FATS AND OILS Trends and opportunities in the

FATS AND OILS: Trends and opportunities in the industrial and chemical markets International Castor Oil Association General Meeting San Diego, May 18, 2005 By Doris de Guzman Associate Editor Oils, Fats & Waxes/Consumer Specialties

Changes are on the horizon… v Costs of crude oil and fuel remain high v Continued price increase in petrochemical-derived ingredients v Manufacturers looking for alternative raw materials v Growing importance [and use] of biotechnology v Consumer preference for “naturals” v Growing trend in green chemistry

Rising price of crude oil expected to continue Source: USDA Agricultural Baseline Projections 2006

Prices of petro-based chemicals still at high levels Source: ICIS Pricing

Vegetable oil based-materials are becoming more competitive

Vegetable oils: Growing source as an alternative feedstock v Renewable raw materials v Expanding global oilseed production v Government subsidies and incentives v Increasing regulation for synthetic/petrochemical-based ingredients v Increase in R&D for vegetable oil-based industrial products and fuel v Increase interest from traditional petrobased manufacturers

US fats and oils consumption in inedible products

US inedible use of selected fats and oils, 2005

Biodiesel will fuel vegetable oil consumption Source: National Biodiesel Board

Soybean oil, canola, yellow grease, tallow and recycled cooking oil are the preferred feedstock for biodiesel in the US Source: National Biodiesel Board

Rapeseed oil demand for biodiesel skyrockets in Europe “More than 90% of the recent growth in the EU-25 demand for fats and oils is for biofuels” -Oil World (February 2006)

Biodiesel will drive stronger use of palm oil “Malaysia’s industrial use of palm oil in 2005/06 is forecast at 1. 9 million tons, up 8% from the previous year, supported by the country’s ongoing efforts to promote palm oil as an alternative fuel source. ” -Foreign Agricultural Service (USDA-FAS)

Rising biodiesel projects in Malaysia Biodiesel Initiatives Companies Golden Hope Plantations Carotino Sdn Bhd IOI Corp. Kumpulan Fima/MPOB Kulim Bhd FELDA IJM Plantations Zoop Sdn Bhd (private equity) Vance Bioenergy Mission Biofuels Capacity (tpa) 150, 000 60, 000 100, 000 na na 100, 000 Details 4 new biodiesel plants, operational by 2007 Operational in mid-2006 Details being worked out Operational in 2007 JV with German company, start-up in 2007 Undertaking feasibility studies No details. Planning to invest RM 50 m In Selangor, has multifeedstock capability In Pasir Gudang, to commence in 2006 Kuantan Port. Operational in October 2007 Source: Citigroup Research (1/4/06) and various news sources

Brazil joins the biodiesel race BRAZIL BIODIESEL PROGRAM Federal Law # 11. 097, 1 -13 -05: Authorization of a voluntary 2% blend of biodiesel (B 2) until 2008, when B 2 will be mandatory. The blend will increased up to 5% until 2013. Federal Law # 11. 116, 5 -18 -05: Authorizes tax exemption and incentives for biodiesel based on the kind of feedstock, size of producer and location of feedstock region. “Brazil can become a major world producer of biodiesel with its vast amount of arable land for oilseed feedstocks such as castor, sunflower, soybean, palm and cotton” - ABIOVE (Oct. ’ 05)

Brazil is projected to consume over 2 billion liters of biodiesel by 2013 Source: Biodiesel Federal Program, Ministry of Science and Technology-Brazil

Other potential growth markets • Plastics: – Soy polyols market to reach 650 m lbs by 2010 depending on rapid investment in production capacity —Omni Tech – Cargill and ADM have entered the market. Other soy polyol producers include Arkema, Urethane Soy System, Biobased Technologies, Pelron • Lubricants: – Current biolubes market in the EU is around 100 KT (200 m lbs) and can reach 1. 7 m tonnes (36% share) by 2010—NNFCC – Soy-based lubes in the US was estimated at 10 m lbs in 2004—Omni Tech – Like Europe, growing regulatory impacts on lubricants should result in more use of biolubes in the US in the next 5 -10 years

