P.

e&x4mtPw44w& S"op& A Reporting Service of:

Mannsville Chemical Products Corp.

JUNE 1995 yoolil Adams, NY 13605

Prvious Repft - lune 1993 HETHYL ETHYL KETONE 6 oo?

FOCUS. . . . Methyl ethyl ketone (MEK), also known as 2-butanone or 2-oxobutane, is a flammable, colorless organic liquid with an

acetone-like odor. MEK is an active solvent for many natural and synthetic resins . 80% of the MEK produced during the past

several years has been used as a solvent in protective coatings, adhesives, and printing inks . The 1990 Clean Air Act Amendments

list MEK as a hazardous air pollutant, along with many other widely-used solvents, including toluene, xylene, and methyl isobutyl

ketone (MIBK). MEK is one of a group of seventeen chemicals targeted for voluntary emission reduction by the Environmental

Protection Agency's (EPA) 33/50 Program . The goal of this program is a 50% reduction in emissions and transfers of the total

tonnage of the group by 1995, compared to reported releases for 1988 . Substitutes have been evaluated by coatings formulators and

users including 100% solids products, water-based resin systems, and reformulated solvent blends . Current technology for

water-based coatings does not equal the performance of solvent systems in certain applications . Performance demands have led to

the development of various solvent blends to achieve compliance with environmental regulations . ne acetate family, ethyl acetate

in particular, is the principal source of alternate solvents . In some cases, ethyl acetate can be substituted directly for MEK with no

significant change in properties. In addition, butyl acetate and isobutyl acetate are used in solvent blends that either reduce or

eliminate the MEK content . None of these three acetates are included in the current list of hazardous air pollutants .

Since mid-1987, the domestic supply of MEK has been interrupted several times by unexpected plant outages and planned

capacity reductions . The short-term supply problems created have encouraged many formulators to use alternate solvents, such as

ethyl acetate, or a blend of acetone and MIBK. In many cases, these reformulations have become permanent, thereby reducing

potential MEK demand . US output of MEK rebounded sharply from the economic doldrums of 1992 to achieve levels in 1993 and

1994 not seen since the mid-1980s. However, this resurgence in output was primarily the result of a step change in export demand,

brought about by foreign plant closings and increased demand in the Far East, rather than by any resurgence in domestic demand .

OUTLOOIC . .

.Environmental regulations will have a greater impact on future demand for MEK than any other factor. Volatile

organic compound (VOC) regulations have caused a reduction in MEK concentration to be used in coatings formulations that are

applied in the field. In response to competing pressure from environmental groups and coatings producers, the US government

initiated a negotiated regulation concept, known as REG-NEG. This activity resulted in a compromise on VOC limits for

architectural and industrial maintenance coatings . Increased product reformulation and/or investment in solvent recovery and

recycling equipment will be required to achieve the average air emission reductions established by the EPA's 33/50 Program; in

either case, net demand for virgin product will be reduced.

The superior performance of MEK, however, will maintain pressure favoring its continued use, especially in high quality

applications . Alternate technology previously thought to be available has not yet achieved the performance requirements necessary

to be readily accepted as substitutes . Until a technological breakthrough occurs in either water-based or 100% solids systems, MEK

demand will continue tapering off only gradually as emission targets are approached . Production, however, at least for the next

several years, will continue to strain domestic capacity in order to meet expanded export requirements .

PRICING. . . . During the early 1990s, prices for MEK fluctuated widely, primarily because of supply shortages caused by unanticipated

plant outages in addition to Exxon's 70 mfllion pound net capacity reduction and Lyondell's 1991 plant closing . However, prices

have stabi4zed somewhat since early 1993 and list prices since then have been in the range of 40 - 44 cents per pound, the highest

level sinq'elhe 1988 peak of 50 cents per pound.

AVERAGE PRICE RANGE - METHYL ETHYL KETONE

Cents Per Pound - Bulk - Delivered Eastern

HISTORICAL PROJECTED

(IQ 1965 1970 1975 1980 1985 1990 1991 1992 1993 1994 1995 1997

18 36 38 39 39 40 42 -Trao, List 12 .5 9 35 42 45

Avg~,-tales 9 18 31 25 29(E) 34 26 23 28(E)

ImpUt Values 25 21 26 28 20 19 33

Exp6rt Values 31 25 25 36 24 23 28

Trade list prices are year-end estimates and do not reflect price fluctuations within the year. The USITC's

average sales data for 1990 are believed to be incorrect . The average price shown is based on industry estimates .

SUPPLY AND DEMAND . . . . Millions of Pounds . . . . Estimated . . . . Domestic US

HISTORICAL PROJECTED

1965 1970 1975 1980 1985 1990 1991 1992 1993 1994 1995 1997

- _T_ 617 617 __~4_5 __E'4_5 -54-5 __~65 595 Capacity 475 565 600 __~78 00

Production 327 480 425 587 537 465 513 478 538 545(E)*

Imports 9 33 40 8 61 47 33 53 34 16

Exports 29 22 -47 69 77 83 77 112 171 173

Demand 307 491 418 526 521 429 469 419 401 383 380 360

The USITC preliminary production total of 598 million pounds for 1994 appears to be greatly overstated;

thus, an industry estimate has been used instead .

