SilicaMarketUpdate

ABiAnnualReportonPrecipitatedSilica September2009 Issue#1

POBox1243 Amherst,MA010041243 4132533371 Email:info@notchconsulting.com Web:www.notchconsulting.com

Contents
1.Introduction 2.SummaryFigures 3.GlobalDemandUpdate 4.SilicaMarketsUpdate 5.SilicaPricingUpdate 6.CapacityDevelopments 7.CapacitybyCompany 8.RegionalTables 9.Sources&Methodology

1.Introduction
WelcometothefirstissueoftheSilicaMarketUpdate,NotchConsultingGroupsbi annualreportonconditionsintheglobalprecipitatedsilicaindustry.TheSilica MarketUpdatewillbepublishedtwiceperyear(nextissue:March2010)andwill provideupdateddemandfiguresforprecipitatedsilicaandsodiumaluminum silicates,aswellascurrentpricing,capacitydevelopments,andindustrynews.Note thatgrowthratesandcolumntotalsinthetablesarebasedonunroundednumbers, sobreakoutsmaynotaddtototals.SeeSection9forSourcesandMethodology.

2.SummaryFigures

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3.GlobalDemandUpdate NotchConsultingestimatesthatworlddemandforprecipitatedsilicadeclined 16.7%inthefirstquarterof2009comparedto1Q2008,whiledemandin2Q2009 wasdown9.8%comparedtothesamequarterin2008(seeTable2).IfChinais excludedfromthetotals,theglobalsilicamarketdeclined23.8%inthefirstquarter of2009and24.6%inthesecond.Thesedeclinesreflecttheeffectsofextremely weakconditionsinrubberapplications,includingpassengertires,trucktires,and mechanicalrubbergoods,aswellaskeyindustrialsectorssuchaspaintsand coatings,paper,andplastics,offsetbymorestabledemandfromthedentifrice,food, andpharma/cosmeticsmarkets. Basedonfullyeardata,Notchestimatesthatprecipitatedsilicademandtotaled 1.64milliontonnesin2008(seeTable3),asaverysolidfirsthalfoftheyearwas followedbya4%sequentialquarterdeclineinvolumesduringthethirdquarterand a15%sequentialquarterdeclineinthefourthquarterastheautomotive, construction,andconsumerdurablesindustriesrespondedtotheglobalfinancial crisis.Theseconditionsledtoanessentiallyflatperformanceoverallfor2008,with fullyeardemanddownslightlyrelativeto2007,whendemandtotaled1.65million tonnes. ThesharpestdeclineswereseeninNorthAmericaandtheEuropeanUnion, followedbySouthAmericaandEasternEurope.NorthAmericanprecipitatedsilica demanddeclinednearly18%duringthefirstquarterof2009comparedto1Q2008, acceleratingtoa24%declineduringthesecondquarter.TheEuropeanUnionsaw volumedeclinesofnearly31%in1Q2009andmorethan32%in2Q2009relative tothesamequartersof2008,asasharpdropinrubberconsumptionwas compoundedbyextremeweaknessinindustrialsectors.AllmajorEuropean marketssharedinthesedeclines,withthesharpestpercentagedeclinesinFrance, Italy,Poland,andSpain. TheAsiansilicamarketsawdeclinesof7.6%in1Q2009comparedto1Q2008but reversedtheglobaltrendandpostedgrowthofnearly10%in2Q2009comparedto thesamequarterof2008,aperformanceattributableprimarilytoasurgein ChineserubberconsumptionthatbeganinMarchandgainedstrengththroughJune (thelatestdataavailable).RelativestabilityintheIndiansilicamarketalso supportedregionalgrowth.Ontheothersideofthespectrum,theJapanesemarket wasoffsharplyinthefirsthalfof2009,havingfallen28%inboththefirstand secondquartersof2009relativetothesamequartersof2008.TheKorean, Taiwanese,andThaimarketswerealsodownsharply. Respondingtotheseconditions,PPGIndustriesshutdownitplantinAltamira, Mexicooverthesummer,whichremovedabout30KTPYofcapacity.InSouth America,bothGlassvenandRhodiahaveidledtheirVenezuelanplantsduetoweak demandandshortagesofkeyrawmaterials(sulfuricacidandsodaash).Aroundthe world,manyothersilicaplantsoperatedatpartialcapacityatvarioustimesoverthe

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firsteightmonthsof2009assupplierstriedtoadjusttheirmanufacturingtosharply weakerdemand. Basedoninterviewswithsuppliersandcustomers,itappearsthatconditionsinthe silicamarketbegantorecoveraroundJuly2009,anddemandstrengthened significantlyinAugustandSeptember.Therecoveryisbeingdrivenprimarilyby passengertires,especiallythehighperformanceandultrahighperformance segments,offsetbycontinuingweaknessintrucktiresandmechanicalrubber goods.Industrialmarketsalsoremainsluggish,particularlythosesegmentswith significantexposuretotheconstructionindustry,suchaspaintsandcoatings.(See Section4.MarketsUpdatebelowforamoredetaileddiscussionofthesetrends, includingimportantcaveatsontheforecasts.) Assumingthatconditionscontinuetorecoverthroughthefourthquarter,world demandforprecipitatedsilicaisforecasttototal1.54milliontonnesin2009,down 6.1%comparedto2008.ExcludingChina,demandisforecasttofinishtheyear downmorethan14%comparedto2008.Globaldemandforprecipitatedsilicais forecasttogrow7%in2010to1.65milliontonnes(seeTable3).Longerterm, globaldemandisforecasttogrow3%peryear(2008to2015)toreach2.03million tonnesin2015,drivenprimarilybygrowthinAsia.

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4.MarketsUpdate

Forthepurposesofthisreport,thesilicamarketisdividedintofourmajormarkets: rubber(encompassingtires,mechanicalrubbergoods,footwear,andsilicones); dentifrice;nutrition/health(encompassingfood,agriculturalfeed,pharma,and cosmetics);andindustrial(encompassingpaper,plastics,paints,coatingsandinks, andmiscellaneousotherapplicationssuchaspesticidesanddefoamers).Allofthese marketsshoweddeclinesduringthefirsttwoquartersof2009relativeto2008,but therateofdeclinevariedwidely(seeTable4)Industrialmarketsexperiencedthe sharpestdeclines,followedbyrubber(wherevolumes,asnotedbelow,gotastrong boostfromChinainthesecondquarter).Dentifricepostedthestrongest(orleast dreadful)performance,withnutrition/healthinbetweenthetwoextremes.

