Caustic Soda Market Information

Sunny Jian

Sales Director

Formosa Plastics Corporation

Global GDP Growth Forecast 2010~2020

1

The International Monetary Fund is sounding louder and louder alarms about the state of the global economy.

The IMF’s latest reading of the global economy shows once again a weakening baseline.

Slow trade and investment UK's exit from the Eurozone China's structural reform U.S. Fed will raise the interest rate

Oil Price Forecast

$50 up

& down

0

20

40

60

80

100

120

140

Jan 2015 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017

West texas intermediate (WTI) crude oil price dollars per barrel

Historical spot price

STEO price forecast

NYMEX futures price

95% NYMEX futures upper confidence interval

95% NYMEX futures lower confidence interval

Source: Short-Term Energy Outlook, September 2016.

Note: Confidence interval derived from options market information for the 5 trading days ending Sep 1, 2016. Intervals not calculated for months with sparse trading in near-the-money options contracts.

2

95.81 96.04

97.01

94.04

95.33

96.67

91

92

93

94

95

96

97

98

99

100

2015 2016 2017

YEAR 2015 2016 2017

OECD 26.82 26.35 26.51

NON-OECD 68.99 69.69 70.50

Global Crude Oil Supply 95.81 96.04 97.01

OECD 46.41 46.53 46.60

NON-OECD 47.63 48.80 50.07

Global Crude Oil Demand 94.04 95.33 96.67 3

Source : US Energy Information Administration(EIA)

(Crude Oil Demand)

(Crude Oil Supply)

Unit: MM barrel/day

2015-2017 Crude Oil Supply Demand Balance

Data updated in Oct,2016 3

Average shale wellhead breakeven prices are below 40 USD/bbl

Cost down improved by technical improvement is quite limited. 2015:15~18% 2016:3~5%

4

Oil Production at Major Shale Fields

A two years price rout has led U.S. shale producers to increase efficiency

5

The Factor that Supporting U.S. Oil Production Flexibility (1)

Cost Down is the major factor

Technical Improvement：Drilling on the same rig 、50 grade fracking、Cluster

drilling、Proppant over 2000 pound in each foot 。

Financial Support

Oil company can issue stock、bond and debt recovery。

Chapter 7：Company liquidation

Chapter 11：Corporate reorganization

6

Plenty of U.S.DUCs become the buffer when Oil production going down DUCs(Drilled Uncompleted Wells)-Finished drilling but not yet fracking.

DUCs increased a lot in the end of 2014

Cost accounts for 60~70% of total cost, under financial strain, postpone of DUCs is the best workable solution。

DUCs on Oct,2016: 5,031 wells

Land Lease (HBP-held by production) Oil lease is divided by two steps

The first lease：Lessee needs to start the drilling activity or get the oil/gas production to hold the lease.

The second lease：If production stops for 90 days, then the second lease will be terminated.

The Factor that Supporting U.S. Oil Production Flexibility (2)

7

Factors of Oil Output Declining

The decay rate of Shale Oil is high The first year decay rate reach 60%

Stable output need more new wells to supplement

Less investment、New Oilwell is decreasing The expenditure of top 30 U.S. oil company in 2016 is less than 2015

by 70%.

2,014：4500 rig，2,015：4000 rig。

A large number of corporate bankruptcies Market forecast there will be one-half U.S. Shale oil company bankrupt

during the low oil price.。

8

U.S. Oil Production V.S. Oil Price

In case, Oil price keep around 40 USD/Barrel : U.S. oil production will be reducing。

2015/4：968 million barrel/day

2015：943 million barrel/day

2016：860 million barrel/day

2017：804 million barrel/day

Oil company cut back investment ,the quantity of drilling machine reached to the lowest level historically.

In case, Oil price keep around 50 USD/Barrel : Production will reduce or maintain, oil company can maintain

operation or re-investment.

