peroxide requirements from 2007.
$/mt Demand is also growing from Chile’s important mining sector
mainly in the areas of metal separation and cyanide detoxifica-
tion.
There is currently no production of hydrogen peroxide in Chile
and the market is entirely supplied by imports. At the end of
2004, Solvay announced plans to build a greenfield plant with
a capacity in the range 40,000-50,000 mt/year (100%) to supply
the growing demand in the country. Although the planned
location of the new unit was not identified, Solvay’s intention
was to re-use redundant equipment from an older permanently
deactivated hydrogen peroxide unit at Deer Park, Texas, USA
that became available during the 2005 expansion of that plant.
Solvay’s original target was to build the plant in time to start
production during 2008. However, these plans appear to have
been shelved for the time being because of the current uncer-
tainties in Chile’s energy and particularly natural gas supplies.
16
March 2008 - BCR 219
Instead, Solvay seems to be giving greater priority to a progres-
sive expansion of its Peroxidos plant at Curitiba in Brazil by
another 45,000 mt/year up to a final capacity of about 165,000
mt/year. Since the discovery of major new deepwater reserves
in the Santos basin, off the coast south of Sao Paulo, Brazil’s
future natural gas supplies have looked much more secure as
a long-term source of hydrogen raw material for hydrogen
peroxide production.
Meanwhile, Chile is facing a long term energy crisis. The
country requires natural gas for power generation as well as
domestic and industrial use. Because of long term political
problems with neighbouring Bolivia and Peru, neither country
is prepared to export natural gas to Chile, despite their large
reserves. Instead, Chile has to obtain what natural gas it can
indirectly through Argentina. However, this supply is diminish-
ing, as Argentina is itself running short of natural gas.
Bolivia, where there are huge reserves but supply has stag-
nated through lack of investment since nationalisation, has
struggled to meet its long term contractual obligations to Brazil
and Argentina. However, it tends to give priority to Brazil, which
has a larger and more important contract. Bolivia’s exports to
Argentina are well below the contracted level and a crisis is
developing in Argentina as the southern hemisphere winter
approaches. Argentina suspended natural gas supplies to
Chile in 2007 and Chile will continue to have difficulties in 2008.
The energy crisis in Chile has been exacerbated by the severe
drought that is affecting the country. Apart from giving major
problems for agriculture, the water levels at hydroelectric dams
are at an all-time low affecting hydroelectric power generation.
The government has already taken measures such as extend-
ing daylight saving time in order to avoid starting electricity
rationing in March. To try to cover short-term needs some power
generation plants have been converted to use diesel or coal.
There is investment in new generating plants based on coal
and hydroelectric supplies but these cannot be available until
2010.
Meanwhile, to avoid the dependence on Argentina, large liquid
natural gas processing facilities are being built in several
locations, including Quintero, which is on the coast close to
Santiago and further north at Mejillones, Antofagasta. These
will allow a long-term solution by importing by sea probably
from the Caribbean and Asia. However, most of these projects
are also scheduled for completion from 2010 and the supply
situation will be critical in 2008 and 2009.
Index of Average Quarterly Exchange Rate
Value of Chilean Peso Relative to US Dollar
110
105
100
95
90
85
80
75
70
65
00 01 02 03 04 05 06 07 08
17
Harriman Chemsult Ltd
The Chilean economy is performing reasonably well. High
inflation rising to 7.8% year on year in December 2007 has been
the result of increased energy costs and higher food prices due
to the drought. With monetary tightening, inflation should
decline in 2008. The latest figure for annual GDP growth was
4.1% with industrial production rising at an annual rate of 3.4%
in December. With its economy strongly oriented towards
copper mining, high copper prices have given Chile a strong
trade and fiscal surplus but have led to an appreciation of the
Chilean Peso against the US dollar creating some cost prob-
lems for other export industries.