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4.1RubberMarkets:Themotorvehicleandtireindustriesareslowlyemerging fromtheirmostchallengingconditionsinatleastseveraldecades.Evenpriortothe emergenceoftheglobalfinancialcrisisearlyinthefourthquarterof2008,the rubberindustrywasfacingadifficult2008,asasharpspikeinoilpricesoverthe firsteightmonthsoftheyearraisedrawmaterialcostsnearlyacrosstheboard, reducedmilesdriven(andthusdemandforreplacementtiresandautomotive rubbergoods),andpromptedconsumersandbusinessestoputoffnewvehicle purchases.Ofcourse,theeconomiccrisisandensuingglobalrecessionhavegreatly exacerbatedtheseunderlyingfactors,hittingthemotorvehicleindustryparticularly hard,asevidencedbythebankruptciesofGeneralMotorsandChrysler,aswellas recordlossesbyToyota. Productionoftrucktires,akeysegmentforsilica,washithardoverthecourseof 2008byveryhighfuelprices,asituationmademuchworseastheyearcametoa closebysharpdropsinconsumerspendingandretailsales,whichreducedtrucking activity.Asaresult,truckingcompanieswereidlingtheirrigsandcannibalizingtires offtheseidledrigstokeeptheirremainingtrucksrunning.Onthepassengertire side,consumersweredelayingreplacingtheircarstires,tryingtosqueezeasmany milesaspossibleoutofworntires.Atthesametime,tirecompaniesbeganto aggressivelydestocktheirinventoriesofbothpassengerandtrucktiresin4Q2008, apracticethatcontinuedthroughthesecondquarterof2009insomecases.Though theneteffectoftirecompanydestockingisdifficulttogauge,onecarbonblack supplierestimatedthatthelowervolumesseeninthefirstquarterwerehalfdueto destockingandhalfduetolowerfinaldemandfortires.Asofmidyear2009, inventorieswereatrockbottom,asonesupplierputit.Theseconditionswere mostprevalentinNorthAmerica,Europe,SouthAmerica,andthoseAsiancountries mostheavilyreliantonexportstothesemarkets,particularlyJapanandSouth Korea. Theseconditionssuggestthatanyrecoveryinfinaldemandwilltranslatedirectly intoincreasedtireproduction,andalsothattheremaybeamultipliereffectasthe pipelineisreplenished(andasreplacementratesinbothpassengerandcommercial segmentsreturntomoresustainablerates).Asnotedabove,NorthAmericanand Europeansilicasupplierswerereportingthat,afteradismalperformanceoverthe firsthalfof2009,demandfromthetireindustryintheseregionsbegantorecover aroundmidJuly,andthemarketgainedconsiderablestrengthinAugustand September.Therecoveryisbeingdrivenprimarilybypassengertires,especiallyin thehighperformanceandultrahighperformancesegments,offsetbycontinued weaknessintrucktires.AprimarydriverofthisnewdemandwastheCashfor ClunkersprogramsinitiatedintheUSandthroughoutEurope,whichswellednew carsales(andOEMtiresales)inthethirdquarterasconsumersrushedtotake advantageofheftytemporaryrebates.Silicademandbenefiteddisproportionately fromtheCashforClunkersprogramsbecauseitsdemandisskewedmoreheavily towardOEMpassengertiresthanthetiremarketasawhole.Astheseprograms havewindeddown,thequestionbecomeswhatwillhappentotiredemandcome November/December.Inparticular,sincetheCashforClunkersprogramsappearto
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SilicaMarketUpdateSeptember2009 havepullednewvehicledemandforwardbyfourorsixmonths,willtherebe adequaterecoveryinthereplacementmarkettosustaintireproduction?Notchs forecastfor4Q2009assumesadropoffinOEdemandaccompaniedbyastronger replacementmarket. Chinaissomethingofaspecialcaseinthisscenario.Chineserubberconsumption declinedsharplyinNovemberandDecember2008andremainedquitedepressed throughJanuary2009.However,rubberconsumptionbeganarobustrecoveryin Marchthatgainedstrengthinthesecondquarter,suchthat2Q2009rubber consumptionvolumeswerenearly39%higherthanthesamequarterof2008,an astonishingperformanceconsideringthestateoftheglobaleconomyatthetime. Thisrecoveryappearstohavebeendrivenbytireproduction,aswellasperhaps generalrubbergoods.Notchs2009forecastassumesthatthissurgewillnotbe sustainedthroughthethirdandfourthquarter,bothbecauseitrepresentedaone timereleaseofsomepentupdemandandbecauseoftheeffectthatnewUSimport tariffsonChinesetireswilllikelyhaveonpassengertireproductionlevels.Exports totheUScurrentlyaccountforabout10%ofChinesetireproduction.Nonetheless, theChinesesilicamarketisexpectedtoseegrowthofnearly12%in2009,driven mainlybyrubberapplications(seeTable2). Ontheproductdevelopmentfront,CooperTire&RubberlaunchedarangeofGFE (greaterfuelefficiency)tiresinNorthAmericainJuly2009.Cooperhasdubbedthe treadtechnologyCERT(CooperEnergyReturnTechnology),whichconsistsofa uniquesilicaalongwithaspecializedpolymertoprovidelowrollingresistanceand improvedwetgrip.Thetirescomewitha60,000milewarranty.Michelin,the originatorofthegreentire,introducedtheEnergySaverA/StireinJune2009, whichthecompanytoutsasbeingupto8%morefuelefficientthanothertiresinits class.Finally,HankookTire,whichfirstintroduceditsultrafuelefficiencytiresin 2006,hasbeenexpandingitsgeographicofferings.InJune2009,Hankookbegan offeringitsenfrenlineoflowrollingresistancetiresinAustralia,thefirstmarket outsideKoreatoreceivethenewtechnology.Hankookplanstocontinuetoexpand theavailabilityofthesetiresincomingyears. Notchforecaststhatrubbermarketsforprecipitatedsilicawilldecline6.1%in2009 to975.6KT,comparedto1.04milliontonnesin2008(seeTable4).Evengreater declineswillbebuoyedbysubstantialgrowthinthelargeChinesemarket(where silicademandisdominatedbyuseinthefootwearindustry),aswellasaslightly morefavorablesecondhalfperformanceintherubbermarketsofNorthAmerica andEurope(i.e.,volumedeclinesareexpectedtopersistthroughthefourthquarter forbothregions,buttherateofdeclinewilldiminish).Longerterm,rubberdemand forsilicaisforecasttogrow3.1%peryearfrom2008through2015,reaching1.29 milliontonnesin2015(seeTable5).Demandwillcontinuetobedrivenbygreen tires.Inparticular,theoilshockof2008promptedautomakerstorenewtheir emphasisonthedevelopmentofsmaller,morefuelefficientvehicles,particularly hybrids.IntheUnitedStates,OEMdemandforfuelefficienttiresshouldbenefit

