A Strategic Vision for the Sustainable Growth
of our Petrochemical Business
Osamu IshitobiDirector and Senior Managing Executive Officer
Rabigh Project Office
May 2006
3
Sumitomo Chemical’s Petrochemical Milestones1691 The Besshi copper mine opens.
1913 The House of Sumitomo opens a fertilizer plant to produce fertilizers from sulfur dioxide recovered from copper smelting emissions.
1958 Sumitomo Chemical Starts petrochemical operations at its Ehime Works.
1965 Sumitomo Chiba Chemical Co., Ltd. is established and begins petrochemical operations at the Chiba Works.
1984 The Petrochemical Corporation of Singapore (PCS) begins operations.
1997 PCS commences operation of a new ethylene cracker under its 2nd-Phase expansion.
2005 Sumitomo Chemical and Saudi Aramco forms Rabigh Refining and Petrochemical Co.
6
Basic Chemicals
IT-related chemicals
Where We Want to Be ?
Petrochemicals & Plastics
Fine Chemicals
Hybrid Chemistry
A Truly Global Chemical Company
High profitability
Pharmaceuticals
Cost Competitiveness
Technological Synergy
Core Competencies
Agricultural Chemicals
Global MarketGlobal Standard
Process Development Process & Production Technology Biotechnology
Polymer Synthesis Inorganic SynthesisAnalytical Chemistry
Safety Assessment Catalyst TechnologyOrganic Synthesis
7
Sumitomo Chemical’s Petrochemical Milestones1691 The Besshi copper mine opened.
1913 The House of Sumitomo opens a fertilizer plant to produce fertilizers from sulfur dioxide recovered from copper smelting emissions.
1958 Sumitomo Chemical Starts petrochemical operations at its Ehime Works.
1965 Sumitomo Chiba Chemical Co., Ltd. is established and begins petrochemical operations at the Chiba Works.
1984 The Petrochemical Corporation of Singapore (PCS) begins operations.
1997 PCS commences operation of a new ethylene cracker under its 2nd-Phase expansion.
2005 Sumitomo Chemical and Saudi Aramco forms Rabigh Refining and Petrochemical Co.
8
Sumitomo Chemical Group's Petrochemical Products
FEEDSTOCK Monomer Derivatives
Ethylene
AcetaldehydePropylene
POAN
Butadiene
Isobutylene
MTBEMMA
Butene-1
Benzene
SM
LDPE/LLDPE
EVA
EPDM
TPEPP
Polymer Alloy
PS
Methionine
SBR
SAP
Naphtha/LPG
Toluene
Xylene
Focused on Technologically competitive productsPolyolefins, EPDM/TPE, PO (Petrochemicals Sector)
MMA, Resorcin, Methionine (Other Sectors)
Resorcin
ABS
EPPE
Gas Oil/NGL
10
Cyclical BusinessSegment Contribution to Weighted Average EBIT
Current Dollars Per Metric Ton200
Rev : Mar 2006
Reinvestment Level Earnings
PlasticsMethanolChlor-Alk.AromaticsOlefins
175
150
125
100
75
50
25
0
-25Cost & non-cost competitiveness is required to be profitable
even at the bottom of the business cycle.-50
-7585 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
11
Domestic Naphtha & SEA LDPE Price
0
100
200
300
400
500
600
700
Feb-90
Apr-91
Jan-93
Oct-94
Jul-96
Apr-98
Jan-00
Oct-01
Jul-03
Apr-05
0
200
400
600
800
1000
1200
1400
1600
Naphtha C+F JapanPlatt's Mid (US$/T)
LDPE Film Spot SEAICIS (US$/MT)
12
Polyolefin Market Forecast
Average growth of GDP and demand for polyolefin in ’05~’10
GDP PE PP note
World 4.0% 4.8% 5.5%
3.1%
8.0%
7.0%
Driven by Asian demand