The pulp industry in Chile is mainly although not entirely in the
geographical north-south centre of the country where the cli-
mate is most suitable for fast-growing plantation timber. It was
traditionally based on radiata pine although increasing amounts
of eucalyptus are now being used. The industry is dominated
by two large companies, Arauco and CMPC. Both completed
major pulp expansion projects in 2006 that added significantly
to hydrogen peroxide demand in 2007.
Arauco now has a pulp capacity of over 3 million mt/year from
five mills in Chile and one in Argentina while CMPC produces
2 million mt/year from its three mills in Chile. About 40% of the
pulp produced is from eucalyptus and the remainder from pine.
Market pulp production costs in Chile are particularly favour-
able in comparison to North America and Europe. This is
mainly because of the low cost of growing pulpwood in South
America. Costs in Chile are slightly higher than in Brazil but are
much lower than in almost all other parts of the world. Overall
cost in Chile is also reduced by a good transport infrastructure
from plantation to mill and mill to port.
Arauco’s capacity includes the output of its 550,000 mt/year
market pulp mill in Valdivia, southern Chile, which started
production in February 2004. Unfortunately, the mill was
temporarily shutdown by the local environmental authorities for
two months in H1 2005 when its treated effluent discharges
were blamed for the death of rare black-necked swans in a
nearby nature reserve. When the mill was restarted in Q3 2005,
its output was restricted to 440,000 mt/year, 80% of its capacity.
Arauco has applied several times to the local environmental
authorities to increase pulp production to full capacity, most
recently in Q3 2007 but so far, all these requests have been
refused.
Arauco started up its greenfield Nueva Aldea pulp mill at Nuble
in the Bio Bio region of Chile, 50km east of Concepcion in
September 2006 and it reached full capacity during H1 2007.
The 856,000 mt/year two-line mill was designed to produce
equal quantities of pine and eucalyptus pulp. About half of the
pulp produced is being sold to China with most of the rest
destined for Europe. The mill is being operated and monitored
strictly in accordance with the guidelines ordered by the Chil-
ean environmental authorities, COREMA, to avoid any possibil-
ity of a repeat of the problems experienced at Valdivia.
In January, Arauco restarted its 140,000 mt/year pulp mill at
Licancel, southern Chile after a seven-month break in produc-
tion. The mill, which produces bleached pulp from both pine
and eucalyptus, was closed in June 2007, after an incident
caused serious pollution of the nearby Rio Mataquito. A
modern effluent treatment plant has now been installed at a
cost of $8.5 million together with other improvements to the mill.
The other major Chilean pulp producer, CMPC completed the
major new project at its Santa Fe mill at Nacimiento in the
central Bio Bio region in December 2006. A second bleached
March 2008 - BCR 219 Harriman Chemsult Ltd

eucalyptus market pulp line was added, with a capacity of Chile, Hydrogen Peroxide Imports
780,000 mt/year raising the total capacity of the mill to 1.14 2000-2007, (000 mt as product)
million mt/year. Like Arauco’s Nueva Aldea mill, the new line 18
at Santa Fe moved rapidly towards full production in H1 2007. 16
Since the start up, CMPC has diverted some of its attention to
14
improving the efficiency of its other operations and may con-
12
sider an expansion at its Laja pine pulp mill in the future.
10
8
Both CMPC and Arauco continue to see long-term growth
prospects for the Chilean pulp industry. However, it will be 6
about ten years before a new generation of Chile’s pine and 4
eucalyptus forests will begin to be ready for harvesting. Both 2
companies have stated that further significant developments 0
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2
in the Chilean pulp industry before that time are unlikely. In the 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07
meantime, they continue with investments in Latin American
Others Belgium USA Venezuela Brazil
countries outside Chile.

The table shows statistics for the import of hydrogen peroxide A new development in H2 2007 was a substantial increase in
into Chile in 2007 compared to the previous two years. These imports from Turkey as well as new imports from South Korea.
statistics are mt as shipped and not as 100%. The Turkish company HPAS with a plant in Bandirma has now
been shipping product to South America for several years,
mainly to Brazil and Argentina in 2005 and 2006 but more
Chile, Hydrogen Peroxide Imports recently to Chile, Peru and Colombia. Volumes have been
January – December, mt as product rather variable, possibly related to the availability of specialised
shipping containers. Similarly, there have been imports from
2005 2006 2007 South Korea into Colombia and Guatemala for several years
and earlier into Brazil but Chile is new in H2 2007.