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fromhighercorporateaveragefueleconomystandardsbeingputintoplaceforthe 2011modelyear. 4.2Dentifrice:Ofallthemajormarketsforsilica,dentifricehasenduredthe economicdownturninthestrongestshape,withvolumesforecasttogrow1.6%in 2009to166KT,upfrom163KTin2008(seeTable4),theonlymajorsilicamarket forwhichvolumegrowthisforecastin2009.Oralcarevolumesdidfeeltheeffects oftheextremelyweakconsumerspendingenvironmentthatemergedin4Q2008, withdentifricevolumesdownanestimated7.4%in1Q2009and4.3%in2Q2009 comparedtothesamequartersin2008.Toothpasteoverallisarelativelyrecession proofproduct,aspeopledonotstopbrushingtheirteethduringhardtimes,but theymayswitchtolowercosttoothpastethatdoesnotusesilicaasathickeneror abrasive.Thisisespeciallythecaseinemergingmarkets,wheretheretypicallyarea widerangeofverylowcost,chalkbasedtoothpastesavailable. Longerterm,dentifricedemandforsilicaisforecasttogrow4%peryearto215KT in2015(seeTable5).Themajorfactorsdrivingsilicademandincludepopulation growth;anincreaseintoothpasteusagepercapita;ashiftfromchalktosilicafor compatibilityandperformancereasons;andthecontinuingconsolidationofthe toothpastemarketamongfewerlargesuppliers(sincethesecompaniesaremore likelytoincorporatesilicaintotheirformulationsthansmall,localproducers). Suppliersaregearingupforhealthygrowthinoralcaremarketsbyexpandingtheir capacityforthesegrades.HuberEngineeredMaterialsbroughtanew40KTPY dentalsilicasplantonstreaminChinainmid2009,andMadhuSilicaplanstoopen anew30KTPYplantdedicatedprimarilytodentalgradesin2010(seeSection6, CapacityDevelopmentsforgreaterdetailontheseprojects). 4.3Nutrition&HealthMarkets:Thismarketincludessilicausedasananticaking agent,carrier,and/orthickenerinfood;agriculturalfeedandfeedadditives;and cosmetics,toiletries,pharmaceuticals,andvitamins.Thesemarketsaremoderately sensitivetoeconomicconditions,andsawvolumedeclinesof10.5%in1Q2009and 8.7%in2Q2009comparedtothesamequartersof2008(seeTable4).Inthefood industry,silicasapplicationsareconcentratedinstaplessuchassalt,spices,dry mixes,andpowders,sodemandhasbeenstableoverallduringthedownturn, thoughtherewassignificantweaknessintherestaurantbusinessasconsumers pinchedpenniesbydiningoutlessoften.Agriculturalapplicationsforsilicafeltthe effectsofthecreditcrunchasfarmersrespondedtotightercreditmarketsby cuttingbacktheiroperations.Similarly,mostapplicationswithinthe cosmetics/toiletriessegmentareessentials(handandfacelotionsandscrubs, talcumpowder,footpowder)andthusnotparticularlysensitivetoeconomic conditions.However,silicaisahighperformanceadditivethattendstobeusedin premiumproducts,sotherehasbeensomelossofmarketsharetolowerend productsthatincorporatelowercostfillers.

