Dow Acrylates Seeks Improved Margins for Growth

Dow Acrylates Seeks Improved Margins for Growth
Business Leader Says High Feedstock Prices, Tight Supply Continue to Challenge Dow

Midland, MI - April 04, 2005

The following is a Q&A with Doug May, global business director for Dow Acrylates, discussing the current industry situation and market environment.

What is your outlook for the acrylates market in 2005?
The acrylates market is expected to grow at or above 4 percent per year. There are two main catalysts for this growth - application growth and regional growth. Over the past two years, we have seen growth for downstream industries driven by the continued acceptance of acrylics as a preferred chemistry. Adhesives and superabsorbent polymers are two examples of applications growing in all major geographic regions. We also have seen strong demand from Asia, especially in China, which is expected to be a strong source of demand going forward.

One of the key challenges for Dow moving forward is to manage profitability across the cycle. Dow is committed to providing a broader offering of acrylate esters, and this requires consistently acceptable margins, and favorable and balanced return on capital so that both Dow and its customers continue to do well in this industry across the economic cycle.

What is Dow's competitive position in the acrylates marketplace?
Following Dow's acquisition of Celanese in 2004, Dow is one of the world's largest global producers of acrylate esters, with the largest merchant sales in acrylic acid and esters.

How would you describe market conditions today?
Unusually high demand and significant supply shortages during the past year have resulted in a tight acrylates market. These shortages are due to a number of factors, including unplanned acrylic acid manufacturing events. Industry-wide plant shutdowns, operational setbacks, raw material shortages and force majeure implementations announced by multiple producers have affected acrylates supply through the last three quarters.

In addition to being in short supply, acrylic acid also has become more costly to make. The cost of crude oil and natural gas has increased, which in turn has caused the price of propylene (the major raw material used to make acrylic acid) to increase. Crude oil in 1Q 2005 is up almost 45 percent compared to a year ago, while U.S. natural gas prices are up 15 percent compared to a year ago. Freight and logistic costs have risen substantially as well.

What are your projections for supply/demand balances?
In light of the severe shortages that the acrylates industry has faced over the past several months, Dow expects continued tight supply through at least the first half of 2005. We have seen growth for downstream industries, such as emulsions and superabsorbent polymers, in all major geographic regions. However, significant capacity additions are announced for late 2005 and 2006 in Asia, which, if implemented, could alleviate a portion of today's industry shortages.

What is the industry demand for acrylates?
In 2004, worldwide demand for acrylic acid was 6.6 billion pounds (3,000 kilotons or KT). Industry demand is expected to increase in the coming years, making supply/demand tighter.

What is driving demand for acrylates at the moment?
A number of factors drive demand for acrylates. Typically, acrylate trends align with the economy; as the economy improves, so does demand for acrylate products. Paper, paint and coatings, textiles and adhesives applications have continued at their normal, constant growth rates in spite of economic slowdowns. In addition, demand is strong in personal care products, detergents, and wastewater treatment chemicals, as well as superabsorbent polymers, which are used primarily in disposable diapers and other absorbent personal care products.

Have any price increases been announced?
The leap in feedstocks, energy, and transportation costs, exacerbated by the lack of acrylic acid availability, has led to rapid price movement throughout the industry. Dow's recent price announcements are an effort to offset production cost increases and have helped improve margins from unsustainably low levels. Dow has announced price increases as follows:

Effective July 1, 2004, Dow announced price increases for Glacial Acrylic Acid, Butyl Acrylate, Ethyl Acrylate, 2-Ethylhexyl Acrylate and Methyl Acrylate in all regions of the world. Dow increased selling prices by US$270 per metric ton in Latin America; by US$270 per metric ton in the Pacific; by 230 Euros per metric ton in Europe; by US$270 per metric ton in the Middle East and Africa; and by US$0.12 per pound in the United States and Canada.
Effective October 1, 2004, Dow announced price increases for Glacial Acrylic Acid, Butyl Acrylate, Ethyl Acrylate, 2-Ethylhexyl Acrylate and Methyl Acrylate. Dow increased selling prices by US$260 per metric ton in Latin America; by US$260 per metric ton in the Pacific; by 215 Euros per metric ton in Europe; by US$260 per metric ton in the Middle East and Africa; and by US$0.12 per pound in the United States and Canada.
Effective January 1, 2005, Dow announced price increases for Glacial Acrylic Acid, Butyl Acrylate, Ethyl Acrylate, 2-Ethylhexyl Acrylate and Methyl Acrylate in all regions of the world. Dow increased selling prices by US$280 per metric ton in Latin America; by US$280 per metric ton in the Pacific; by 210 Euros per metric ton in Europe; by US$280 per metric ton in the Middle East and Africa; and by US$0.12 per pound in the United States and Canada.
Effective April 1, 2005, Dow announced price increases for Glacial Acrylic Acid, Butyl Acrylate, Ethyl Acrylate, 2-Ethylhexyl Acrylate and Methyl Acrylate, increasing selling prices by US$0.10 per pound in the United States and Canada.

