global macroeconomic outlook and key trends in petrochemicals

Global macroeconomic outlook and key trends in petrochemicals

Joseph Chang, Global Editor, ICIS Chemical Business

APLA virtual annual meeting 2020

30

35

40

45

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55

60

65Ju

l-0

8

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

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Jan

-17

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Jan

-18

Jul-

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Jan

-19

Jul-

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Jan

-20

Jul-

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US

Eurozone

China

EXPANSION

CONTRACTION

NOTE: Figures through Sep 2020, US = ISM, Eurozone = IHS Markit, China = Caixin

US leads withall 3 regions nowIn expansion

Global Manufacturing PMI

5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

Jan

-07

No

v-07

Sep

-08

Jul-

09

May

-10

Mar

-11

Jan

-12

No

v-12

Sep

-13

Jul-

14

May

-15

Mar

-16

Jan

-17

No

v-17

Sep

-18

Jul-

19

May

-20

US light vehicle sales (SAAR)

Source: US Bureau of Economic Analysis (BEA)

US automotive and housing – V-shaped recovery

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan

-07

No

v-07

Sep

-08

Jul-

09

May

-10

Mar

-11

Jan

-12

No

v-12

Sep

-13

Jul-

14

May

-15

Mar

-16

Jan

-17

No

v-17

Sep

-18

Jul-

19

May

-20

US housing starts (SAAR)millions thousands

Source: US Census Bureau

-18%

-79%

-43%

+0.5% +9%+12%

+17% +12%

+13%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan Feb Mar Apr May Jun Jul Aug Sep

China vehicle sales

2019 2020

Source: China Association of Automobile Manufacturers (CAAM)

China, Europe automotive trends

millions

Source: European Automobile Manufacturers Association (ACEA)

-8% -7%

-55%

-76%-52% -22%

-6%

-19% +3%

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Jan Feb Mar Apr May Jun Jul Aug Sep

EU passenger car registrations

2019 2020

1st YoY gain

millions

6 consecutive months of YoY gains

Brazil automotive market – less robust recovery

5

20

70

120

170

220

270

320

370

Brazil light vehicle sales

10% 15%-12%

-74%-73%

-36%-21% -15% 0%

0

50

100

150

200

250

300

Jan Feb Mar Apr May Jun Jul Aug Sep

Brazil light vehicle sales

2019 2020

thousands thousands

Source: ANFAVEA (National Association of Vehicle Manufacturers)

Latin America vs World – GDP recovery 2021

6

-4.4%

-5.8%

-3.3%

-8.1%

5.2%

3.9%

6.0%

3.6%

-9.0%

-7.0%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

World Advanced Emerging Latin America

GDP % change

2020 2021

Source: International Monetary Fund (IMF)

Key trend – oil, chemical companies slash capex

• Even pre-coronavirus, crude oil collapse leads to big capex cuts by oil companies, also impacting their petrochemical expansion plans

• Chemical companies also cutting capex heavily

• Projects slowed/delayed -LyondellBasell Texas PO/TBA, ExxonMobil deferring new projects

• Final investment decisions (FID) slow to come, if at all

• Sharpens investment focus

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CompanyCapex 2020

original

Capex 2020

revised% Change

Shell $25bn $20bn or less -20%

Chevron $20bn $14bn -30%

Saudi Aramco $35-40bn $25bn -33%

ExxonMobil $33bn $23bn -30%

Total $18bn <$15bn -17%

Eastman $450-475m $325m -30%

LyondellBasell $2.4bn $1.9bn -21%

Dow $1.5bn $1.25bn -17%

Westlake $675m $525m -22%

Huntsman $300-325m $225-235m -26%

Key trend – ‘minimizing molecular tourism’ (keep it local)

• Shift in mindset and investment dollars to localization of supply

• Drivers include:

o Supply disruptions brought into greater focus amid Covid

o Tariffs and trade uncertainty

o Logistics costs – freight, storage

• For PE, PP, that means more direct investment in China, India

o Saudi Aramco/ADNOC target India for mega project

o ExxonMobil’s next major project in Guangdong, China

o Russia’s SIBUR starts construction on 2.3m tonnes/year PE, 400kt PP capacity in East – close to border with China

o LyondellBasell/Bora JV in China (800kt PE, 600kt PP)

o “The thesis around that investment is producing in China, for China” – LyondellBasell CEO Bob Patel

8

Top: Saudi Aramco/ADNOC India JV

Bottom: LyondellBasell Bora China JV

US ethylene capacity additions

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

9Source: ICIS Supply and Demand Database, as of Oct 2020

‘000 tonnes/year

1st wave

2nd wave10.9m tonnes/year

4.8m tonnes/year

China ethylene capacity additions

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

10Source: ICIS Supply and Demand Database, as of Oct 2020

‘000 tonnes/year

During US 1st wave During US 2nd wave

9.2m tonnes/year16.4m tonnes/year

US vs China ethylene capacity additions

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

2017-2019

11Source: ICIS Supply and Demand Database, as of Oct 2020

‘000 tonnes/year

US outpaces

China outpaces2020-2024

Key trend – European oil majors pivot to green energy

• Total, BP in massive pivot to green energyo Solar, wind, EV batteries, EV charging stations, biofuels,

hydrogen

• Drivers include:o EU’s European Green Deal – zero net GHG emissions by

2050o Rapid electric vehicle (EV) adoption to dramatically reduce

oil demando Future growth of plastics recycling

• Implications for petrochemicalso More oil companies may de-prioritize chemicals investment

in favor of green energyo Refinery shutdowns and conversions to bio-refineries to

reduce naphtha supply for petrochemicals in some regionso Less need for new crackers IF more plastics recycling

o Total sees plastics recycling rates rising from 7% today to 40-50% by 2050, reducing need for virgin plastics

12

Recent bio-refinery conversion announcements

13

Renewables offer an simpler step to stay in a traditional space, limit investment and fit into the environmental shift. COVID-19 has spurred a number of refiners to make this step.

Company Location Project Capacity Notes

Marathon Petroleum Martinez, California, USPotential conversion to

renewable fuels48 kbd

Closure of existing

refinery (166 kbd)

Total Grandpuits, FranceConversion to

renewable fuels7 kbpd

Closure of existing

refinery (101 kbd)

Phillips 66 Rodeo, California, USConversion to

renewable fuels52 kbpd

Closure of existing

refinery (76 kbd)

HollyFrontier Cheyenne, Wyoming, USConversion to

renewable diesel13 kbpd

Closure of existing

refinery (45 kbd)

Source: ICIS Analytics