Japan 2.0% (0.8%) PP grows
China 8.7% 7.6% Growing at high rates
SEA 6.3% 6.6% Growing faster than GDP
(Source METI)
• Market Maturation in Japan ⇒Market development with high-performance products
• Growing Asian Market ⇒Market entry of Global Petchem. players →Cost competitiveness is the key
• Market Maturation in Japan ⇒Market development with high-performance products
• Growing Asian Market ⇒Market entry of Global Petchem. players →Cost competitiveness is the key
13
Energy and Ethylene Demand ForecastYear 2000 → 2030 Primary Energy Demand will grow at 1.7%/Yr
Coal:1.4%Oil:1.5% (non-OECD countries grow)
Gas: 2.4%⇒ Gas demand grows faster, driven mainly by
Power Generation.⇒ Ethane production increases as LNG demand
goes up. →Surplus of heavier fuel oils(Refinery-Petrochemical integration)
Year 2000 → 2030 Primary Energy Demand will grow at 1.7%/Yr
Coal:1.4%Oil:1.5% (non-OECD countries grow)
Gas: 2.4%⇒ Gas demand grows faster, driven mainly by
Power Generation.⇒ Ethane production increases as LNG demand
goes up. →Surplus of heavier fuel oils(Refinery-Petrochemical integration)
World Primary Energy Demand
0
10
20
2000 2010 2020 2030
Billio
n t
oe
Others
Hydro
Nuclear
Gas
Oil
Coal
World Ethylene derivatives demand and ethylene source
0
20
40
60
80
100
120
140
2000 2002 2004 2006 2008 2010
Mil.
to
ns/
Yr
Others
N, GO
E, P, B
Capacity
World Ethylene Derivatives Demand and its sources
Year 2000 → 2010Ethylene Demand Growth 4.9%/Year
90 → 140M tons/Yr (+50M tons/Yr)-Gas base +30M tons/Yr (6.6%/Yr)
(Ethane、Propylene、Butane)
-Liquid base +20M tons/Yr (3.5%/Yr) (Naphtha、Gas Oil)
Gas base increase from 38 → 45%
⇒ Ethane will be the key feedstock for Petrochemical business development.
Year 2000 → 2010Ethylene Demand Growth 4.9%/Year
90 → 140M tons/Yr (+50M tons/Yr)-Gas base +30M tons/Yr (6.6%/Yr)
(Ethane、Propylene、Butane)
-Liquid base +20M tons/Yr (3.5%/Yr) (Naphtha、Gas Oil)
Gas base increase from 38 → 45%
⇒ Ethane will be the key feedstock for Petrochemical business development.
(METI and Sumitomo Chemical)
14
Planned Petrochemical Plant Expansions
New plants planned in Middle East and China through ’05~’10
0
2000
4000
6000
8000
10000
2005 2006 2007 2008 2009 2010
New Ethylene Plants planned by 2010
ME China Others
(KTA)
(CMAI)
・ Capacity grows significantly(112M tons in 2004 ⇒Over140M tons)
・ 75% of New Capacity comes from ME and China. Global Producers in US and Europe enter into Asian Market
・ Capacity grows significantly(112M tons in 2004 ⇒Over140M tons)
・ 75% of New Capacity comes from ME and China. Global Producers in US and Europe enter into Asian Market
16
Ethylene Production in Japan has grown in parallel with GDP growth
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Th
ou
sa
nd
to
ns
Trillio
n Y
en
0
100
200
300
400
500
600
Ethylene Product ion
Cars & Trucks product ions
Elect r ical products sh ipping value
GDP
Ehime Chiba PCS I PCS IIKEC RabighPSPC
1979 oil crisis1973 oil crisis
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
50
40
30
20
10
Millio
nY
en
Th
ou
sa
nd
un
its
10
3MJ
/t
E thy lene Energy Uni t Consumption
17
Improvement in Catalyst ActivityToday, 100s of times higher!
