draft 4, 07/09/2007 managing under uncertainties / a right time for a change epichlorohydrin (c 3 h...

Draft 4, 07/09/2007

Managing under Uncertainties /A Right Time for a Change

Epichlorohydrin (C3H5OCl) molecule

Bruno Jestin / Senior Vice President

Head of the Business Unit

Organic Products / SBU EDS

C H E M I C A L S

Let’s go back two years ago…

C H E M I C A L S

Epichlorohydrinworldwide market

Epichlorohydrin producer number 4 on a worldwide basis

(Dow, Hexion, Bohai),

Production sites: FRANCE (Tavaux) - 40KT/y Germany (Rheinberg) – 56 KT/y

SOLVAY

325 310

580

60

Europe NAFTA Asia RoW

2,0%

3,5%

8,5%

7,0%

Europe NAFTA Asia RoW

Demand in 2007 (KT/y) Expected Growth

(CAGR 2007-2012)

Glass reinforced fiber

Bonding and adhesive

Protective coatings

Source: Solvay analysisSource: Solvay estimates

A robust growing market

C H E M I C A L S

Epichlorohydrinstandard process

Chlorine

Synthetic glycerin

From 1999 to 2007: price multiplied by 4

Reinvestment under question

Growing market waiting for new capacities

?Hydrochloric

acid

Epichlorohydrin

Oil Oil derivative: derivative: propylenepropylene

Oil Oil derivative: derivative: propylenepropylene

Issues with the standard

technology

C H E M I C A L S

950

1000

1050

1100

1150

1200

1250

1300

kT/year

2005 2007 2010

ECH supply / demand

Supply

Demand

Tight market expected in 2010

C H E M I C A L S

Glycerinealternative renewable feedstock

0

1000

2000

3000

2007 2008 2009 2010 2011 2012

1T of oil

0,1T of methanol

1T of biodiesel: green fuel mixed with standard diesel

0,1T of glycerin

Glycerin production (estimates)

By-product frombiodiesel production process

Available

Affordable cost

Example: 0,7 ha of rapeseed

Source: ICIS, HBI,Solvay analysis estimates Source: ICIS

0%

100%

200%

300%

400%

500%

1999

2000

2001

2002

2003

2004

2005

2006

2007

H1 20

08

H2 20

08

Propylene price €/T (EU)

Glycerin price €/T (EU)

Source: ICIS, HBI,Solvay analysis estimates

C H E M I C A L S

SOLVAY’s INNOVATION Epicerol® process - the reversed reaction

38 patent applications

Chlorinated byproducts

Chlorine consumption

divided by 10 divided by 2

Water consumption

divided by 8

Pull out from oil chain

FRANCE “Pierre Potier Prize” for Innovation in Favor of the

Environment

U.S.A. “2007 Glycerine Innovation Award” American Oil Chemists’

Society

U.K. “2008 Award for Innovation” Chemical Industries Association

C H E M I C A L S

The Epicerol® processa big step toward sustainable development

TAVAUX, France

Targeting the growing Asian market, approval from the COMEX for an investment in a 100kT/y capacity in Map Ta Phut (TH)

Represents 25% of the market growth from 2007 to 2012

Other projects under study in various part of the world

First lab trials in Bruxelles (B)

Pilot Plant in Tavaux (F)

April 2007, startup of a 1st industrial unit of 10kT/year of Epicerol® in Tavaux (F)

50

100

New Epicerol line Average line size in theworld

C H E M I C A L S

Where are we now?...

C H E M I C A L S

Evolution of the glycerin price

GLC vs. Propylene v.s Brent price (Dec 95-Oct 07)

0

500

1000

1500

2000

2500

Dec-9

5

Jun-

96

Dec-9

6

Jun-

97

Dec-9

7

Jun-

98

Dec-9

8

Jun-

99

Dec-9

9

Jun-

00

Dec-0

0

Jun-

01

Dec-0

1

Jun-

02

Dec-0

2

Jun-

03

Dec-0

3

Jun-

04

Dec-0

4

Jun-

05

Dec-0

5

Jun-

06

Dec-0

6

Jun-

07

US

D/t

0

10

20

30

40

50

60

70

80

90

100

US

D/b

bl

Refined GLC Propylene Brent

Note to the COMEX for

investment in Thailand

C H E M I C A L S

Biofuels 'crime against humanity' By Grant Ferrett

BBC News 27/10/2007

A United Nations expert has condemned the growing use of crops to produce biofuels as a replacement for petrol as a crime against humanity.

The UN special rapporteur on the right to food, Jean Ziegler, said he feared biofuels would bring more hunger.

C H E M I C A L S

Propylene price evolution

0%

100%

200%

300%

400%

500%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Q1

2009

Propylene price (EU)

C H E M I C A L S

Evolution of REBIT

0102030405060708090

100

%

janv-08

march may july sep nov janv-09

REBIT

C H E M I C A L S

0

500

1000

1500

2000

kT/year

2005 2007 2010

ECH supply / demand update

Supply

Demand

Impact of the economic crisis on

Supply / Demand

Weakening demand

Our Chinese competitors invested in

Epichlorohydrin

C H E M I C A L S

What would you do right now?

C H E M I C A L S

Deeply understand what happens

Large expertise:

From the seeds (rapeseed, palm…) to our final applications (automotive, airplane, windmill…) through intermediates (Biodiesel, refining glycerin, Epoxy Resins…)

About our customers and the customers of our customers

About our suppliers and the suppliers of our suppliers About our competitors About potential substitution of our products

(Epichlorohydrin, Epoxy Resins), new applications for glycerin and new technologies (Epsilon…), legislations…

C H E M I C A L S

Deciding about a clear strategy and stick to it despite the crisis!

Easy to explain / to share Based on a strong financial model with sensitivity

analysis + risk analysis => clear goals Sustains a very strong alignment of our people on a

worldwide basis and on a multi-function basis Constructive criticisms are warmly welcome! Once a

decision is made => we do not discuss anymore In the long term, our Epicerol® project in Thailand is still a

strategic project for the Solvay Group, supporting our diversification and risk hedging (markets, currencies and raw materials)

In the short term, need for a flexible tactic, strongly communicated

C H E M I C A L S

Against emotion => coming with facts

« Biofuels = Crime against Humanity » => Position paper globally in favor of Biodiesel, helping us in lobbying internally and externally

« Glycerin price explosion » => In-depth study about the glycerin market, anticipating a price decrease (now ongoing) / strengthening our credibility

« Asian customers do not need us » => Strengthening our relationship with strategic prospects in Asia

“We should invest heavily in a peaceful place like Tavaux (FR)” => Going where the market is growing fast, our European plants being focused on Europe and Americas

C H E M I C A L S

Interesting time for opportunities

Most of our customers and suppliers are ready to explore new ways of managing this crisis

We have creatively been working on these potential alternatives with several partners in term of: Extension of past agreements dealing with the long

term; New kind of contracts protecting both profitabilities; Epicerol® valorization all along the value chain; Co-investments.

C H E M I C A L S

Demonstrated skills

Behaving as an entrepreneur: Not as a cowboy… Rejecting the « PTC » approach…/ Accepting failures But taking calculated risks, avoiding the 99,9999% accuracy Stepping back before moving forward, anticipating problems

and opportunities, balancing short and long term targets Making quick and wise decisions => clear strategy / tactic

and goals towards people Trusting people Aware of emotions Managing by examples Rewarding collaborators full of entrepreneurship