Brazil 12,099 17,064 24,339
Belgium 1,045 3,748 4,219 The graph gives a good indication of the strong development of
USA 6,270 1,576 1,894 the Chilean market over the past five years. The pulp develop-
Korea - - 835 ments firstly at Valdivia from 2004 then at Nueva Aldea from H2
Turkey 82 82 482 2006 and Santa Fe from H1 2007 already generated a visible
France - - 61 increase in peroxide requirements, which will continue. In the
Germany 21 62 22 absence of new pulp developments, the rate of growth is
Spain 29 1 1 expected to slow in the future.
Others: 1 6 14

Total 19,547 22,539 31,867

As there is currently no hydrogen peroxide producer in Chile, the
market is covered entirely by imports. Until 2002, while the
market was still quite small, imports tended to be dominated
by supplies from Brazil and Venezuela with very little product
coming from elsewhere.
In 2003, imports from Venezuela significantly reduced and a
much larger position was taken by volumes from Brazil, which
unsurprisingly, given its location and its strong and growing
hydrogen peroxide industry, has taken an important part of the
growth in the market since then.
Over the past four years, shipments from Brazil have been
supplemented by imports mainly from the USA and Belgium.
It is most likely that these assistory deliveries from outside
South America were required to cover product shortages dur-
ing the periods when Peroxidos do Brasil and Degussa were
expanding their plants in Brazil when regional availability was
strained.
In H2 2006 and H1 2007, imports from outside the region were
small and the bulk of Chile’s needs were met by Brazil. The
larger volume of imports from outside the region in H2 2007
corresponds to the period just before Degussa’s expansion of
its Barra do Riacho plant in Brazil to 70,000 mt/year, which was
recently completed. With the greater availability now estab-
lished in Brazil, it seems likely that the largest part of Chile’s
future requirements will continue to be supplied from there.
Sodium Hydrosulphite
During January and February, the price of sodium hydrosulphite
from China in export markets has been increased in five steps
by a total of $400/mt. This is in addition to the $200/mt increase
applied in mid-2007. The January increase was implemented
as a result of the exceptional increase in sulphur prices that
occurred in China around the end of the year. However, in
addition to this, hydrosulphite producers were also struggling
with serious availability problems exacerbated by coal and
electricity shortages and transport problems resulting from
what is said to be the worst winter conditions in China for 50
years. The increases in February were in response to rising
costs and the changed market situation resulting from all these
factors. Product availability suffered another serious blow with
the 25th February explosion and fire at the hydrosulphite plant
of Zhejiang Huidelong, which will put this large plant out of
action for at least three months
As noted in other sections of this report, world sulphur prices
have been rising at an unprecedented rate over the past three
to six months. During H2 2007, this was generally expected to
be a temporary phenomenon with a rapid return to normality but
by early 2008, it had become clear that there was a crisis of
availability, which is now expected to continue for most of 2008
or even longer. Worldwide demand for fertilisers has increased
rapidly over the past year in response to grain and soya
shortages. As part of this, there has been a sharp rise in
demand for diammonium phosphate putting huge pressure on
its price as well as the price and availability of its raw materials

18
March 2008 - BCR 219
including phosphate rock, sulphuric acid and ultimately sul-
phur.
Although there are large stockpiles of sulphur in various parts
of the world, logistics factors are constraining its general
availability leading to very sharp price rises. China imports
large and growing quantities of sulphur mainly for sulphuric
acid production but its inventories fell in Q4 2007 creating a
shortage and the start of panic buying with spot prices rocketing
towards ten times the normal level. Because of this, the prices
of all the downstream products of sulphur have been affected
including sulphur dioxide, sulphuric acid, sulphites, sulphates
and, of course, sodium hydrosulphite..