'60 '70 '80 '90 '00
Slurry PolymerisationBulk polymerisation
Gas-phaseNew Gas-PhaseDevelopment in
PP Polymerisation Process
Improvement ofproduct quality
Cost reduction due tosimplified facilities
PurchasedCat
SC-cat(DX3)
PurchasedCat
PurchasedCat
SC-cat(DX4)
SC-cat(DX5)
SC-cat(DX9)
SC-cat(EX)
Development of Sumitomo Technology (1) PP
18
'60 '70 '80 '90 '00
HP-LDPE(Autoclave)
ZN-LLDPE(Gas)
Innovation of Process &Products
Star t of LDPEProduct ion
High per formanceZN catalyst
Gas Phase Process
m-LLDPE
EPPE
EPPE(Gas)
Tubu lar Process m-LLDPE(Gas)*
HP-LDPE(Tubular)
)
ZN-LLDPE(HIP)
m-LLDPE( HIP)
Improvement ofproduct quality
Cost reduction due tosimplified facilities
*Evolue
Development of Sumitomo Technology (2) PE
19
'80 '90 '00
Solid Products, FilmLamination, Co-Injected Products
Hollow ProductsFoaming ProductsVariety of Products
CAE
In ject ion-Blow
SC Co2- In ject ion
Foaming Tech .
SP Mold
Co-In ject ion
Gas- In ject ion
CAO
Total Material Solution
New Product Devlopment
Development of Sumitomo Technology (3) Processing
20’70 ’80 ’90 ’00
Green SustainableGreen SustainableHighly Cost Competitive,Highly Cost Competitive,
Propylene oxide
HCl oxidation
Caprolactam
On-purpose process
Direct oxidation process
Low temp. processMMA
Resorcin
Hydroperoxide process
Key : Catalyst Design andProcess Development
Key : Catalyst Design andProcess Development
Development of Sumitomo Technology (4) Bulk Monomer
22
Strategic Responses to Dynamic Market Changes
Secure Reliable and Stable Supply of Feedstock
Volatile Raw Materials Market
Mature Japanese MarketLosing Cost Competitiveness
due to size and high raw material costs
Supply High Performance products
Shift to Asian MarketGrowing Asian Market
Western & Middle Eastern Players entering into Asian Market
Develop New Technology
23
Sumitomo’s Global Petrochemical Business Strategy
Rabigh PJ reinforces Sumitomo’s global petrochemical businesses
・ supplying cost-competitive products
⇒supporting the optimization of JAPAN & Singapore units’ product lines (shifting to premium & specialty products)
・ enlarging total business presence in the world market
⇒intensifying marketing network and R&D effectiveness
・ world-scale production unit
⇒enhancing Sumitomo’s proprietary technologies Commodity products
Homo/Block PP, LDPE, LLDPE, HDPE, PO
Specialty productsTPE, special ethylene-
copolymers, terpolymer PP, random PP, plastomers
Premium productsPP for automotive, EPPE
EVA
JAPAN:Focusing on specialty & premium productsMarketing globally
JAPAN:Focusing on specialty & premium productsMarketing globally
Singapore, North America:Focusing mostly onpremium productsMarketing to Asia and North America
Singapore, North America:Focusing mostly onpremium productsMarketing to Asia and North America
Saudi Arabia:Focusing on premium &commodity products, Marketing to Asia and Europe
Saudi Arabia:Focusing on premium &commodity products, Marketing to Asia and Europe
Optimizing product lines among the production sites,accelerating the expansion of Sumitomo’s global petrochemical business
Optimizing product lines among the production sites,accelerating the expansion of Sumitomo’s global petrochemical business
24
Globalization of petrochemical business
Giant step toward globalization
1958Entered Petrochemical Business – Ehime, Japan
1984Started operation at a center of emerging market - Singapore
2008New operation at a feedstock source –Rabigh
25
Rabigh Project (1)
Rabigh Project
Upgrading the world-class oil refinery at Rabigh
Upgrading the world-class oil refinery at Rabigh
Constructing a large-scale petrochemical plant
Constructing a large-scale petrochemical plant
Pursuing economies of scale and synergies from refining and petrochemical integration
Pursuing economies of scale and synergies from refining and petrochemical integration
Sumitomo Chemical’s business strategy and competitive strengths best match the Rabigh project
Securing low-cost feedstock overseasMobilizing advanced technologies in petrochemical operations
Utilizing broad marketing mainly in Asia
Ethane Feedstock
Ethane Feedstock
Significant earnings enhancement for Sumitomo’s petrochemical business
26
TopperTopper
First Step to an Integrated Complex of Oil Refining and Petrochemicals
FCCFCC
Ethane CrackerEthane Cracker
NaphthaNaphtha
KeroseneKerosene
Gas OilGas Oil
GasolineGasoline
Heavy Oil Products, etc.Heavy Oil Products, etc.
