Flexible

Polyurethane Foam

Understanding Polyurethane
Foam Price Increases
Agenda Flexible
Polyurethane Foam
®

Components of Polyurethane Foam

Dependence on Oil & Natural Gas
Background on Step Change
Impact on PU Foam Raw Materials:
ƒ Polyols Overview
ƒ TDI Overview
ƒ Other Cost Factors Overview
Renewable Alternatives?
Working Together
Summary/Projections
Components of Polyurethane Foam Flexible
Polyurethane Foam
®

Polyols
The “meat” of the foam formulation. The material that all of the
other ingredients bind to form the molecular chain that is the
flexible foam.

TDI
Toluene DIisocyanate is the material that reacts with the Polyol
to form the chemical reaction that “builds” the complex shape
that becomes the flexible foam.

Other Materials
Various materials such as water, CO2, flame retardants,
catalysts, dyes needed to complete the formulations to meet
performance standards.
Components of Polyurethane Foam Flexible
Polyurethane Foam
®

Tradition has been that increases and

decreases in the price of
polyurethane foam only occur when
Polyols and/or TDI change

Important to note that all foam

manufacturers evaluate all costs at
these times to arrive at new price
Dependence on Oil & Natural Gas Flexible
Polyurethane Foam
®

Dependence Factors- Why?

Key Polyol Raw Materials
Key TDI Raw Materials
Byproducts used in Many Minor Materials
Cost of Energy
Cost of Transportation
Background on Increases Flexible
Polyurethane Foam
®
Background on Increases Flexible
Polyurethane Foam
®

Crude oil and natural gas are driving significant

feedstock cost increases globally
ƒ Crude oil prices have risen 2X over the last year to
~$135(USD) per barrel
ƒ Natural gas has risen almost 2X over the last year to
~$13/MMBTU
Key raw materials and feedstocks are at very high
levels
ƒ Propylene is at an all-time high of ~$0.77/lb versus a 2007
average of $0.52/lb
ƒ Benzene, toluene, other raw materials, transportation costs,
etc. have had a 2X increase since 2007
Background on Increases Flexible
Polyurethane Foam
®
Crude Oil
June 1
~$126 (US)

’04-’06
$54.60 (US)

’02-’03
$28.60 (US)
2nd
Change
’07
1st
Change
’04-’06

Source: CMAI May 2008

Background on Increases Flexible
Polyurethane Foam
®

Natural Gas
’04-’06 June 1
$7.40 (US) ~$11.91 (US)

’02-’03
$4.38 (US)

2nd
Change
1st
’07
Change
’04-’06

Source: CMAI May 2008

What Does This Mean for All of Us? Flexible
Polyurethane Foam
®

Chemical Companies Margin levels are not sustainable.

ƒ They cannot, at these profit margins, serve their customers over the long
term by investing in R&D (new products and processes), building new
plants and expanding in new markets
ƒ They will not be able to help their customers grow
As manufacturers, we are all in this together.
ƒ We are subject to the same pressures
ƒ At one end we experience the margin squeeze caused by energy and
feedstock cost increases
ƒ At the other end, retailers use their enormous clout with consumers to put
downward pressure on our prices
Thus, nearly everyone in the middle of the manufacturing value
chain is subject to the margin squeeze.
As a result, we must take action on pricing of many of our
products.
Polyols Overview Flexible
Polyurethane Foam
®

How Polyols Are Made

Key Raw Materials for Polyols

How Are Polyol Raw Materials Derived?

Historical Overview of Raw Material Costs

How Polyols Are Made Flexible
Polyurethane Foam
®

Crude Nat
Oil Gas
Propylene and propylene
oxide are key raw materials
Propylene and cost inputs to the
production of Polyols.
Catalyst

Propylene
Oxide Product Trans-
Polyols
Reactor(s) Storage portation
Ethylene
Oxide

Initiator

Ethylene OTHER RAW MATERIALS:

• Glycerine Antioxidants
• Sugars
Crude Nat
Oil • Glycols
Gas
• Amines
• Catalysts
 How Are Polyols Raw Materials Derived? Flexible
Crude Polyurethane Foam
®
Crude Oil Refinery C4
Liquid
Butadeine,
Petroleum Mixed
10% Gas (LPG), Pygas/ Butylene
Naptha, Reformate Heavy
Gas Oil Aromatics,
C5/C6
90% Pygas/
Reformate
Benzene MDI
Gasoline
Refinery
& FCC Unit, Pygas/
Distillates Steam Reformate
Cracker, Toluene TDI
Natural Gas Separation Reformer
Gas Unit

Butane, Polyols
Lt Naptha, Propylene
7% Propane, Conversion Propylene
Ethane Unit Oxide

93% Other
Derivatives
Other Propylene
Methane Technologies:
Ethane • Propane Dehydro
(Fuel Gas) • Metathesis
 Polyol Overview: Propylene Production Flexible
Polyurethane Foam
®

NA Propylene Production
Metathesis
Steam
2% A majority of NAA propylene is
Crackers produced by refineries. Price is
32% driven by its alternate value in
gasoline and distillates.