AVAIIABILITY . . . Current US capacity is 565 million pounds per year, about 10% lower than the 1988 level of 622 million pounds

per year. Present capacity is believed to be more than sufficient to meet domestic demand . However, higher demand in the Far East

and plant closings in Brazil, France, and the UK have created increased export volume, which, in turn, have created some tightness

for the domestic market in the short run. Any further plant operating problems would create serious short term supply tightness ;

producers would then probably place customers on allocation . or at the very least, on sales control.
p. 2

PRODUCERS AND CAPACITIES - METHYL ETHYL KETONE - MILLIONS OF POUND S

PRODUCER LOCATION 1995 CAPACITY

Exxon Chemical Baton Rouge, LA 250

Hoechst-Celanese Pampa, TX 85

Shell'Chemical Norco, LA 230

TOTAL 565

Based on announced capacities and trade estimates . Lyondell Petrochemical closed its 72 million pound per year

Channelview, TX plant in late 1991 after a series of problems that had reduced its effective capacity during midr.

1990 . Union Carbide has produced MEK from time to time at Institute, WV to satisfy short term internal needg .

Currently, Carbide does not make MEK and has no plans to do so in the future . Exxon reportedly added abcLu t

20 million lbs/yr during the 1st Q 1995 . Shell is expanding in two stages - with 15 million lbs/yr coming on May)Qune

1995 and an additional 25 million pounds coming on incrementally over the next twelve months .

END USES. . . . Methyl ethyl ketone is a low-boiling, fast-evaporating solvent with exceptionally high solvent power fbi7~~wide variety

of materials, many of which are preferred by the surface coating industry. Virtually all natural or synthetic resiris; 'employed ip

lacquers are soluble in MEK Specifically, nitrocellulose, ethyl cellulose, cellulose acetate, cellulose acetate butyrate, acrylic resinO

vinyl acetate, and vinyl chloride-vinyl acetate copolymers. The use of MEK in a coatings formulation allows for higher solids

concentration at relatively low viscosity. MEK is typically used in blends with other solvents, such as ethyl alcohol and methyl

isobutyl ketone, the selection depending on target application and final properties desired. MEK and ethyl acetate can be used

interchangeably in certain formulations .

MEK is used in solvent-based adhesives, particularly rubber cement, paint removers, and as a solvent in dyes used for printing

on cellulose derivatives . Historically, MEK was an effective solvent in various insecticide and fungicide formulations. MEK is used

as a dewaxing agent in the refining of lubricating oil . Commercially, a mixture of 40% MEK and 60% benzene has been used for

this application.

Being the next higher homologue of acetone, MEK has many similarities, although it is not as volatile as acetone . Volatile

organic compound (VOC) regulations limit the concentration of MEK in coatings and adhesives formulations. During the late 1980s,

as new government regulations created pressure to reduce the use of all solvents in the VOC category, totally solventless coatings

were expected to gain a large share of the market . Both powder coatings and water-based synthetic resin systems were suggested

as replacements in many applications . Powder coatings have not penetrated the market to the extent previously anticipated primarily

because of relatively high capital investment and the difficulty of achieving a uniform coating thickness on parts with complicated

physical shapes . New water soluble or water dispersible resins have not yet proved to be equivalent in performance to the

solvent-soluble resins currently in use . Because of their superior performance, solvent systems are still preferred for high-quality

applications. Changes in solvent blends have been made to comply with current regulations by imposing a maximum concentration

of particular ingredients, such as MEK Substitute solvent blends used for coatings formulations include acetone, toluene, methyl

isobutyl ketone, and ethyl propionate . The acetates . ethyl acetate in particular, are major candidates for substitution .

The manufacturing process for magnetic tape uses MEK as a component of the preferred solvent system . This application is

likely to grow as an outlet for MEK, as emissions can be more easily reduced by recovery and recycling equipment than is possible

for many coatings which are applied in the field.

As a chemical intermediate, MEK is used in reactions including condensation, halogenation, ammonolysis, and oxidation .

Derivatives include perfumes, antioxidants, catalysts, and peroxides, which are used as polymerization initiators . Diacetal, a flavoring

material, is produced by the oxidation of MEK

END USE PATTERN - 1994 ESTIMATE

DERIVATIVE PERCENT

Protective Coatings Solvent 60

Adhesives Solvent 14

Magnetic Tapes 10

Lube Oil Dewaxing 5

Chemical Intermediate 5 63980000344

Printing Ink 3

Miscellaneous 3

MANUFACTURING. . . .Two different processes are currently used in the US to manufacture methyl ethyl ketone. The dominant

process, used-,by Exxon and Shell, employs the vapor phase dehydrogenation of secondary butyl alcohol . n-Butenes are first

conyerted to ~econdary butanol via sulfuric acid hydration . Dehydrogenating secondary butanol to make MEK is analogous to

producing ac6tpne from isopropanol .

Hoechst-c~lilnese makes MEK as a co-product with acetic acid via the liquid phase air oxidation of butane . The relative

economics of this process depends on the market value of other co-products which include ethyl acetate, formic acid, propionic acid,

and butyric acid. The butane oxidation process is primarily used to produce acetic acid.

An alternative process was introduced several years ago by Deutsch Texaco (now RWE AG) which converts n-butenes to

secondary butanol using a proprietary catalyst, eliminating the use of sulfuric acid .

ENVIRONMENTAL ASPECTS . . . . Methyl ethyl ketone is a flammable liquidwith a flash point of 21'F (-6*C), Tag Closed Cup . Its

vapor is irritating to the eyes and respiratory tract. At very high concentrations, MEK has a narcotic effect . It is not a primary skin

irritant and no chronic or cumulative systemic effects are known to be caused by MEYL The 1994/1995 ACGIH recommended

threshold limit value for MEK is 200 pprn based on a time-weighted eight-hour average .

To the best of our knowledge, the information contained herein is accurate . However, we

do not assume any liability whatsoever for the completeness or accuracy of this report .