In case, Oil price keep around 60 USD/Barrel : Production will increase

9

Oil Price and U.S. Dollar Index

0

20

40

60

80

100

120

140

160

60

70

80

90

100

110

120

Jan

-95

Au

g-9

5

Mar

-96

Oct

-96

May

-97

De

c-97

Jul-

98

Feb

-99

Sep

-99

Ap

r-0

0

No

v-0

0

Jun

-01

Jan

-02

Au

g-0

2

Mar

-03

Oct

-03

May

-04

De

c-04

Jul-

05

Feb

-06

Sep

-06

Ap

r-0

7

No

v-0

7

Jun

-08

Jan

-09

Au

g-0

9

Mar

-10

Oct

-10

May

-11

De

c-11

Jul-

12

Feb

-13

Sep

-13

Ap

r-1

4

No

v-1

4

Jun

-15

Jan

-16

Crude Oil Price(W.T.I.)

Index January 1997=100

U.S. Dollar Index

U.S. Dollar Index Crude Oil Price(W.T.I.)

10

CRUDE OIL (USD/Barrel)

NAPHTHA (USD/MT)

ETHYLENE (USD/MT)

25 235 447

30 280 508

35 325 569

40 370 630

45 415 690

50 460 751

60 550 873

70 640 994

80 730 1,116

90 820 1,237

100 910 1,359

Ethylene Production Cost

Asia Ethylene

Market price

in Oct. 2016

1,050 USD/MT

11

10 cracker projects were already

confirmed as of Jun 2016

Likely that more than 2.5mil ton

ethylene from these crackers will be

surplus in U.S.

U.S. Cracker Demand is less than Supply after Expansion

12

PE Surplus !

Global Ethylene Supply and Demand & Forecast

Capa, Demand (KMT) Operating Rate %

90%

91%

83%

84%

85%

86%86%

87%87%

91%

90%

90%

89%

88%

87%

78%

80%

82%

84%

86%

88%

90%

92%

94%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Capacity Demand Operation

13 Approximately 3million tons Chinese CTO/MTO are planned on stream in 2016~2017.

Ethylene Price Trend

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Platt’s CFR NEA(USD/MT)

14

Ethylene Process PVC

Carbide Process PVC

Carbide Process PVC (Inner Area)

Ethylene Process PVC (Costal Area)

Reduce Caustic Soda

Export

Who’s the next champion ?

15

Capa, Demand (KMT)

16

World PVC Supply & Demand

2015, 62,401

2016, 61,520

87%

75%

72% 75%

71% 69% 68%

66% 67% 69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Capacity Demand

Operating Rate %

Global PVC oversupply ,operation is lower.

PVC expansion is getting slower.

16

UNIT: KMT 2010 2011 2012 2013 2014 2015 2016 (E)

Capacity 29,587 30,696 32,599 33,926 33,035 32,692 31,392

Production 19,150 20,590 20,852 23,019 23,983 24,274 24,428

Demand 19,012 20,469 21,049 22,677 23,497 24,118 24,603

Demand/Capa 64% 67% 65% 67% 71% 74% 78%

Asia PVC Supply & Demand

UNIT: KMT/Year

17

64% 67% 65% 67%

71% 74% 78%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010 2011 2012 2013 2014 2015 2016

Capacity Production Demand Demand/Capa

2009 2010 2011 2012 2013 2014 2015

Capacity 17,805 20,430 21,630 23,410 24,760 23,890 23,480

Production 9,065 11,300 12,952 13,416 15,295 16,296 16,280

Import 1,715 1,297 1,148 1,060 915 808 820

Export 239 225 386 395 662 1,111 780

Demand 10,541 12,372 13,714 14,081 15,548 15,993 16,125

Growth rate 16% 17% 11% 3% 10% 3% 1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

5,000

10,000

15,000

20,000

25,000

30,000

2009 2010 2011 2012 2013 2014 2015

產能 生產量 進口 出口 需求 需求成長率 Production Import Export Demand Demand Growth

2009-2015 China PVC Balance

UNIT: KMT/Year Capacity

18

2004 ... 2009 2010 2011 2012 2013 2014 2015

Capacity 7,147 ... 7,316 7,314 7,734 7,779 7,779 7,847 7,892 Production 6,645 ... 5,647 6,178 6,331 6,719 6,751 6,592 6,836 Export 691 ... 2,128 2,732 2,927 3,018 2,924 2,665 2,675

Demand 6,230 ... 3,675 3,660 3,647 3,957 4,085 4,168 4,351 Growth Rate 7% ... -16% -0.4% -0.4% 9% 3% 2% 4%