The latest trade statistics from China have now been published
detailing exports of sodium hydrosulphite up to the end of 2007.
A total for the year in excess of 140,000 mt has always been
expected and was achieved. The statistics show that the total
volume of exports to all destinations in 2007 at 141,194 mt was
a new record by a significant margin being 22,500 mt (19%)
higher than in 2006.
The most important contribution to this came from a major
increase in exports to North America, which grew by 83%,
increasing by more than 14,000 mt to 30,964 mt for 2007 as a
whole. This growth was largely the result of a full year’s
operation of the deal between ZhongCheng Chemicals and
Chemtrade, announced at the end of October 2006, to supply
the North American market with powder product. A further boost
to 2007 exports came from a continuation of the major in-
creases in sales to the Japanese and Taiwanese markets that
began in 2005 following the closure of the domestic
hydrosulphite production in both those countries. In addition,
shipments to many other countries both inside and outside
Asia showed significant organic growth.
The graph of total annual exports of hydrosulphite from China
over the past ten years illustrates the long-term trend of this
business. Exports have significantly more than trebled over
that period. The developments in North America, Japan and
Taiwan added a total of close to 45,000 mt/year to exports
between 2004 and 2007 and were the result of plant closures
in those countries than cannot be repeated. It is inevitable now
that the rate of growth will slow substantially as all the available
new markets for the product are becoming saturated. Future
growth will be more related to organic growth in hydrosulphite
world markets.
China, Sodium Hydrosulphite Exports
1997-2007, (000 mt)
150
140
130
120
110
100
90
80
70
60
50
40
30
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
The balance of Chinese exports by world region is now about
50% Asia Pacific, 25% North America with most of the remain-
19
Harriman Chemsult Ltd
der split between Latin America and Middle East/Africa. Exports
to Europe are still comparatively small.
Exports are an important part of total demand for the Chinese
hydrosulphite industry but there is also strong growth in the
domestic market, which has now reached substantially over
200,000 mt/year. The domestic market is mainly oriented
towards the textile industry, which accounts for about 90% of the
total with the remainder being taken by the pulp and paper
industry and in minor applications. The buoyant domestic
market for hydrosulphite has been maintained in China be-
cause the Chinese textile industry has so far been able to
achieve a very high annual growth rate year after year.
The Chinese economy grew extremely rapidly in 2007 with GDP
increasing by 11.4%. Chinese industrial output in December
2007 expanded by 17.4% compared to the same month in
2006. Because of fears of overheating, the government took
measures to slow the economy throughout 2007 with six
increases in interest rates implemented through the year to
control monetary growth. This seems to have been increas-
ingly effective and GDP growth in 2008 is now forecast to be at
a rate below 10%.
The government’s determination to operate a tight monetary
policy in 2008 has been influenced by recent higher rates of
consumer price inflation. This reached a new 11-year high in
January at 7.1% and is expected to go higher in the short term.
Inflation is being driven by higher food and energy prices that
were especially affected in January by the very bad winter
weather, which prevented the movement of food and coal.
However, there is concern that this could spread to the general
economy. For example, annual wage increases of around 13%
have been reported for the Pearl River area. The government
is expected to continue to raise interest rates in 2008.
In 2007, China’s trade surplus was a new record at $262 billion.
However, the government has been allowing the appreciation
of the Chinese Yuan to proceed more rapidly than previously to
reduce this as such a high trade surplus also has an inflation-
ary impact. At the end of February, the appreciation of the Yuan
against the US dollar since the ending of the fixed exchange rate
policy in July 2005 reached 15%.
Index of Average Quarterly Exchange Rate
Value of Chinese Yuan Relative to US Dollar
116
114
112
110
108
106
104
102
100
98
00 01 02 03 04 05 06 07 08
The output of China’s textile industry is estimated to have grown
at a rate of nearly 22% in 2007. Growth in textile exports was
slightly slower at 20% with textiles being 15% of China’s total
exports. Financial pressures on the industry from cost inflation
as well as the continued appreciation of the Yuan is expected
to gradually slow the future rate of growth as export business
is lost to other countries where costs are lower.