Ethylene (about 1.3 million tons/year)
Ethylene (about 1.3 million tons/year)
MEG(600,000 tons/year)
MEG(600,000 tons/year)
<Current>
CrudeOil
Butane
Ethane
Propylene (0.9 million tons/year)
Propylene (0.9 million tons/year)
PP [Block](350,000 tons/year)
PP [Block](350,000 tons/year)
Residual OilResidual Oil
【Rabigh Refining & Petrochemical Co. ( “Petro-Rabigh” ) 】
400,000 barrels/day
Easy Processing PE(250,000 tons/year)
Rabigh Project (2)
Easy Processing PE(250,000 tons/year)
C4LLDPE(350,000 tons/year)
C4LLDPE(350,000 tons/year)
HDPE(300,000 tons/year)
HDPE(300,000 tons/year)
PP [Homo](350,000 tons/year)
PP [Homo](350,000 tons/year)
PO(200,000 tons/year)
PO(200,000 tons/year)
1,200,000 tons/year
<Plan> Petrochemicals
Construction Start : Early 2006Start-up of the Complex : 2nd Half 2008
Construction Start : Early 2006Start-up of the Complex : 2nd Half 2008
27
Global Ethylene Cash Costs by Site
50100150200250300350400450500550600
0 20 40 60 80 100 120 140 160CUMULATIVE ETHYLENE CAPACITY (million tons)
(Dollars per Ton )
Ethylene Production Basis Year 2010
New Liquid Cracker
Middle East plants
28
Significance of Rabigh Project
◆ Securing competitive raw materials →Global Business development with
competitive derivative products
◆ Securing competitive raw materials →Global Business development with
competitive derivative products
Reinforcement of Sumitomo’s Business,
especially Petrochemicals
Reinforcement of Sumitomo’s Business,
especially Petrochemicals
◆ Crude Oil 400K BBL/D Ethane 1,200K Ton/Y(10% of total consumption in Japan)
◆ Crude Oil 400K BBL/D Ethane 1,200K Ton/Y(10% of total consumption in Japan)
Securing Energy Resources in Japan
Securing Energy Resources in Japan
◆ Build Industrial Park in cooperation with PetroRabigh
→ Development of Local economy◆ Proceed Rabigh PJ, in cooperation
with Saudi Aramco, with Sumitomo Chemical's various Petrochemical technology, its down stream expertise and collaboration with Sumitomo Chemical’s group companies
◆ Build Industrial Park in cooperation with PetroRabigh
→ Development of Local economy◆ Proceed Rabigh PJ, in cooperation
with Saudi Aramco, with Sumitomo Chemical's various Petrochemical technology, its down stream expertise and collaboration with Sumitomo Chemical’s group companies
Sustainable Industrialization in Saudi Arabia
Sustainable Industrialization in Saudi Arabia
29
Business Strategy for Polyolefins
Improving Profitability of Petrochemicalsthrough Various Initiatives
Improving Profitability of Petrochemicalsthrough Various Initiatives
(Unit : 1000 tons/yr)
PP(360)
Metathesis Project ( Increasing Production of Propylene )
Converting LLDPE Plant to PP Plant
Closing Small PP Facilities to Build a LargerCapacity Plant
(Japan)
(Singapore)
Shift to Higher Value-AddedProducts( e.g. Production of TPE)Converting LLDPE Plant to EPPE Plant
(After PP Plant Conversion)
PP(650)