Syncrude New crackers are mostly built for

Upgraders an ethane feedstock that yields
1% minimal propylene (only 2% yield).
Refinery
Cokers Refinery FCC
3% Units CONCLUSION: The floor price of
62%
propylene will be driven by
Source: CMAI 2006 gasoline.
Polyol Overview: Key Raw Materials
Flexible
Polyurethane Foam
®
Propylene Chain
All polyol producers compete Ethylhexanol
with other users for propylene
Butyraldehyde
and propylene oxide and
therefore must provide Butyl Alcohol Butyl Acetate
acceptable returns to the
envelope to secure product.
EPI Glycerin

Epoxies
Crude Oil
Acrylic Acid &
Superabsorbents
Acrylates
C3: Propylene
Acrylic Esters Acryl-Latex
Natural Gas Polypropylene
Polyols
Polyglycols
Propylene Oxide Propylene Glycol
Isopropanol-
Oxygenated amines

Cumene Stream Solvents

Chlorinated
PDC
Solvents
Isopropyl Alcohol
Historical Overview: Polyol Raw Material Costs Flexible
Propylene Polyurethane Foam
®

June 1
’04-’06 ~$0.77 (US)
$0.41 (US)

’02-’03
$0.21 (US)
2nd
Change
’07
1st
Change
’04-’06

Source: CMAI May 2008

Polyol Overview: Other Polyol Raw Material Costs Flexible
2002 = 1 unit Polyurethane Foam
®

ƒPropylene and propylene oxide have not been the only contributors to the significant
increases in polyol costs.
ƒInitiators, antioxidants, catalysts, etc. have also increased sharply in cost.
TDI Overview Flexible
Polyurethane Foam
®

How TDI is Made

Key Raw Materials for TDI

How Are Raw Materials Derived?

Historical Overview of Raw Material Costs

 How TDI is Made Flexible
Polyurethane Foam
®

Toluene is a key raw

HCL
material and cost input to
the production of TDI.
Carbon Monoxide
Phosgene
Production
Chlorine
TDI
Reaction

Oil

Toluene TDA
Toluene Reactor Diamine (TDA) Dehydration
TDI
Finishing
Natural Gas

Nitric Acid

Hydrogen

TDI

Transportation
 How Are TDI’s Raw Materials Derived? Flexible
Polyurethane Foam
®
Crude Oil Refinery Crude
C4
Liquid Butadeine,
Petroleum Mixed
10% Gas (LPG), Pygas/
Butylene
Naptha, Reformate Heavy
Gas Oil Aromatics,
C5/C6
90% Pygas/
Reformate
Benzene MDI
Gasoline
Refinery
& FCC Unit, Pygas/
Distillates Steam Reformate
Cracker, Toluene TDI
Natural Gas Separation Reformer
Gas Unit

Butane, Polyols
Lt Naptha, Propylene
7% Propane, Conversion Propylene
Ethane Unit Oxide

93% Other
Derivatives
Other Propylene
Methane Technologies:
Ethane • Propane Dehydro
(Fuel Gas) • Metathesis
Toluene Has High Octane Value Flexible
Polyurethane Foam
®

regular premium
87 93

Octane is a knock index for proper internal combustion

Toluene is a valued blend component with high octane
ratings
Toluene’s floor price is set by its value in the
gasoline/octane pool
 Historical Overview: TDl Raw Material Costs Flexible
Polyurethane Foam
®
Toluene
June 1
’04-’06 $3.84 (US)
$2.29 (US)
Cents/Gallon

’02-’03
$1.15 (US)
2nd
Change
’07
1st
Change
’04-’06

Source: CMAI May 2008

Other Cost Factors Overview Flexible
Polyurethane Foam
®

Transportation Costs

Flame Retardants

Catalysts

Dyes & Colorants

G&A/Energy/Fixed Costs
Transportation Costs Flexible
Polyurethane Foam
®
Rail Cost Index