UNIT: KMT/Year

2009-2015 U.S. PVC Balance

Capacity Production Export Demand Demand Growth

19

U.S. and Canada Monthly PVC Domestic Sales

20

U.S New Housing Starts

0

500

1,000

1,500

2,000

2,500

20

00

-01

-01

20

00

-06

-01

20

00

-11

-01

20

01

-04

-01

20

01

-09

-01

20

02

-02

-01

20

02

-07

-01

20

02

-12

-01

20

03

-05

-01

20

03

-10

-01

20

04

-03

-01

20

04

-08

-01

20

05

-01

-01

20

05

-06

-01

20

05

-11

-01

20

06

-04

-01

20

06

-09

-01

20

07

-02

-01

20

07

-07

-01

20

07

-12

-01

20

08

-05

-01

20

08

-10

-01

20

09

-03

-01

20

09

-08

-01

20

10

-01

-01

20

10

-06

-01

20

10

-11

-01

20

11

-04

-01

20

11

-09

-01

20

12

-02

-01

20

12

-07

-01

20

12

-12

-01

20

13

-05

-01

20

13

-10

-01

20

14

-03

-01

20

14

-08

-01

20

15

-01

-01

20

15

-06

-01

20

15

-11

-01

20

16

-04

-01

Data：U.S. Department of Commerce：Census Bureau

Unit: Thousand Unit(Adjusted to Annual Rate)

21

2009 2010 2011 2012 2013 2014 2015 Capacity 1,195 1,345 1,360 1,360 1,450 1,495 1,550 Production 1,018 1,210 1,220 1,210 1,210 1,324 1,357 Import 828 786 798 1,010 1,066 1,239 1,282 Export 15 15 40 5 1 1 1 Demand 1,831 1,981 1,978 2,215 2,275 2,562 2,638 Growth Rate 26% 8% -0.15% 12% 3% 13% 3%

UNIT: KMT/Year

2009-2015 Indian PVC Balance

Capacity Production Import Demand Demand Growth

22

Global PVC Trading Flow in 2015

N.America Export: 2,244 Import： 190

Taiwan Export：1,114 Import： 27

Japan Export：598 Import： 7

Korea Export：690 Import： 75

Russia Export：47 Import： 223

China Export：780 Import： 820

Turkey Export：8 Import： 792

Brazil Export：73 Import：322

India Import：1,282

Bangladesh Import：129

Mexico Export: 304 Import： 282

Australia & New Zealand Import：98

UNIT: KMT/Year

23

Caustic Soda New/Closed Capacity

After 2017,very few expansion and much closure of Caustic Soda !!