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Takentogether,nutritionandhealthmarketsforsilicaareforecasttodeclineby nearlyonepercentin2009comparedto2008,withdemandfallingto146.1KT. Longerterm,thesemarketsareforecasttoseegrowthof3.3%peryearfrom2008 through2015,reaching185KT(seeTable5).Stabledemandfromthefoodand agriculturalfeedmarketswillbetheprimarydriversforvolumesinthesemarkets. 4.4IndustrialMarkets:Thissegmentincludessilicausedasaperformanceaddtive inpaper,plastics,paints,coatingsandinks,andmiscellaneousotherapplications suchaspesticides,defoamers,andhouseholdcleansers.Thesemarketshavebeen veryhardhitbytheeconomicdownturnandhaveseenthelargestpercentage declinesofanyofsilicasmajormarkets.Industrialmarketsforsilicadeclinednearly 24%in1Q2009andnearly25%in2Q2009comparedtothesamequartersof 2008.Onereasonthatthesemarketsfaredworsethanrubberisthatindustrial marketsareheavilyconcentratedinNorthAmericaandEuropein2008,for instance,thesetworegionsaccountedfor60%ofglobalvolumesofsilicausedin industrialapplications.Bycomparison,thesetworegionsaccountedforonly34%of globaldemandforsilicaintherubberindustry. Papermarketsareundergoingfundamentalchangeastheindustryrespondstothe emergenceofelectronicmediaandthedeclineoftraditionalprintmediasuchas newspapersandmagazines.Compoundingthesemorestructuralchangeswasthe drasticdropinadvertisingrevenuesthataccompaniedtheeconomiccrisis,which hasimpactedmagazineadvertising,circularsandcoupons,newspaperinserts, catalogsandbrochures,allkeymarketsforpaperproducedwithsilicafillers.Again, itdidnthelpmattersthatpaperapplicationsforsilicaareheavilyconcentratedin NorthAmericaandEurope.Papermarketsforsilicaareforecasttodeclineby16.5% in2009relativeto2008,fallingto81KT,beforerecoveringin2010(seeTable5). Longertermgrowthisexpectedtoaverage1.1%through2015,withdemand reaching105KT.Drivenbypaperindustrytrendstoproduceawiderproductmix, silicaisemergingasanindispensibleadditiveforpaperbecauseitallowsproducers tomeetdemandsforhigherqualitypaperwhilekeepingproductioncostsunder control.Inparticular,silicacandisplacehighercosttitaniumdioxidewithout sacrificingperformance.Also,itcanallowmillstoproducelighter,thinnerpaper whileprotectingagainststrikethrough. Plasticsmarketsforsilicaconsistprimarilyoftwoapplications:batteryseparators andantiblockingagents.Alltypesofbatteriesrequirebatteryseparators,including alkaline,zinccarbon,andlithium,whilesilicaantiblockingagentsareused primarilyinpolyolefinfilms(polyethyleneandpolypropylene).Overalldemandis sensitivetoeconomicconditions,especiallyconsumerdurableexpenditures. Demandforsilicainplasticsmarketsisforecasttodeclinenearly13%in2009, fallingto62KT.Growthisexpectedtoaverage2.8%through2015,withdemand reaching86KT(seeTable5). Silicafindsuseinawiderangeofpaintsandinks,primarilyasmatting/flatting agentsandthickeningagents.Applicationsincludearchitecturalpaints,industrial
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SilicaMarketUpdateSeptember2009 coatings,coilcoatings,powdercoatings,andradcurecoatings.Demandinthese applicationshasbeenheavilyimpactedbytheeconomicdownturn,asthepaint industryismostsensitivetotwoofthehardesthitsectors:constructionandmotor vehicles.Silicavolumesusedinthepaint,coating,andinksectorareexpectedto declineby19%in2009,fallingto42KT(seeTable5).Despiteconsiderableshort termchallenges,longtermprospectsarefavorableforsilicaintheseapplications.In particular,silicaperformswellinhighsolids,lowVOCcoatings,aswellaswater basedcoatings,sodemandwillcontinuetobenefitfromproductmixshiftsaway fromsolventbornecoatings.Also,silicaisbenefitingfromitsuseasananticaking agentinpowderandradcurecoatings.Demandforsilicainpaints,coatings,and inksisforecasttogrow2.1%peryearthrough2015,reaching60KT.

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5.SilicaPricingUpdate

Table5presentsarangeofaveragepricesforvariousgradesofprecipitatedsilicain theUnitedStates,theEuropeanUnion,andChinaduringthethirdquarter2009. Theseestimatesrepresentaveragevalues;actualsellingpricescanvarysignificantly dependingonthegrade,thequantitypurchased,theexistenceoflongterm contractsandothercontractualprovisions(suchasadjustersforrawmaterial costs).Theprimarycostsdriversforprecipitatedsilicaproductionareenergy (particularlynaturalgasandelectricity)andfeedstocks(particularlysulfuricacid, causticsoda,and/orsodiumcarbonate,dependingontheprocess).Silica manufacturingisanenergyintensiveprocess,particularlytheproductionofsodium silicate(whichinvolvesmeltingsilicasandandsodiumcarbonateinaglassfurnace atmorethan1,000degreesC).Furtherdownstream,thedryingstageofprecipitated silicaproductionusessignificantheataslargequantitiesofwaterareevaporated fromtheprecipitationproduct. Liketherestofthechemicalindustry,precipitatedsilicaproducerssawan unprecedentedspikeinrawmaterialandenergypricesoverthecourseof2008, particularlyforsulfuricacid,akeyfeedstock,whereworldpricessawafourfold increaseoveraneightorninemonthperiodbeginningaroundNovember2007and continuingthroughJune/Julyof2008,beforepricingcollapsedin October/November2008.Causticsodapricessawasimilarrunup,withUS contractpricesspikingbeginningaroundMay2008andtoppingoutatabout $950/dstinDecemberbeforecollapsinginthefirstquarterof2009toabout
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$150/dst,withspotpricesevenlower.Theincreaseinsulfuricacidpriceswas drivenbyrisingdemandforsulfurfromarangeofcompetingsectors(suchas metals,biofuels,fertilizers,and electronics).Naturalgasisamajor costcomponentinthemanufacturing ofsilica,whilecrudeoilpricesaffect rawmaterialandfreightcosts. Therecentdrasticfluctuationsinraw materialcostscausedsignificant disruptionsinthesilicamarket,as suppliersabsorbeda disproportionateshareofhigher inputcosts.Asaresult,suppliers haverenegotiatedtheirsupply agreementswhereverpossible,and arereluctanttorenewlongterm contractsthatdonotinclude mechanismstoaccountforraw materialandenergycosts.Suppliers havedemandedmoreflexibilityin theircontracttermstopassthrough theirmanufacturingcostsinamore timelymanner. Ingeneral,thehighercostsegments oftheindustryaregradesintended forfoodapplicationsand flatting/mattingagentsusedinthe paintsindustry.Dentifricegradesandtiregradesarealsopremiumproductswith aboveaveragevalues.Footweargradestypicallyareamongthemarketslowestcost materials,withtechnicalrubbergoodsonlyslightlyhigher.

6.CapacityDevelopments

Thissectiondetailsrecentandpendingchangestoprecipitatedsilicacapacity. Projectsarearrangedalphabeticallybycompany. 6.1EvonikConsolidatesItsIndianSilicaPlants Inthethirdquarter2008,EvonikundertookaprojecttoconsolidateitsIndiansilica operations,whichoperateasInsilco.Thecompanyshutdowna10KTPYunitat Patalganga(Mumbai)andincorporatedsomeofitsproductionequipmentintothe plantinGajraula(NewDelhi),raisingcapacityto15KTPY.