March 2008 - BCR 219 Harriman Chemsult Ltd

Details of Chinese exports of hydrosulphite in the whole of 2007 In the Middle East / Africa region, shipments to South Africa were
are shown in the table together with a comparison to the high but partly offset by much lower exports to Nigeria. Smaller
previous two years. African markets continued at the higher rate seen in 2006.
Volumes to the UAE were much increased but mainly in the first
half of the year. Exports to South America were boosted by good
China, Sodium Hydrosulphite Exports volumes to Mexico, Brazil and Chile, possibly the result of
January – December, (mt) Chemtrade’s withdrawal from production of powder
hydrosulphite. Exports to Western Europe were high in H1 but
2005 2006 2007 much reduced in H2 leaving the year’s total lower than 2006.
In Eastern Europe, there was a noticeable increase in exports
Japan 5,742 9,041 11,563 to Bulgaria.
Taiwan 7,856 9,997 11,182
Thailand 6,668 8,119 7,808 China, Sodium Hydrosulphite Exports
Indonesia 5,395 5,522 6,627 2004-2007, (000 mt)
Pakistan 3,027 4,347 6,596 40
S. Korea 5,061 4,927 5,065
35
Bangladesh 3,388 5,441 3,535
India 1,033 1,879 3,244 30
Vietnam 1,658 2,335 2,392 25
Hong Kong 2,096 1,543 1,112 20
Australia/NZ 8,249 7,638 6,596
15
Other Asia/Pacific 3,647 4,956 5,423
Total Asia/Pacific 53,820 65,745 71,143 10
5
Turkey 4,667 5,954 5,369 0
South Africa 1,311 1,694 3,324 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07
Egypt 1,204 1,668 1,559
Europe / N. America S. America
Nigeria 2,645 2,865 1,417
Africa / M. East Asia / Pacific
Other M. East/Africa 2,741 3,564 3,649
Total M. East/Africa 12,568 15,745 15,318
Over-intensive competition between Chinese hydrosulphite
Mexico 3,691 4,030 6,603 producers over many years meant that the product was under-
Brazil 4,104 4,264 4,928 valued even under Chinese cost conditions with low levels of
Colombia 1,711 2,541 1,754 profitability for the industry. Meanwhile, weak or ineffective
Other S. America 2,954 4,178 4,699 environmental protection laws meant that waste treatment
Total S. America 12,460 15,013 17,984 costs were non-existent or very low for the polluter but with a
heavy social cost. Under these conditions, the average price
Total N. America 8,557 16,914 30,964 of Chinese sodium hydrosulphite exports fell to a low point of
$450/mt FOB in 2003. Gradual price rises between H2 2003
Italy 1,276 1,387 889 and H1 2007 were driven by inescapable raw material and
Other W. Europe 1,632 1,404 1,661 energy cost increases to reach about $600/mt.
Total W. Europe 2,908 2,791 2,550
In mid-2007, there began a very significant series of changes
Total E. Europe 2,422 2,483 3,235 in China that led to a dramatic change in this situation. Most
importantly, the Chinese government began to take much
Total World 92,735 118,691 141,194 stronger action to control polluting chemical plants. This was
part of the enforcement of the pollution reduction targets that
were set in the 5-year plan to 2010. These called for a 10%
The strong growth in the total volume of hydrosulphite exported reduction in pollution over the five year period with the enforced
over the three years shown is clear. As noted earlier, the most closure of many small industrial polluters in a whole variety of
significant contributions to this growth were made by the different industries. ZhongCheng Chemicals is still extremely
increases in North America as well as in the Asia/Pacific region confident that it can continue to meet all the government’s
as a result of the plant closures in Japan and Taiwan in 2005. requirements but other Chinese hydrosulphite producers have
However, there were also some other noticeable changes in problems. It is clear that at least three separate sodium
2007, mostly positive. hydrosulphite production plants were closed down for this
reason during H2 2007. This has significantly reduced over-
Export volumes to the Asia / Pacific region showed a continuing capacity and the resulting reduced availability has created a
consolidation of sales to Japan and Taiwan in 2007. These are business environment that is more favourable to price rises.