-1000

0

1000

2000

3000

4000

5000

6000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

North East Asia South East Asia Middle East Indian Subcontinent

West Europe Central Europe CIS & Baltic States Africa

North America South America

24

China Liquid Caustic Soda Export

0

50,000

100,000

150,000

200,000

250,000

Unit : DMT

Export volume is on the downward trend

25

-300

-250

-200

-150

-100

-50

0

50

100

150

0

50,000

100,000

150,000

200,000

250,000

Jan

-06

Ap

r-0

6

Jul-

06

Oct

-06

Jan

-07

Ap

r-0

7

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

China Export Volume China Domestic Price Deduct Export Price

Unit：KDMT Unit：USD/DMT

China Caustic Soda Export V.S. Domestic Price

26

Caustic Soda Trade Flow

Australia Capacity： 159 Demand： 2,171 Import： 2,250

North America Capacity：16,233 Demand：11,899 Import： 1,226 Export： 2,611

China Capacity： 39,520 Demand： 28,856 Export： 974

Middle East Capacity： 3,050 Demand： 1,546 Export： 828

Unit：KDMT

S.E.Asia Capacity：2,358 Demand：2,435 Import：379

Japan Capacity： 4,927 Demand： 3,180 Export： 650

Korea Capacity： 2,095 Demand： 1,288 Export： 572

Taiwan Capacity： 1,908 Demand： 1,270 Export： 533

South America Capacity：2,626 Demand：3,623 Import：1,970

To USWC & CAWC

90 $/DMT To S.E.Asia

50~60$/DMT To Australia

35~40$/DMT

India Capacity：3,200 Demand：3,313 Import： 421

West Europe Capacity：11,138 Demand： 9,152 Import： 385 Export： 415

27

Caustic Soda New Project in the future

Country Producer Current Capacity

Expansion Capacity After

Expansion Complete Schedule

U.S. Shintech 1,060 200 1,260 <Vinyl> 2016

Indonesia Asahimas 480 200 680<Vinyl> 2016 Q1

Korea

Hanwha 970 +130 -200

900<EDC> 2017

LG 510 50 560<SAP> 2017

Saudi Arabia Al-Qahtani 0 250 250 2017

Qadar QVC 350 350 700 2018

Unit: KDMT

28

Alumina New Project Unit:10KMT

Country Company's name Location Alumina Original Capacity

Alumina Capacity

after Expansion

Additional Capacity

Caustic Consumption

Building Day

Complete Day

Indonesia Antam Kalimantan 0 15 15 2 2011/Q2 2015

Vietnam Vinacomin Lamdong &

Nhan Co 60 120 60 5 2009 2015/Q4

Indonesia Hong Qiao Group Kalimantan 0 200 200 20 2013 2016

India Nalco Damanjodi 210 310 100 12 2015 2016

UAE EGA(Emirate Global

Aluminium) Abu Dhabi 0 400 400 40 2015 2017

Indonesia Antam & Inalum Kalimantan 0 200 200 20 2016/Q2 2019

Indonesia Smelter Grade Alumina

Refinery(SGAR) Kalimantan 0 200 200 22 2016 2019

Guinea Guinea Aluminia Corporation,GAC

Guinea 0 400 400 40 2017 2022

Guinea Rusal Friguia 0 100 100 10 2017 2026

Total 270 2045 1775 181

Approximately 6,150KMT new Alumina project are located in Indonesia 29

-140.0

-120.0

-100.0

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

0

50

100

150

200

250

300

350

20

16

-02

20

16

-03

20

16

-04

20

16

-05

20

16

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20

16

-07

20

16

-08

20

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20

16

-10

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16

-11

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-12

20

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-01

20

17

-02

20

17

-03

20

17

-04

20

17

-05

20

17

-06

20

17

-07

20

17

-08

20

17

-09

20

17

-10

20

17

-11

20

17

-12

20

18

-01

20

18

-02

20

18

-03

20

18

-04

20

18

-05

20

18

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20

18

-07

20

18

-08

20

18

-09

20

18

-10

20

18

-11

20

18

-12

Cl2 Value in EDC EDC CFR NEA C2 cost( Spot C2 *0.29)

Estimate ethylene price will reduce further due to additional expansion form U.S. EDC Chlorine Value should become positive after 2018 .

Forecast of Chlorine Value in EDC

30

U.S. Caustic export to AU is increasing

Unit : DMT 31

19,736

0

80,856

29,605

9,593

35

20,000

21,012

39,653

9,916

15,013

51,141

10,087

30,443

60,528 60,040

10,012

30,469

62,571

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Australia Delivery Price Comparison

Unit : USD/DMT

200

250

300

350

400

450Ja

n-1

4

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

CFR Australia(From N.E.Asia) CFR Australia(From U.S.Gulf)

32

Europe Becomes a Net Caustic Importer

33

33

The Price of China PVC & Caustic Soda are booming

Environmental Protection Inspection Paris Climate Agreement signature by China &

U.S. Central Government send specialist to local for

strictly environmental protection inspection. Penalty and sent to jail China new solid, liquid and gaseous state emission

measure

34

The Price of China PVC & Caustic Soda are going up

New Transportation Regulation Enforcement period:2016/9/21~2017/7/31 Many trucks are unable to get on the high way Overloading is strictly forbidden Freight rate dramatically increase by 30%

Coal Price is increasing De-capacity and freight rate increase Normal coal increase by 250 RMB/Ton or more High quality coal increase by 500 RMB/Ton

35

China’s low cost advantage no longer exit

Cost and price will keep at high level

High coal price

High freight cost

Strictly Environmental request

PVC & Caustic Soda expansion are forbidden

PVC & Caustic soda export will be less and less

36

Conclusion

Reasonable Oil price should be lower than 60 USD/Barrel.

Ethylene price should be much lower than now. Carbide process PVC lose competiveness Global Caustic Soda will become shortage European de-capacity Reducing export from China Increasing demand from S.E.Asia and India

Obviously positive future for Asian Chlor-Alkali market

37

38