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6.2GlassvenIdlesPlantinBarquisimeto,Venezuela Glassvenidledits25KTPYprecipitatedsilicaplantinBarquisimeto,Venezuelain early2009,respondingtoshortagesofrawmaterialsandweakerlocalandregional demandforprecipitatedsilica.Theplantisidledindefinitely.Glassvenalsooperates a30KTPYprecipitatedsilicaplantinYangzhongCity,China,whichcontinuesto operateandissupplyingallofGlassvenscustomers. 6.3GraceExpandsinDren,Germany GraceSilicaadded15KTPYofcapacityatitsprecipitatedsilicaplantinDren, Germanyinearly2009,raisingcapacityattheplantto60KTPY.Theplantproduces silicasandsilicatesprimarilyfortheEuropeanmarketforuseasanadditivein paint,paperandrubber,whiletheplantsaluminumsilicatesareusedprimarilyin paperandpaintmarketsandasreinforcingagentsinrubbercompounds. 6.4HuberCompletesNewPlantinQingdao,China InJuly2009,HuberEngineeredMaterialshascompletedconstructionofitsnew40 KTPYprecipitatedsilicaplantinQingdao,ShandongProvince,China.Theplantwas announcedinMarch2007,constructionbeganinOctober2008,andthefirsttest batchofsilicawasproducedinMay2009.TheplantwillservetheAsianmarket. AccordingtoHuber,theplantoperatesunderGMPstandardsandoffersHubers completelineofdentalsilicas.InJanuary2008,Huberannouncedthatithadagreed toacquiretheproductionrelatedassets,technology,andknowhowofChangzhou CityMingfanFineChemicalCo.,Ltd.(Hengshanqiao,WujinCity,JiangsuProvince),a localChineseproducerofprecipitatedsilicafortheoralcareindustry.Thepurchase allowedHubertoseedtheChinesemarketpriorthestartupofthenewplant.Huber hasnotmadeapublicannouncementonhowthetwooperationswillfunctionnow thatthenewplantisonstream,butgiventhatthenewplantrepresentsstateof theartcapacity,HuberwillemphasistheQingdaoplanttobuilditsshareinChina. 6.5INEOSSilicasMergeswithPQCorporation InOctober2007,INEOSGroupannouncedanagreementwherebyINEOSSilicas wouldmergewithPQCorporation,aspecialtychemicalcompanyacquiredinJuly 2007byTheCarlyleGroup.ThemergerwascompletedinJuly2008,andthenew companyiscalledPQCorporation.Themergedcompanyisa$1billionglobal producerofspecialtyinorganicchemicals,catalysts,andengineeredglassproducts. 6.6MadhuSilicaExpandsinBhavnagar,India MadhuSilica,whichisIndiaslargestprecipitatedsilicaproducer,expandedits capacityinBhavnagar,Gujarat,Indiaby10KTPYinaprojectcompletedinearly 2009,bringingtotalcapacityatthesiteto50KTPY(includingbothMadhuSilicaand itssistercompanyAquagelChemicals).Thenewcapacityproducesdustfreesilica forthefeedmarket,andwillbeusedprimarilytosupplytheEuropeanfeed additivesmarket(whichrequiresdustfreematerials).Madhurecentlyobtained FAMIQS(FeedAdditivesandPremixturesQualitySystem)certificationforitsfeed gradesofsilica.
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Inaddition,MadhuSilicaisbuildinganewgreenfieldprecipitatedsilicaplantatits siteinBhavnagar.Theplantwillhave30KTPYofcapacityandwillproducemainly dentalgrades.AsofSeptember2009,civilworkatthesitewaswellunderwayand allequipmenthadbeenordered.Theplantisexpectedtostartupinthethird quarterof2010.Longerterm,Madhuhasindicatedplanstoexpandto100KTPYby 2011. 6.7PPGShutsDownPlantinAltamira,Mexico PPGIndustriespermanentlyshutdownitsprecipitatedsilicaplantinAltamira, MexicoinJune2009.Theplanthadanestimated30KTPYofcapacity,thoughitwas operatingwellbelowcapacitywhenitwasshutdown.(Utilizationwasroughly50% in2008andevenlowerin2009.)SomeoftheequipmentfromAltamiraisbeing movedtoPPGsLakeCharles,LouisianaandpossiblyalsoDelfzijl,Netherlands.In LakeCharles,thenewequipmentwillallowthedebottleneckingofexistinglinesto increasecapacityby5KTPYto10KTPY.LakeCharleshasfiveproductiontrains. TheAltamiraplantwascostlyforPPGbecauserawmaterialsilicatehadtobe shippedinfromtheUS,whileitssilicahadtobeshippedouttocustomersprimarily intheUSandEurope,asituationthatincreasedshippingcostsbothcomingand going.Localwatersuppliesalsowerereportedlyaproblem.Giventhedownturnin theNorthAmericantireindustry,PPGcansupplyitscustomersmoreprofitably fromtheLakeCharlesplant.TheMexicanplantwasstartedupinthelate1990sand waspredicatedupontheassumptionthat,inthewakeofNAFTA,tirecompanies woulduseMexicoasalowcostmanufacturingbasefortheNorthAmericanmarket, butthathasnotoccurredtotheextentanticipated. 6.8OSC/TokuyamaExpandsPlantinSanyi,Taiwan OSCexpandedcapacityatitsprecipitatedsilicaplantinSanyi,Taiwanby15KTPYto 48KTPYinaprojectcompletedinthesecondquarterof2009.Thenewlineis dedicatedtohighlydispersiblegrades,primarilyforexporttoJapansOEMtire market(offsettingtheplannedclosureofTokuyamasJapaneseplantinearly2010). OSCisconsideringanotherdedicatedlineby2010. 