now the largest individual markets in the region supplied from The explosion at the hydrosulphite plant of Zhejiang Huidelong
China. There was significant growth in sales to Pakistan in has now precipitated an availability crisis.
2007 but this was offset by a reduction in the volumes to
Bangladesh. Substantial growth in exports to India in 2007 was Over the past year, the pace of cost increases in China has
surprising in view of the reconfirmation of anti-dumping duties accelerated, especially when measured in US dollar terms.
on Chinese hydrosulphite by the government of India for an- During 2007, the Yuan has appreciated by about 7% against the
other five years from Q4 2006. However, the sharp increase in dollar, part of the now 15% appreciation since mid-2005 when
all prices may be having an influence on this. Exports to most the peg was removed. In mid-2007, Chinese export VAT refund
other Asian countries showed normal year-to-year variation. rates were reduced. The higher rate of inflation in China led to

20
March 2008 - BCR 219 Harriman Chemsult Ltd

growth in wage costs, particularly in the cities. Energy and raw During 2007, the Chinese domestic price of hydrosulphite rose
material costs rose rapidly with the large escalation in sulphur by 60-70% reaching in excess of RMB 6,000/mt ($800-850/mt)
prices being most important in H2. by the end of the year. Export prices were increased by an
average of around $200/mt (33%) mid-year although this did
not show fully in statistics until Q4 as can be seen from the
China, Sodium Hydrosulphite Average Export Price graph. Although this was the average increase across all
2004-2007, ($/mt FOB) markets, it was influenced by contracts in some countries
825 where the increase was consequently more restrained. In
800 contrast, the price rise was even greater elsewhere with many
775 export markets seeing escalations in the range of 55-60%
750 between Q2 and Q4 leading to average prices in Q4 of around
725 $850-950/mt FOB China.
700
675 The $400/mt price rises announced in January/February 2008
650 resulting from the sulphur crisis combined with shortages of
625 electricity and coal, and the changed market situation are
600
additional and will force almost all export hydrosulphite prices
575
well over $1,200/mt in H1. They will remain at this higher level
550
until sulphur markets return to a more normal situation. It is not
525
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 yet possible to predict when this will occur but it may not be until
04 05 05 05 05 06 06 06 06 07 07 07 07 2009.

PLANT AND PROJECT NEWS

Austria: It is reported that Heinzel has put the long-term Pols
500+ expansion project at its Zellstoff Pols mill on hold in
protest at the government’s bioenergy policies. The project
started in Q3 2005 with the eventual aim of increasing pulp
capacity from 330,000 mt/year to 450,000 mt/year in a series of
steps and then replacing the existing very small paper machine
with a much larger unit. So far, pulp capacity has reached about
370,000 mt/year.
Brazil: Norske Skog has decided to stop its project to transfer
the paper machine from its Union mill in Norway to its Pisa mill
in Brazil, which was planned for completion in Q2 2009. Major
cost overruns have been identified and the project has been
stopped for financial reasons. The paper machine will be
stored at Pisa.
Canada: After efforts by the local community, Catalyst Paper’s
board has approved a restart of directory PM4 at its Port Alberni,
BC mill together with a $12 million upgrade of the TMP plant.
The machine was closed last September with about 185
workers laid off of which about 100 will return. The restart in May
is the result of a new labour agreement and a tax break from the
city council coupled with a $14 million retirement and sever-
ance package from the company. It is estimated that the TMP
upgrade will be completed in about 16 months.