How have raw materials affected margins?
Global pricing for light and heavy feedstocks greatly affects our costs and margins at Dow. In particular, the cost of natural gas, propylene and oil derivatives has an enormous impact on the cost to manufacture acrylates. Indicators show that energy and raw material costs will remain high for 2005, resulting in continued pressure on margins, especially in light of the supply/demand outlook mentioned above.

How has the price of propylene affected your business?
Propylene monomer supply is extremely tight, and propylene prices have risen more than 50 percent in the past year. We expect propylene pricing to remain high. This has a significant negative impact on Dow's margins for acrylates, and remains a challenge for Dow and its customers.

How has the Celanese acquisition affected your business?
Dow acquired Celanese's Acrylic Acid and Esters business in 1Q 2004, making Dow one of the largest global producers of acrylate esters. Dow gained acrylates production assets at the Celanese Clear Lake, Texas, site and capacity rights at Pampa, Texas, and Cangrejera, Mexico.

Dow's immediate focus has been to optimize its assets and implement its standards for efficiency in production as it fully integrates its acquired plants. Dow's competencies lie in low-cost, high productivity manufacturing. Dow is pleased with the Celanese transaction and is ahead of schedule with integration, although the realization of potential synergies remains ongoing. Dow recognizes this enormous opportunity to implement its production know-how and increase its industry leadership.

What are the main issues that acrylic acid producers are facing? What is Dow doing to tackle those issues?
In an already tight market, multiple planned and unplanned manufacturing events have been announced by every producer throughout the industry. The impact of these events has turned what should have been an industry balance into a shortage. At Dow, demand for acrylates products exceeds capability. The combined impact of unexpected high demand and multiple producer outages has made acrylic acid supply much tighter than we had anticipated. Dow is investing significant resources into the efficiency of its production capabilities.

What are the growth opportunities for acrylates? What is Dow doing to capture those opportunities?
Dow's priority is to actively pursue growth within its existing customer base and within all geographies to achieve competitive positions around the world. Dow currently is investigating growth opportunities for acrylates as it seeks to establish itself as a major presence in higher value, less cyclical downstream markets. Dow also is currently evaluating possible process improvements at some of its facilities. Dow has several low-capital investment debottlenecking projects currently underway to increase production at its existing acrylates plants. Decisions about Dow's investments in acrylates and its derivatives will be made and communicated at the appropriate time.

From a market standpoint, the versatility of acrylate chemistry will keep it on the forefront of new application and replacement application growth. Especially in the areas of adhesives, emulsions and superabsorbent polymers, acrylates continue to be an integral component of application development.

Is Dow planning any new projects?
Dow is committed to providing a broader offering of acrylic esters. Expansion plans are part of Dow's overall business strategy to be a global leader in the merchant market and to have a stronger position in higher value, less cyclical downstream markets for these products. Currently, Dow is evaluating possible process improvements at its facilities. In terms of specific projects, information will be communicated at the appropriate time.

About The Dow Chemical Company
Dow is a leader in science and technology, providing innovative chemical, plastic and agricultural products and services to many essential consumer markets. With annual sales of $40 billion, Dow serves customers in 175 countries and a wide range of markets that are vital to human progress: food, transportation, health and medicine, personal and home care, and building and construction, among others. Committed to the principles of sustainable development, Dow and its 43,000 employees seek to balance economic, environmental and social responsibilities. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted.