6.9OSC/TokuyamaIncreasesStakeinNanchang,ChinaPlant OSC/TokuyamaoperatestwoprecipitatedsilicaplantsinChina,locatedin NanchangandLianyungang.TheNanchangplantpreviouslyoperatedasa70/30 jointventurebetweenOSC/Tokuyama,whichheld70%,andlocalinterests. However,OSCisintheprocessofacquiring100%controloverthisplant.The transactionwasstillinprocessasoflateSeptember2009butwasexpectedtobe completedsoon.OSCannouncedplanstoadd15KTPYofnewcapacityatNanchang in2008,butthatprojecthadnotbeenimplementedasofSeptember2009. 6.10OSC/TokuyamaExpandsPlantinMaptaPhut,Thailand InApril2009,OSCcompleteda15KTPYexpansionatTokuyamaSiamSilicaCo.s precipitatedsilicaplantinMaptaPhut,Thailand.Theexpansionwasoriginally scheduledforthethirdquarterof2008butwasdelayedduetobusinessconditions.
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6.11OSC/TokuyamaPlanstoShutDownJapanesePlant Aspartofthecompanysongoingexpansionandrestructuringprogramforits precipitatedsilicabusiness,OSC/Tokuyamaisplanningtoshutdownitssilicaplant inTokuyama,Japan.Theplanthas15KTPYofcapacityandwasoriginallyscheduled toshutdownin2009butclosureisnowscheduledforMarch2010.Afterthe shutdown,thesequantitieswillbesourcedprimarilyfromitsplantsinTaiwanand Thailand,bothofwhichwererecentlyexpanded. 6.12OSC/TokuyamaConsidersInvestmentsinVietnam OSCisconsideringseveralpotentialnewinvestmentsinVietnam.Thecompanymay investinsodiumsilicateproductioninVietnaminresponsetoadecisionbythe Vietnamesegovernment,enactedinearlyOctober2009,tobanallexportsofsilica sand,includingbothconstructionandindustrialgrades.Thesilicateoperation wouldsupplyOSCssilicaunits,primarilyTaiwan.OSCisalsoconsideringthe constructionofaprecipitatedsilicaunitinVietnam,dependingongrowthinthe localmarket.Nospecificsontheseplanshavebeenreleased. 6.13RhodiaBringsPlantinLivorno,ItalyBacktoFullCapacity RespondingtoweakconditionsintheEuropeansilicamarket,Rhodiaidledhalfof itscapacityatits35KTPYplantinLivorno,ItalybeginninginJanuary2009.Asof September1,2009,theplantisbacktofullcapacity. 6.14RhodiaDelaysNewPlantinQingdao,China InNovember2007,Rhodiaannouncedthatitplannedtobuildanewprecipitated silicaplantinQingdao,China,wherethecompanyalreadyoperatesasilicaplant. Theplantwouldfocusonhighperformancesilicaforthetireindustry,witha capacityof50KTPYto100KTPY.OnFebruary20,2008,Rhodiaannouncedthe formationofanew,whollyownedsubsidiary,RSQC(RhodiaSilciaQingdao Chengyang),thatwillmanageconstructionandoperationofthenewplant. OriginallyscheduledforstartupinJuly2009,Rhodiadecidedtofreezethe investmentinFebruary2009aftersignificantworkhadbeencompleted.Theproject hasnotbeencancelledbutisonholduntilcustomersindicateaneedforthenew capacity.Oncethedecisionismadetomoveforwardontheplant,itcouldbe operationalinabouttwelvemonths. 6.15RhodiaIdlesPlantinBarquisimeto,Venezuela RhodiassilicaplantinBarquisimeto,Venezuelahasbeenidlesinceearly2009due torawmaterialshortages(sulfuricacidandsodaash),weakregionaldemandfor silica,andpoliticaluncertaintybroughtonbythenationalistpoliciesoftheChavez government.Theplanthas20KTPYofcapacity.AsofSeptember2009,theplant wasmakingapproximately200tonnespermonthtosupplyonlythelocalmarket becauseimportsofsilicaintoVenezuelaarerestricted.Otherthanthesequantities, theprecipitatedunitisshutdownandtheplantissellingsilicatesintothedetergent market.NotethatGlassvensprecipitatedsilicaplantinVenezuelaisalsoshutdown forsimilarreasons.
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6.16New&PotentialSuppliers ThelasteditionofWorldMarketsforPrecipitatedSilicaincludednewsofthree companiesthatplannedtoentertheprecipitatedsilicaindustrywithplantsbased onnewproductionprocessesusingalternativefeedstocks:AgriTecSystems (Webster,Texas),withaprocessbasedonricehullash;DimonaSilica(BeerSheba, Israel),withaprocessbasedonporcellanite;andSpecialtyChemicalProducts (MosesLake,Washington),withaprocessbasedonfume.Withtheemergenceofthe financialcrisisearlyinthefourthquarterof2008,theenvironmentforstartup venturesturnedsharplynegativeasinvestmentcapitalevaporatedandcredit marketsfrozeup.Thusitshouldcomeasnosurprisethatallthreeoftheseprojects arecurrentlyonholdasthecompaniesseekoutnewfundingtomoveforwardwith theseprojects.Thereisonenewproducerthatismovingforwardwithanewplant: Rusmag,whichisbuildingamagnesiumandprecipitatedsilicaplantintheUral regionofRussiaforstartupinlate2011orearly2012.Detailsonthesefour projectsfollow. 