LDPE(250)
LLDPE(183)
PP(338)
LDPE(172)
( * Including EPPE Production)**
EPPE(250)
HDPE(300)
LLDPE(350)
PP(700)
(Saudi Arabia)
(North America)
Converting LLDPE Plant to EPPE Plant
World scale cost competitive plants
30
TPC’s Higher Value-Added Products Strategy
EVA
7%
Random PP12%
Block PP
25%LDPE
25%LLDPE16%
Homo PP
15%
1997 2004
LLDPE to PP Plant Conversion
Production of EMMAValue Added Products
Ratio :56%
2010
Block PP
32%
Random PP
17%
EVA 4%EMMA 3%
LDPE 20%
Homo PP24%
Block PP
18%
Random PP
5%
EVA
4%
LDPE 32%
LLDPE17%
Homo PP24%
Value Added Products Ratio :45%
Value Added Products Ratio:27%
※①Random PP includes Ter-polymers
②Block PP includes PP compound
31
Strategic Customer Support
CustomersCustomers
Material SolutionMaterial Solution Processing SolutionProcessing Solution
PolymerDesign
Monomer
PolymerizationCatalyst
Analysis
PolymerizationProcess
SyntheticRubber
Elastomer
PolymerAlloy
ProductDesign
ProcessingMethod
PracticalEvaluation
CAE, CAO
32
Prop
erty
of P
rodu
cts
Goo
d(M
echa
nica
l str
engt
h, S
eala
bilit
y et
c.)
Processability Good(Extrusion pressure, Bubble stability)
High pressure LDPE
Metallocene L-LDPE
Applications of Sumitomo PE
Ziegler catalyzedL-LDPE EPPE
33
Requirement for Automotive Parts and Performance of PP
Fle xu r al M o d u lus (Kg/c m2)2 0 4 00 6 0 9 0
Izod
Impa
ct(K
g・cm
/cm
2 )
(23℃
)
5
1 0
5 0
Bum pe r
Inte rior Pa ne l
E ngine room pa rts
He a ter Case parts
Trim
PP C omposite
PP
P PE Alloy
ABSABS /G F
2
2 0
(× 10 3)
Expansion of Automotive Parts applications through PP Technology
34
Development of High-Performance Polymers
""World Class"World Class"CatalystCatalyst//CoCo--catalystcatalyst
Design & Synthesis TechnologyDesign & Synthesis Technology
ActivityActivity Comonomer Comonomer DistributionDistributionControlControl
High StiffnessPP
Soft Type PP
New EasyProcessing PE
BimodalHAO-LL
UnimodalHAO-LL
StereoStereo-- regularity regularity ControlControl
PolymerizationPolymerizationProcessProcess
Catalyst Morphology Catalyst Morphology ControlControl
35
0
100
200
300
400
500
600
700Sumitomo New PO ProcessSecond Plant in Rabigh
76 84 86 88 90 92 94 96 98 00 02 04 06 08 10-----
Sumitomo New PO ProcessFirst Plant in Chiba
PO/SM Plant in Chiba(licensed by Lyondell)
De-bottleneckingsthrough process improvement
De-bottleneckingof new PO plantK
TA
Sumitomo-Nihon OxiranePO Capacity
Chlorhydrin On purpose productionCumene, (H2O2)
(Direct oxidation)Co-productionPO/SM, PO/TBA
√ waste water√ market conditionof co-product
Establishment of PO Platform
36
A Strategic Vision for the Sustainable Growth
Secure Reliable and Stable Supply of Feedstock Rabigh Project
Supply High-Performance products
PP Composite, Soft Type PPHigh Stiffness PP, EPPE TPE, Special Copolymer
Enhancing Marketing Ability based in SingaporeShift to Asian Market
Developing New TechnologySustainable TechnologyCustomer-oriented Technology