Finland: M-real has confirmed the closure of the BCTMP plant
at its Lielahti mill and the coated magazine PM2 at its Kangas
mill, which were announced in November as part of its im-
proved profitability and reduced complexity programme. The
BCTMP plant at Lielahti, which at 105,000 mt/year was the
company’s oldest and smallest, will close in Q2. The 100,000
mt/year coated magazine PM2 at Kangas was already closed
in February.
India: After nearly six months of delay, Tamil Nadu Newsprint
and Papers should soon be starting up a new 300 mt/day
fibreline supplied by Metso Paper at its mill in Kagithapuram,
Tamil Nadu in the southeast of India. The new line uses ECF
bleaching and is based mainly on eucalyptus. Metso Paper
has also supplied a new ECF bleaching process for the mill’s
existing 500 mt/day bagasse line.
Indonesia: It is now reported that Asia Pulp & Paper has
completed two of the three planned debottlenecking projects
at its mills in Sumatra. At its PT. Lontar Papyrus mill at Jambi,
capacity has been increased by 200,000 mt/year to 800,000 mt/
year. At its PT. Indah Kiat plant at Perawang, one of the 600,000
mt/year BHK lines has been increased to 900,000 mt/year.
Similar work on the other 600,000 mt/year line at the mill has
been postponed pending resolution of woodchip shortages in
Indonesia, which have resulted from government action against
illegal logging by a prohibition on the harvesting of all mixed
tropical hardwood in the region. APP’s existing pulp capacity
has been maintained by using plantation acacia as feedstock.
Russia: Ilim Pulp is reported to be considering expansion of
its pulp and paper capacities at its Bratsk and Ust-Ilimsk mills
in the south-eastern Siberian Irkutsk province. The current pulp
capacity of the two mills, which is slightly over 1.4 million mt/
year, would be increased by about 15% by expanding wood
harvesting activities. In addition, a new printing and writing
paper machine would be installed at Bratsk. The project would
be completed around 2012.
Russia: The Ruukki Group of Finland is has abandoned its
plans to construct a sawmill and either a BKP or BCTMP pulp
mill in Manturovo, Kostroma Oblast. After a political change in
the region, there was a disagreement with the local authorities
over the terms and conditions of the investment. Ruukki is
considering seeking compensation for the breach of agree-
ment. Construction work had not started and Ruukki will now
search for an alternative site for its project in Russia.
Sweden: Following the completion of negotiations with the
union, Rottneros has now formally announced dates for the
closure of pulp production at its Utansjo mill. CTMP production
will cease at the end of April and groundwood pulp production
at the end of May. To take advantage of lower wood and energy
costs than in Sweden, Rottneros intends to dismantle the mill
and move it to South Africa to be part of a joint venture agreement
with the forest company NTC. Planned CTMP capacity in South

21
March 2008 - BCR 219
Africa is 165,000 mt/year based on eucalyptus with start up
expected by the end of 2009.
USA: Inland Empire Paper Company has announced plans
to invest $40 million to install a new TMP plant at its mill in
Millwood, Washington state. The new plant, to be supplied by
Metso, will replace mechanical pulp systems installed in the
1960’s. It will have a heat recovery system that will significantly
reduce Inland Empire’s dependence on natural gas for drying
its paper products. The project is scheduled for completion in
2009.
USA: SCA is planning to upgrade all three deinking lines at
its 225,000 mt/year 100% recycled tissue mill at Menasha,
22
Harriman Chemsult Ltd
Wisconsin. The company forecasts that increasing demand
from China for US recovered paper means that it must become
more flexible in its choice of fibre for recycling and potentially
make greater use of lower grade waste paper. This will require
new technology and process modifications. The $23 million
project is expected to be completed by mid 2009.
USA: Georgia-Pacific is planning to replace the deinking line
at its 407,000 mt/year Broadway tissue mill at Green Bay,
Wisconsin. The aim is to increase yield from poorer quality
feedstock, reduce energy and water consumption and move
away from hypochlorite bleaching. The $50 million project is
expected to be completed by Q1 2009.