6.16.1AgriTecConsidersPlantsinArkansasandThailand AgriTecSystemsisastartupcompanyworkingonthecommercializationofa patentedtechnologytoproducesilicates,silica,andactivatedcarbonfromricehull ash(RHA),abyproductofriceprocessing.In2006,AgriTecbeganoperationsata commercialscaleplantinStuttgart,Arkansasthatmanufacturesliquidsodium silicateandactivatedcarbonfromRHA.Theplantisdesignedtoprocessabout12 KTPYofRHA,producing25KTPYofliquidsodiumsilicateand5KTPYofpowdered activatedcarbon.Thecompanyisconsideringtwoprecipitatedsilicaplantsbased onitstechnology.Accordingtothecompany,itsprocessresultsinultrapuresilica appropriateforuseinCMPslurries,pharma,food,andrubbergoods,including greentires. InJuly2006,AgriTecformeda50/50jointventure,AgriSilHoldings,withLanka OrixProjectDevelopmentofSriLanka.AgriTechassignedanagreementwith MungcharoenGreenPowerLtd.tobuildan18KTPYprecipitatedsilicaplantin SurinProvince,ThailandbasedonAgriTectechnologyandRHAsuppliedbyan existingpowerplant.AsofSeptember2009,theprojecthadcompletedbotha commercialfeasibilitystudyandaseparatetechnicalfeasibilitystudy.Theplantwas originallyscheduledtobreakgroundinlate2008andcomeonstreaminearly 2010,buttheprojecthasbeenputonhiatusduetothefinancialcrisis.Theplanthad notbrokengroundasofSeptember2009;oncetheprojectdoesmoveforward,the plantwouldtakeabout18monthstobuildandanother6monthstoproveout. AgriTechasalsoconsideredaddingaprecipitatedsilicaunittoitsexistingplantin Stuttgart,Arkansas.Atpresent,thecompanyisseekingafinancialbackerorpartner tomovetheprojectsforward.InFebruary2009,AgriTecannouncedithadentered intoanagreementwithInstitutionalInvestorsConsultingCompanytoraisefundsto executeAgriTecslongtermbusinessplans.
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6.16.2DimonaSilicaPlansFactoryinIsrael DimonaSilicaIndustriesisaproducerofprecipitatedsilicaandcalciumcarbonate productsfromporcellanite,awastebyproductofphosphatemining.IntheDimona process,crushedporcellaniteiscrushedandscreened,thenreactedwithcaustic sodatocreateliquidglass,whichisprecipitatedusingcarbondioxide.Thecompany builtapilotplantinIsraelin2004andasecondinBeerSheba,Israelin2006. Dimonahasannouncedplanstobuilda15KTPYcommercialplantatthesiteofthe secondpilotplant.Theplantwasoriginallyscheduledtobeginproductioninthe firstquarterof2009,butthatschedulewasdelayedbythefinancialcrisis.The statusofthisprojectwasunknownatthetimeofwriting,butitappearstobeon holdindefinitely. 6.16.3RUSMAGPreparingtoEnterRussianSilicaIndustry Anewcompany,RUSMAG(OJSCRussianMagnesium)ispreparingtoenterthe Russianprecipitatedsilicaindustrywithanewplant(MagnesiumMetal& PrecipitatedSilicaPlant)tobebuiltintheUralsdistrict(roughly80kmfrom Yekaterinburg),Sverdlovskregion.Theplantisscheduledtobecompletedinlate 2011orearly2012andwouldhaveaninitialcapacityof22KTPYofmagnesiumand 29KTPYofprecipitatedsilica.Asecondphasewouldtakecapacityto70KTPYfor magnesiumandmagnesiumalloysand90KTPYforspecialtysilica(precipitatedas wellasfumed).Thecompanyhasestablishedapilotplantforthetestproductionof gradesforqualitytesting,andresultshavebeenpositive. 6.16.4SpecialtyChemicalProductsPlansFactoryinMosesLake,Washington SpecialtyChemicalProducts(MosesLake,WA)planstoentertheprecipitatedsilica industrywithanewplantlocatedattheCentralTerminalsIndustrialParkinMoses Lake,Washington.The$38millionplantisbasedonproprietarytechnologyto produceprecipitatedsilicaandfluoridesaltsfromfumeandothersilicacontaining materials.Theoperationislocatedonthesiteofaformerbeetprocessingplant, whichwasacquiredinOctober2007.Initialcapacityisabout11KTPYfor precipitatedsilica,expandableto25KTPYasconditionswarrant.Theprojectcost includescertainequipmenttofacilitateexpansion.Thefacilitywouldhave50 employees.Accordingtothecompany,itsprocessresultsinhighlypuresilicathatis appropriateforrubber,food,plastics,cosmetics,andoralcaremarkets. Theplantwasoriginallyscheduledtocomeonstreaminlate2008,buttheproject hasbeendelayedduetothefinancialcrisis,whichcausedtheprojectsfinancingto dryup.Theplantisabouthalfcompleted,andtheprojectwasonholdasof September2009.Thecompanyhaspurchasedthemajorequipmentfortheplant andwillmakeadecisioninSpring2010astohowandwhentoproceed.Oncethe decisionismadetomoveforward,theprojectisaboutninemonthsfrom completion.SpecialtyChemicalProductswasformedin2000andisasubsidiaryof ColumbiaVenturesCorporation,aprivateinvestmentcompany.

