First Quarter 2010 Report

ISM-New York Commodity Corner

It is our intent to provide you with historic commodity pricing information, define trends, discuss forecasts, and most of all, to help develop insights regarding materials pricing. Commodities will be updated each calendar quarter, or as the specific need arises. We hope you find this information useful and we are open to suggestions and questions to make this more relevant to your needs. Please send your questions and comments to: info@ismny.org


Crude Oil & Natural Gas

Crude Oil - Cost Drivers: World-wide supply and demand balance, gasoline refining conditions in the US, regional/geopolitical instability and issues, commodity investment/speculation, global and local weather, OPEC statements and actions.

Current Pricing Summary:
1Q2009 @ $42.89/bbl
1Q2010 @ $78.36/bbl (an 83% period on period increase)
FY2009 @ $61.60/bbl
Estimated FY2010 @ $82.25/bbl (an estimated 34% year on year increase)


Natural Gas - Cost Drivers: Natural Gas is largely a domestic natural resource. Cost drivers are supply / demand, weather, and to some extent, sympathetic movement to oil, in particular given its recent volatility.

Current Price Summary:
1Q2009 @ $4.91/MMBtu
1Q2010 @ $5.30/MMBtu (an 8% period on period increase)
FY2009 @ $4.01/MMBtu
Estimated FY2010 @ $4.35/MMBtu (an estimated 8% year on year increase)


Ethylene

Where Used: About 70% of North America's ethylene production is derived from natural gas (30% from crude oil). Ethylene is the building block for a variety of the plastics we use daily, as well as solvents, surfactants, and other significant chemical feedstocks.

Cost Drivers: Although tied to natural gas and oil costs, ethylene is also subject to supply / demand swings, and in particular to the operating efficiency of the production facilities. Downstream end products (plastics, solvents, glycols, etc) can compete for the available pounds of ethylene, thus driving ethylene pricing.

Current Summary:
1Q2009 @ $.315/lb
1Q2010 @ $.5233/lb (a 66% period on period increase)
FY2009 @ $.3394/lb
Estimated FY2010 @ $.4813/lb (an estimated 42% year on year increase)
- Ethylene market has "tightened" due to operating issues and olefins units taken off-line for scheduled maintenance.
- Current pricing is estimated to decrease, due to two "crackers" coming off maintenance during 2Q2010.
- It is estimated that a "more balanced" market will develop during 2Q2010.


HDPE

Where Used: High density polyethylene is used in a wide variety of applications, including plastic milk containers, liquid detergent bottles, etc., and industrial applications such as plastic pipe for natural gas transmission and many automotive parts.

Cost Summary: High density polyethylene is heavily influenced by the factors driving ethylene costs, and it also has its own supply / demand cost influences.

Current Summary:
1Q2009 @ $.577/lb
1Q2010 @ $.645/lb (a 12% period on period increase)
FY2009 @ $.648/lb
Estimated FY2010 @ $.635/lb (current estimate is basically flat, year on year)
- Pricing has moved up over the last quarter, due to tightness in the ethylene market.
- Pricing is estimated to decrease, due to the forecasted capacity increases and "balancing"in the ethylene markets, beginning in 2Q2010.


PET

Where Used: This is the plastic used to make soda bottles, water bottles and plastic beer bottles, and is also used in the manufacture of carpeting and clothing.

Cost Drivers: PET pricing is tied to ethylene glycol and to xylene markets, supply / demand balances, and it has historically had a seasonal influence (increased consumption during the summer due to water and soda bottle demand).

Current Forecast:
1Q2009 @ $.613/lb
1Q2010 @ $.658/lb (a 7% period on period increase)
FY2009 @ $.727/lb
Estimated FY2010 @ $.726/lb (current estimate is basically flat, year on year)
- Pricing has moved up since last quarter, due to the beginning, in large part, of the "bottle" season.
- Pricing is forecasted to ease slightly during the back half of 2010, based on estimated reductions in ethylene glycol and a pretty much flat para-xylene market.


Glycerine

Where Used: Glycerine is used in cosmetics, foods, pharmaceuticals, and a variety of personal care and oral care products, as well as in other applications including animal feed, antifreeze and certain energy uses.

Cost Drivers: As glycerine is a byproduct of the production of other products, its cost is principally driven by the demand for glycerine for its various uses ­ the supply remains driven largely by the production of other products such as biodiesel fuels, soaps, fatty alcohols, and fatty acids.

Over the past few years the increasing use of biodiesel as a fuel in Europe, and increasing volumes in North America, has resulted in significant increases in the supply of byproduct glycerine globally, which has driven glycerine market pricing lower.

Current Summary:
99.7% Kosher quality refined glycerine spot pricing: March 2010 USA @ $.34/lb, Europe @ $475/pmt, USA estimated 2010 year end price @ $.55/lb, Europe estimated @ $700/pmt
99.5% tallow quality refined glycerine spot pricing: March 2010 USA @ $.32/lb, Europe @ $390/pmt, USA estimated 2010 year end price @ $.45/lb, Europe estimated @ $600/pmt
80% crude glycerine spot pricing: March 2010 USA @ $.10/lb, Europe @ $200/pmt, USA estimated year end price @ $.15/pmt, Europe estimated @ $300/pmt.
Trend: pricing forecasted to move higher due to strong demand for both crude and refined glycerine.


Linerboard

Where Used: Linerboard is the main component and cost driver in the manufacture of corrugated shipping containers, which are used in a broad variety of consumer industries such as food and beverage, as well as the automotive industry.

Cost Drivers: Linerboard is heavily influenced by supply / demand balances, inventories, conversion cost (energy), exports and industry consolidation.

Current Summary:
1Q2009 @ $600/tn list price
1Q2010 @ $610/tn list price (basically flat period on period)
FY2009 @ $575/tn list price
Estimated FY2010 @ $665/tn list price (an estimated 16% increase, year on year)
- Prices have increased sharply, since Dec. 2009, with a $50/tn increase effective Jan. 2010.
- Another $60/tn increase is seen, beginning in 2Q2010, driving the current list price to $670/tn.
- Beginning 3Q2010, another $20/tn increase is forecasted, with the market supporting that level through 2Q2011.

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