Other potential growth markets • Solvents: – Demand for green solvents in the US is expected to outpace conventional solvents and will capture 20% of market value by 2010—Freedonia Group – Methyl soyate, ethyl lactate (from corn) and d-limonene are some of the biobased solvents available in the market. – Use of methyl soyate as an industrial solvent was estimated at around 20 m lbs in 2004 and is commercially available from more than 10 producers in the US—Omnitech – Current renewable solvents in the EU: 60 KT; Potential by 2010: 235 KT (12. 5% share)--NNFCC • Surfactants: – R&D for new oleo surfactants are ongoing especially coming from major oleochemical companies such as P&G, Uniqema, Cognis, Croda and Akzo Nobel. – In the EU, renewable surfactants are around 460 KT and has the potential to reach 920 KT (40% share) by 2010 --NNFCC

Other potential growth markets • Adhesives: – Marcus Oil & Chemical has a patent for vegetable oilbased wax for hot-melt adhesive applications. – Other raw materials used for bio-based adhesives include tall oil rosin, corn starch and soy flour. • Cosmetics/Personal Care: – Growing consumer preference for natural ingredients/products – Specialty oils, butters, and natural waxes are increasingly becoming popular as cosmetic ingredients. – Fats and oils demand in US C&T is projected to increase 33%by volume from 1. 1 bn lbs. in 2003 to 1. 5 bn lbs. in 2013 (42% by value from $225 m to $320 m) —Freedonia

Other potential growth markets • Paints/Coatings: – In the US, linseed oil is the more popular vegetable oil used in paints, coatings and inks. Linseed oil use for oil-based coatings in 2004 was 81. 2 m lbs. —Omni Tech – Soybean oil use in alkyd resins production were 130 m lbs in 2004. Alkyd resin is a primary ingredient of oil-based or solvent-borne paints. Soy oil competes in this market mostly with linseed oil and tall oil—Omni Tech • Inks: – Between 1 KT and 2 KT of rape oil are used in the UK in printing inks – Potential maximum use of vegetable oils in European printing inks is estimated at 84 KT (equiv. 210 KT of rapeseed)—NNFCC – 2004 US linseed oil consumption in inks was around 60. 9 m lbs. —Omni Tech

Biotechnology-a big key for more potential uses of fats and oils CASTOR BIOTECH TIDBITS Agbiotech Companies v. Vancouver-based Linnaeus Plant Sciences Inc. is working on castor genes to produce oilseed-based engine oils. The company is currently in multi-year partnership with Arkema. Government Research Chemical firms Universities Agriculture companies Independent Research firms v. Biochemists from Washington State University are working on an approach in identifying castor genes that will boost hydroxy fatty acid in an oilseed plant. (--Plant Journal 3/06) v. The US Department of Agriculture (USDA) is working on developing transgenic castor plants with reduced levels of ricin toxin. Dow Chemical is funding some of the research. Industry organizations

Chevron Traditional petro players look at agriculture for future feedstock Sasol Huntsman forms Green Chemistry business unit. “We are especially anxious to build our position in this burgeoning field through the use of bio-based feedstocks such as glycerine, natural alcohols, methylesters, carbohydrates and sugars. ” –Hunstman 2006 Shell BASF is investing more than $320 million over the next 3 years to develop the next generation plant biotechnology products Degussa is investing Euro 50 million in the next 5 years to develop products from renewable materials Du. Pont forms Bio. Fuels business unit which will leverage the company’s capabilities in agbiotech, metabolic engineering, chemistry and process engineering. Dow entered an Oilseed Engineering Alliance to develop raw materials to produce chemicals and industrial products from ag crops.

Green Chemistry is in! • Regulations tighten for traditional chemicals • Governments promoting green-based materials • Environmental awareness continue to increase • Consumer preference for natural-based products • Chemical industry are [and will] continue to look for alternative feedstock

References and acknowledgements v US Dept. of Agriculture v ICIS Pricing v US Census Bureau v National Biodiesel Board v European Biodiesel Board v Oil World v Citigroup Research v Freedonia Group v Brazilian Oilseed Processors Association (ABIOVE) v Brazil Ministry of Science and Technology v National Non-Food Crops Centre v Omni Tech International

Thank you for listening! Doris de Guzman Associate Editor ICIS – Chemical Market Reporter 360 Park Avenue South, 12 th Floor New York, NY 10010 T: 212 -791 -4228 E: Doris. de. Guzman@icis. com