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7.CapacitybyCompany

AsofSeptember2009,worldcapacityforprecipitatedsilicatotaled2.36million tonnesperyear.EvonikDegussaistheworldsleadingproducerofprecipitated silica,with446KTPYofcapacityatnineplantsworldwide.Evonikconsolidatedits Indianplantsinthethirdquarter2008,closingaunitatPatalgangaand incorporatingsomeofitsequipmentintotheplantatGajrula,whichincreased capacitytoabout15KTPY.Evonikisabroadbasedsupplier,withadiverseproduct mix(includingnotjustawiderangeofprecipitatedandfumedsilicasbutalso relatedfillerssuchascarbonblack).Thecompanyholdsitsstrongestpositionsin thetire,nontirerubber,nutritionandhealth,paper,andcoatingssectors. Rhodiaisthesecondlargestsupplierofprecipitatedsilicaoverallandthemarket leaderinhighlydispersiblesilicasforthetireindustry.Rhodiaisalsoaleading suppliertothedentalandfood/feedsectors.Respondingtotheeconomicdownturn, RhodiacutbackitsplantinLivorno,ItalytohalfcapacityfromJanuarythrough August2009,butbroughtitbacktofullcapacityinSeptemberasconditions improved.RhodiasplantisVenezuelawasidledinearly2009duetobothweaker conditionsandrawmaterialshortages(sulfuricacidandsodaash).AsofSeptember 2009,theVenezuelanplantremainsidleexceptforsmallquantitiesproducedfor
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thelocalmarket.In2008,RhodiaannouncedamajornewtiresilicasplantinChina, butthatplantiscurrentlyonholduntilthelocalandregionalmarketindicatesthe newquantitiesarerequired. HuberEngineeredMaterialsisthethirdlargestproducer,with241KTPYofcapacity atnineplants.Huberfocusesprimarilyondentalandpapermarkets,andisthe dominantsupplierinbothmarkets.Thecompanycompletedanew40KTPYdental silicasplantinQingdao,Chinainthesecondquarterof2009.Thestateoftheart plantwillsignificantlyexpandHuberspositionintheAsianmarketfordental silicas.Respondingtothedownturn,Hubercutbackproductionduring2009at someofitsunderutilizedcapacity,particularlythoseunitsservingthehardhit paperindustry. PPGIndustriesisthefourthlargestproducerworldwide,withageographicfocuson NorthAmericaandEurope.PPGshutdownitssilicaplantinAltamira,Mexicoin June2009,removing30KTPYofcapacity.ThiswasahighcostplantforPPG,andits customerscanbeservedoutofPPGsLakeCharlesplant,whichwillincorporate someequipmentandgradesfromAltamirainadebottleneckingproject.PPGisa diversifiedsupplier,withstrongpositionsintires,nontirerubber,paints,and carriersandanticakingagentsforthefoodandfeedsectors. OSC/Tokuyamaisthefifthlargestproducerworldwideandisroughlytiedwith EvonikastheleadingproducerisAsia.OSCiscontinuingtoimplementanexpansion programforitssilicabusinessthatbeganin2007andinvolvesaddingcapacityatits plantsinTaiwan(15KTPYin2Q2009)andThailand(15KTPYin2Q2009),aswell asshuttingdownahighercostplantinJapan(currentlyscheduledforMarch2010). OSCalsoisincreasingitsstakeinNanjiChemicalinNanchangChinafrom70%to 100%,andmayaddcapacitythere(15KTPY).OSCisalsoconsideringnew investmentsinVietnam,includingsodiumsilicateproductionandpossiblya precipitatedsilicaunit,dependingontheevolutionoflocaldemand. Behindthesefivemarketleadersthereareanumberofsmallerregionalornational suppliers,includingGraceinGermany;MadhuSilicainIndia;TosohSilicainJapan, PQCorporationintheUK,Brazil,andIndonesia;GlassveninChina;andIqesilin Spain.Graceadded15KTPYofnewcapacitytoitsGermanplantin2009,while Madhuadded10KTPYatitsplantinIndiain2009andisbuildinganewgreenfield unit(30KTPY)atthesamesiteby3Q2010.PQisthemergedbusinessofUKbased INEOSSilicasandUSbasedspecialtychemicalproducerPQCorporation,which mergedinadealcompletedinJuly2008.PQwasnotaprecipitatedsilicaproducer, butthemergedbusinessesarecomplementaryintermsofsodiumsilicates,silica gels,zeolites,polyolefincatalystsandcertainotherproducts.Glassvenhas precipitatedsilicaplantsinVenezuealaandChinabuttheVenezuelanplantisidle. Assuch,GlasvenissupplyingitscustomersfromitssecondplantinYangzhongCity, China.

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SilicaMarketUpdateSeptember2009 LocalChineseproducers(i.e.,excludingplantsrunbymultinationalssuchasEvonik, Huber,Rhodia,andOSC)controlled763KTPYofprecipitatedsilicacapacityasof September2009.TheleadinglocallyownedChineseproducersareZhuzhou XinglongChemical,ShanghaiJiuchenFineChemical,ShandongDadiSaltChemical, WuxiHengHengSilica,andSanMingCityFengRunChemicalIndustrial. Inadditiontotheseestablishedproducers,themostrecenteditionoftheWorld MarketsforPrecipitatedSilicareportdetailedthreeprojectsthatwouldproduce precipitatedsilicafromalternativesources.(seeSection6.16formoreinformation onthesepotentialproducers.)However,thefinancialcrisisthatemergedin September/October2009createdconditionsthatwereextremelyunfavorablefor startupsasventurecapitaldriedupandbankssharplyreinedintheirlending.As such,noneofthethreependingprojectsAgritecSystemsinThailand;Specialty ChemicalProductsinWashingtonstate;andDimonaSilicainIsraelhasreached completion,andallthreearecurrentlyawaitingnewinvestorstomoveforward. Thereisonenewproduceronthehorizon,however.AcompanycalledRUSMAGis preparingtoentertheRussianprecipitatedsilicaindustrywithanewplant (MagnesiumMetal&PrecipitatedSilicaPlant)tobebuiltinUral,Sverdlovskregion. Thisprojecttoowasdelayedsomewhatbythefinancialcrisis,butitisnowmoving forward.Theplantisscheduledtobecompletedinlate2011orearly2012and wouldhaveaninitialcapacityof22KTPYofmagnesiumand29KTPYof precipitatedsilica.

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8.RegionalDemandTables

Thefollowingsectionprovidesregionaldemandtablesfortheglobalprecipitated silicamarket.Regionsarebrokendownasfollows:NorthAmerica,EuropeanUnion, Asia,SouthAmerica,EasternEurope,andAfrica/Mideast.Notethatgrowthrates andcolumntotalsinthefollowingtablesarebasedonunroundednumbers,so breakoutsmaynotaddtototals.

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9.Sources&Methodology

Thisreport,SilicaMarketUpdate,providesglobaldemandforprecipitatedsilicaand sodiumaluminumsilicates.Unlessspecificallynoted,alldemanddatafor precipitatedsilicaalsoincludeSAS.Othertypesofspecialtysilicas(fumed,colloidal, gel)areexcluded.Thedemand,capacity,andpricingdatapresentedinthisreport representestimatesdevelopedbyNotchConsultingGroupbasedonthebest availableinformation.Theseestimatesweredevelopedbasedonnumeroussources, includingtradejournals,conferenceproceedings,companyreports,andextensive andongoinginterviewswithindividualsinthesilica,carbonblack,andtire industries.Quarterlydemandestimatesarebasedprimarilyonfeedbackandresults ofsilicasuppliersandcustomers,aswellastrendsinleadingindicatorsforsilica demand,includingrubberconsumption,tireproduction,motorvehicleproduction andregistrations,industrialproduction,andrealgrossdomesticproduct.

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