1.500
1.400
Index Value

1.300
1.200
1.100
1.000
0.900
02

Q 02

Q 03

Q 03

Q 04

Q 04

Q 05

Q 05

Q 06

Q 06

Q 07

Q 07
08
20

20

20

20

20

20

20

20

20

20

20

20

20
1

1
Q

Year/Qtr

Source: Association of American Railroads March 31, 2008

ATA Bulk Truck $/Mile - NSA

1.500
1.400
Index Value

1.300
1.200
1.100
1.000
0.900 As manufacturers, we are
Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

experiencing a step change in

our transportation costs.
Date
Diesel prices have increased
Source: American Trucking Association
nearly 2X since early 2007.
Flame Retardant Costs Flexible
Polyurethane Foam
®

Flame Retardant Material

35.00%
33.33%

30.00%

25.00%
25.00%

20.83%
20.83%
20.00%
16.67%
16.67%
15.00%

10.00%
8.33%

5.00%

0.00%
5

7
6

7
5

7
06

07

08

8
-0

-0

-0
-0

-0
-0

-0

-0
-0

-0

-0

-0

-0

-0
b-

b-

b-
ug

ug
ec

ec

ec
ct

ct

ct
n

n
pr

pr

pr
Fe

Fe

Fe
Ju

Ju

Ju
O

O
D

A
A

A
Other Costs Flexible
Polyurethane Foam
®

Of the Nearly 275

Chemicals used to
make all Polyurethane
Foam…….the industry
received increases in
the cost of 235 in June
2008!
Renewable Alternatives Flexible
Polyurethane Foam
®

Given current Polyurethane technology, polyol

is the only candidate for renewable material
replacement.

Corn & Soybean based products are most viable

and most economic alternatives.

So…………
Renewable Alternatives Flexible
Polyurethane Foam
®

Corn Up
140% Since
January ‘06

Soybeans Up
105% Since
January ‘06

Source: USDA WASDE Report 6-10-08

Renewable Alternatives Flexible
Polyurethane Foam
®

Maximum renewable replacement (while keeping

minimal performance standards) is 15-20% of
the polyol content.

Separate tanking, buying in smaller quantities

cuts into any potential savings

Net Result- equal pricing

Working Together Flexible
Polyurethane Foam
®

We need to educate each part of the value chain about

the step change in hydrocarbon and energy costs.

At the same time, we all must work together to effect a

viable energy policy among policymakers throughout the
world that will generate more exploration and production.

We know that our success depends on helping our

customers succeed … we are in it for the long-term …
but we all must achieve re-investment levels in order
to continue to serve our customers and our
shareholders.
Working Together Flexible
Polyurethane Foam
®

Costs to Produce Polyurethane Foam- October 2005 Benchmark

140.00%

125.58%
120.00%

100.00%

91.67%
TDI
80.00% TRANS
Polyol
FR

60.00% G&A
Other

43.02%
40.00%
33.33%

23.81%
20.00%
17.65%

0.00%
5

7
6

7
5

7
06

07

08

8
-0

-0

-0
-0

-0
-0

-0

-0
-0

-0

-0

-0

-0

-0
b-

b-

b-
ug

ug
ec

ec

ec
ct

ct

ct
n

n
pr

pr

pr
Fe

Fe

Fe
Ju

Ju

Ju
O

O
D

A
A

A
Working Together Flexible
Polyurethane Foam
®
Cost vs BF Price

80%

76%

70%
68%

60% 60%

50%
46%
40% 40% 44%
38% Weighted Actual Costs
40% 36% 41%
Avergage BF Pricing
38%
36%
30% 31%
30%

21%
20%
18% 18% 18% 18% 18%

10%

0%
5

7
6

7
5

7
06

06

07

07

08

08
-0

-0

-0
-0

-0
-0

-0

-0
-0

-0

-0
b-

n-

b-

n-

b-

n-
ug

ug
ec

ec

ec
ct

ct

ct
pr

pr

pr
Fe

Fe

Fe
Ju

Ju

Ju
O

O
D

A
A

A
Summary Flexible
Polyurethane Foam
®

The step change in crude oil and natural gas prices have
caused a step change in manufacturing costs.

The changes in costs cannot be absorbed by

manufacturers and need to be passed along.

All polyurethane chemicals (Polyols, MDI, and TDI) are

affected.

As manufacturers, we must find ways to pass the

escalating raw material, hydrocarbon and energy costs
through the chain.

July increases do not account for additional $15-$30

per barrel we have just seen.
Interview Dow to boost polyurethane prices further
10 June 2008 19:20 [Source: ICIS news]
By Joseph Chang

NEW YORK (ICIS news)--US-based Dow Chemical is raising prices in its polyurethane business 8-24% globally in June and July, and additional
increases are likely to follow, the president of Dow Polyurethanes said on Tuesday.

“We are under siege with this step-change in energy and feedstock price volatility,” said Pat Dawson. “The 1970s pale in comparison to what’s
happening in crude oil today, and it cannot be business as usual.”