For Editorial Information:

Amy Ahlich
The Dow Chemical Company
(989) 636-3587

Josiah McClellan
Gibbs & Soell, Inc.
(212) 697-2600


Products Applications Technical Information Acrylic Monomers News Contact Us	Dow Acrylates Seeks Improved Margins for Growth Business Leader Says High Feedstock Prices, Tight Supply Continue to Challenge Dow Midland, MI - April 04, 2005 The following is a Q&A with Doug May, global business director for Dow Acrylates, discussing the current industry situation and market environment. What is your outlook for the acrylates market in 2005? The acrylates market is expected to grow at or above 4 percent per year. There are two main catalysts for this growth - application growth and regional growth. Over the past two years, we have seen growth for downstream industries driven by the continued acceptance of acrylics as a preferred chemistry. Adhesives and superabsorbent polymers are two examples of applications growing in all major geographic regions. We also have seen strong demand from Asia, especially in China, which is expected to be a strong source of demand going forward. One of the key challenges for Dow moving forward is to manage profitability across the cycle. Dow is committed to providing a broader offering of acrylate esters, and this requires consistently acceptable margins, and favorable and balanced return on capital so that both Dow and its customers continue to do well in this industry across the economic cycle. What is Dow's competitive position in the acrylates marketplace? Following Dow's acquisition of Celanese in 2004, Dow is one of the world's largest global producers of acrylate esters, with the largest merchant sales in acrylic acid and esters. How would you describe market conditions today? Unusually high demand and significant supply shortages during the past year have resulted in a tight acrylates market. These shortages are due to a number of factors, including unplanned acrylic acid manufacturing events. Industry-wide plant shutdowns, operational setbacks, raw material shortages and force majeure implementations announced by multiple producers have affected acrylates supply through the last three quarters. In addition to being in short supply, acrylic acid also has become more costly to make. The cost of crude oil and natural gas has increased, which in turn has caused the price of propylene (the major raw material used to make acrylic acid) to increase. Crude oil in 1Q 2005 is up almost 45 percent compared to a year ago, while U.S. natural gas prices are up 15 percent compared to a year ago. Freight and logistic costs have risen substantially as well. What are your projections for supply/demand balances? In light of the severe shortages that the acrylates industry has faced over the past several months, Dow expects continued tight supply through at least the first half of 2005. We have seen growth for downstream industries, such as emulsions and superabsorbent polymers, in all major geographic regions. However, significant capacity additions are announced for late 2005 and 2006 in Asia, which, if implemented, could alleviate a portion of today's industry shortages. What is the industry demand for acrylates? In 2004, worldwide demand for acrylic acid was 6.6 billion pounds (3,000 kilotons or KT). Industry demand is expected to increase in the coming years, making supply/demand tighter. What is driving demand for acrylates at the moment? A number of factors drive demand for acrylates. Typically, acrylate trends align with the economy; as the economy improves, so does demand for acrylate products. Paper, paint and coatings, textiles and adhesives applications have continued at their normal, constant growth rates in spite of economic slowdowns. In addition, demand is strong in personal care products, detergents, and wastewater treatment chemicals, as well as superabsorbent polymers, which are used primarily in disposable diapers and other absorbent personal care products. Have any price increases been announced? The leap in feedstocks, energy, and transportation costs, exacerbated by the lack of acrylic acid availability, has led to rapid price movement throughout the industry. Dow's recent price announcements are an effort to offset production cost increases and have helped improve margins from unsustainably low levels. Dow has announced price increases as follows: Effective July 1, 2004, Dow announced price increases for Glacial Acrylic Acid, Butyl Acrylate, Ethyl Acrylate, 2-Ethylhexyl Acrylate and Methyl Acrylate in all regions of the world. Dow increased selling prices by US$270 per metric ton in Latin America; by US$270 per metric ton in the Pacific; by 230 Euros per metric ton in Europe; by US$270 per metric ton in the Middle East and Africa; and by US$0.12 per pound in the United States and Canada. Effective October 1, 2004, Dow announced price increases for Glacial Acrylic Acid, Butyl Acrylate, Ethyl Acrylate, 2-Ethylhexyl Acrylate and Methyl Acrylate. Dow increased selling prices by US$260 per metric ton in Latin America; by US$260 per metric ton in the Pacific; by 215 Euros per metric ton in Europe; by US$260 per metric ton in the Middle East and Africa; and by US$0.12 per pound in the United States and Canada. Effective January 1, 2005, Dow announced price increases for Glacial Acrylic Acid, Butyl Acrylate, Ethyl Acrylate, 2-Ethylhexyl Acrylate and Methyl Acrylate in all regions of the world. Dow increased selling prices by US$280 per metric ton in Latin America; by US$280 per metric ton in the Pacific; by 210 Euros per metric ton in Europe; by US$280 per metric ton in the Middle East and Africa; and by US$0.12 per pound in the United States and Canada. Effective April 1, 2005, Dow announced price increases for Glacial Acrylic Acid, Butyl Acrylate, Ethyl Acrylate, 2-Ethylhexyl Acrylate and Methyl Acrylate, increasing selling prices by US$0.10 per pound in the United States and Canada. How have raw materials affected margins? Global pricing for light and heavy feedstocks greatly affects our costs and margins at Dow. In particular, the cost of natural gas, propylene and oil derivatives has an enormous impact on the cost to manufacture acrylates. Indicators show that energy and raw material costs will remain high for 2005, resulting in continued pressure on margins, especially in light of the supply/demand outlook mentioned above. How has the price of propylene affected your business? Propylene monomer supply is extremely tight, and propylene prices have risen more than 50 percent in the past year. We expect propylene pricing to remain high. This has a significant negative impact on Dow's margins for acrylates, and remains a challenge for Dow and its customers. How has the Celanese acquisition affected your business? Dow acquired Celanese's Acrylic Acid and Esters business in 1Q 2004, making Dow one of the largest global producers of acrylate esters. Dow gained acrylates production assets at the Celanese Clear Lake, Texas, site and capacity rights at Pampa, Texas, and Cangrejera, Mexico. Dow's immediate focus has been to optimize its assets and implement its standards for efficiency in production as it fully integrates its acquired plants. Dow's competencies lie in low-cost, high productivity manufacturing. Dow is pleased with the Celanese transaction and is ahead of schedule with integration, although the realization of potential synergies remains ongoing. Dow recognizes this enormous opportunity to implement its production know-how and increase its industry leadership. What are the main issues that acrylic acid producers are facing? What is Dow doing to tackle those issues? In an already tight market, multiple planned and unplanned manufacturing events have been announced by every producer throughout the industry. The impact of these events has turned what should have been an industry balance into a shortage. At Dow, demand for acrylates products exceeds capability. The combined impact of unexpected high demand and multiple producer outages has made acrylic acid supply much tighter than we had anticipated. Dow is investing significant resources into the efficiency of its production capabilities. What are the growth opportunities for acrylates? What is Dow doing to capture those opportunities? Dow's priority is to actively pursue growth within its existing customer base and within all geographies to achieve competitive positions around the world. Dow currently is investigating growth opportunities for acrylates as it seeks to establish itself as a major presence in higher value, less cyclical downstream markets. Dow also is currently evaluating possible process improvements at some of its facilities. Dow has several low-capital investment debottlenecking projects currently underway to increase production at its existing acrylates plants. Decisions about Dow's investments in acrylates and its derivatives will be made and communicated at the appropriate time. From a market standpoint, the versatility of acrylate chemistry will keep it on the forefront of new application and replacement application growth. Especially in the areas of adhesives, emulsions and superabsorbent polymers, acrylates continue to be an integral component of application development. Is Dow planning any new projects? Dow is committed to providing a broader offering of acrylic esters. Expansion plans are part of Dow's overall business strategy to be a global leader in the merchant market and to have a stronger position in higher value, less cyclical downstream markets for these products. Currently, Dow is evaluating possible process improvements at its facilities. In terms of specific projects, information will be communicated at the appropriate time. About The Dow Chemical Company Dow is a leader in science and technology, providing innovative chemical, plastic and agricultural products and services to many essential consumer markets. With annual sales of $40 billion, Dow serves customers in 175 countries and a wide range of markets that are vital to human progress: food, transportation, health and medicine, personal and home care, and building and construction, among others. Committed to the principles of sustainable development, Dow and its 43,000 employees seek to balance economic, environmental and social responsibilities. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted. For Editorial Information: Amy Ahlich The Dow Chemical Company (989) 636-3587 Josiah McClellan Gibbs & Soell, Inc. (212) 697-2600
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