Crude oil prices rose by over $2 (€1.28) to around $137/bbl on Tuesday afternoon, close to its record high of over $139 last week.

For June and July, Dow Polyurethanes will raise prices 14-24% in North America, 10-18% in Europe and 8-18% in Asia, depending on product and
grade, said Dawson.

“Asia is due for even more price increases in July that could drive up that range, however,” said Doug Warner, business director for polyols in Dow
Polyurethanes. “This is being driven by the large spike in naphtha prices in Asia, which is coming through to propylene oxide [PO] producers. PO is
being nominated right now for increases close to 20%,” he said

Polyol prices will likely follow PO prices closely, Warner added.

Asian naphtha traded at a new record high of $1,149/tonne late on Monday as crude values hit the $139/bbl mark, according to global chemical
market intelligence service ICIS pricing.

Naphtha traded at $1,149/tonne cost and freight (CFR) Japan between Sietco and Glencore for the second half of July contract. The contract had
earlier hit a record high, trading at $1,125/tonne as Itochu sold to Mitsui Oil Asia Hong Kong two weeks earlier.

The moves in Dow Polyurethanes are in line with Dow’s overall strategy to raise prices by up to 20%, which the company announced on 28 May.

Dow Polyurethanes also plans to implement surcharges for transportation and packaging of its products in July, said Dawson.

“These are the only areas where we would implement surcharges - not on the products themselves,” he said.

($1 = €0.64)

To discuss issues facing the chemical industry go to ICIS connect

Full Article - recent price increases

MATERIAL PRODUCER INCREASE EFFECTIVE

Thermoplastic moulding materials

Polyethylene Dow Europe 150 [euro]/tonne on LDPE, LLDPE and HDPE and Affinity and Engage polyolefin 6/1/2008
elastomers.
Dow Europe 50 [euro]/tonne on LDPE, LLDPE and HDPE. 5/1/2008

Other polyolefins DuPont Packaging & 80 [euro]/tonne on Elvax EVA copolymer. Up to 200 [euro]/tonne on Nucrel acid 6/1/2008
Industrial Polymers copolymer.

Styrenics Dow Europe 45 [euro]/tonne on GPPS and 55 [euro]/tonne on HIPS and Styron A-Tech advanced 5/1/2008
technology polystyrene.
Ineos Nova 10 [euro]/tonne on GPPS and 40 [euro]/tonne on HIPS. Expandable polystyrene up 50 5/1/2008
[euro]/tonne.

Other plastics materials Evonik Industries Average 10 per cent increase across the entire range of high-performance polymers and 6/1/2008
monomers depending on region, product type and invoice currency.

Elastomers
Thermoplastic elastomers 150 [euro]/tonne on Affinity and Engage polyolefin elastomers. 6/1/2008

Additives
Flame retardants Chemtura Corporation Increases on PHT4-based flame retardants: Firemaster 550/552/600/602/BZ54/BZ54HP 6/1/2008
used in polyurethane cushioning up by $035/kg; PHT4 Firemaster 504 used primarily in
rigid polyurethane foam, up by $0.17/kg.
Albemarle Antiblaze TMCP flame retardants and TMCP blends increased by up to 20 per cent; 5/15/2008
Saytex RB-79 flame retardant blends containing phosphorus, Antiblaze TCCP flame
retardant and TDCP blends, Antiblaze V6 flame retardant and V6 blends, Antiblaze V490
(DEEP) flame retardant and other Antiblaze products not listed here all increased by up
to 1 5 per cent. NcendX P-30 by $0.45/kg.

NOTE : All illustrations and photos have been removed from this article.
Summary Flexible
Polyurethane Foam
®

June 24, 2008- USA Today

Current and Future Impact on Polyols Flexible
Polyurethane Foam
®

Propylene pricing follows crude oil and natural gas pricing.

Have we felt the full effect of the current step change in oil and
natural gas costs yet?
Strong propylene demand and small increases in propylene
supply will add cost pressure to propylene above its gasoline
floor value and therefore to polyols.
Other raw materials are forecasted to remain tight and
therefore will increase the cost of polyols.
The doubling of transportation fuel costs will also increase the
cost of polyols.
The need for future price increases will continue to be driven by
these factors.

…….prices will continue to rise through the rest of this year and beyond
Current and Future Impact on TDI Flexible
Polyurethane Foam
®

Strong global demand and short supply for TDI will not ease
until new capacity is added.

Toluene’s alternative as an octane booster will be widely used

as gasoline demand increases further pressuring TDI’s costs.

The doubling of transportation fuel costs will also increase the

cost of TDI.

Business returns above TDI’s costs are needed to continue to

reinvest in the TDI business.

…….prices will continue to rise through the rest of this year and beyond