Oulook for North America’s Polyolefin Industry:
Opportunities & Threats
Plastic News Executive ForumMarch 5-7, 2018Naples, Florida
Esteban Sagel, Principal [email protected]
ChemPMC: Your Research Partner• Founded in 2015
• More than 20 years of experience throughout the petrochemical industry value chain, spanning chemical producers, polymer converters and consumer product companies
• Three areas of expertise: Market Research; Supply, Demand and Price Forecasting and Modeling; Training
• Additional information: www.chempmc.com
Why are we here today?
• First, will briefly review the North American polyolefins industry’s last five years, with a special focus on polyethylene
• This will lead to an overview of what’s changing in the industry, particularly from a supply standpoint
• Will attempt to put in perspective those changes, as a way to introduce what opportunities and risks they may represent
• Will briefly review the polypropylene case, to finalize with a short list of what I would be following/checking/keeping up to date with, if I were a polyolefin converter…
That said… Let’s start at the end
• What you should be following/checking/keeping up to date with?
• North American projects timing, delays & cancellations –showcase producers’ expectations
• Asian projects delays & cancellations – can improve imports into Asia, delaying impact of new capacity in prices
• China demand or China imports – how much is that market coming to the rescue?
• China prices, North American spot prices & your prices –question your contracts… are you getting the best deal possible? Invest in pricing information, particularly overseas data.
• Who’s moving materials for producers? Become their best friends
• Check the weather; in active hurricane seasons, inventories will be your best friend. Cover your basic needs, and don’t follow the panic.
Polyethylene: Steady as she goes…
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2006 2008 2010 2012 2014 2016
North American Poyethylene Excess Capacity Growth
Change in Demand Change in Capacity
Cumulative Excess Capacity Growth
KT KT
Sources: ACC, ITC, ChemPMC Estimates
Result: Happy Producers!
0
10
20
30
40
50
60
70
80
90
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
North America HDPE Prices and Costs
Integrated Cash Costs (ethane)
Non-Integrated Cash Cost (Spot Ethylene)
HDPE Discounted Contract North America
CPP
Sources: ChemOrbis (olefins), TradingView & EIA (Natural Gas & NGL), ChemPMC Estimates
Everybody Joins the
Party
Sources: ChemPMC
Expected Start Up Company Type of Project State/Province HDPE LDPE LLDPE UHMW
HDPE
2016 Nova Chemicals New Plant AB 450
2017 Braskem New Plant TX 50
ChevronPhillips New Plant TX 500 500
Dow Chemical New Plant TX 400
Exxon Mobil New Plant TX 1300
2018 Dow Chemical New Plant TX 350
Formosa New Plant TX 626
Sasol & Ineos JV New Plant TX 470
2019 Dow Chemical New Plant TX 320
LyondellBasell New Plant TX 500
Sasol New Plant LA 420 450
2020 Exxon Mobil New Plant TX 650
2021 ExxonMobil & Sabic JV New Plant TX 1300
Shell New Plant PA 1050 550
2022 Dow Chemical New Plant Unidisclosed 600
Formosa New Plant LA 600 400
Nova Chemicals New Plant ON 450
Nova, Borealis & Total JV New Plant TX 625
Polyethylene: Big Bang Theory
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2006 2008 2010 2012 2014 2016 2018 2020 2022
North American Excess Capacity Growth
Change in Capacity Change in Demand Cumulative Excess Capacity Growth
KT KT
Sources: ACC, ITC, ChemPMC Estimates
Export, We Must!
0
10
20
30
40
50
0
5,000
10,000
15,000
20,000
25,000
30,000
2005 2008 2011 2014 2017 2020
Exports Share of Production
Exports Production Exports Share of Production
KT %
Sources: ACC, ITC, ChemPMC Estimates
Domestic Market: Not Coming To The Rescue
0
500
1,000
1,500
2,000
2018 2019 2020 2021 2022
Growth in Exports Vs. Growth in Domestic Demand
Growth in Exports Growth in Domestic Demand
KT
Sources: ACC, ITC, ChemPMC Estimates
How Are we Going to Move this Material?
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000
Others
Oakland, CA
Freeport, TX
Norfolk Harbor, VA
New Orleans, LA
Savannah, GA
Charleston, SC
Los Angeles, CA
Long Beach, CA
New York, NY and NJ
Houston, TX
Top 10 US Ports by Plastic Volume, 2015 (TEU)
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
0
20,000
40,000
60,000
80,000
100,000
2017 2018 2019 2020 2021 2022
Increase in Seaborne Exports, Polyethylene
Annual Increase, LHA Cumulative, RHA
TEU TEU
Sources: U.S. Army Corps of Engineering Navigation Data Center, ChemPMC estimates
Largest polymer-exporting ports
Additional Logistical Issues
• Freight Rates
• Packaging Facilities
• Road conditions/last mile congestion
• Trucker availability
• Availability of empty containers
• Vessel capacity/Vessel availability for destination ports
Opportunities & Risks -Pricing
• Inability to export all the material/product backing up into North American Market
• Negative pressure on producer margins and prices
• North American contract premium decreasing?
• Current contract prices at a premium over global prices
• Can this premium survive?
• Spot Prices to align with global prices; time to move into Spot?
• Weather: Concentration of capacity in USGC
• Short-term distortions related to logistics
45
50
55
60
65
70
75
80
85
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
HDPE Global Prices
US Domestic DiscountedUS Domestic SpotChina CFR
CPP
Sources: ChemOrbis (China Prices), ITC & ChemPMC Estimates
Opportunities & Risks -Feedstocks
0
5
10
15
20
25
Feedstocks
Brent WTI
Natural Gas Henry Hub Propane Mont Belvieu
Ethane Mt. Belvieu
$/MM BTU
0
5
10
15
20
25
30
35
Crude to Gas Ratio
Crude to Gas
Crude to Ethane
MMBTU Content Per Barrel
Sources: ChemOrbis (Brent), TradingView & EIA (WTII, Natural Gas & NGLS), ChemPMC Estimates
Other Risk Factor: China
0
2000
4000
6000
8000
10000
2001 2004 2007 2010 2013 2016
China Scrap Imports
Scrap Imports All Plastics
Polyethylene Scrap Imports
KT
0
5000
10000
15000
20000
2001 2004 2007 2010 2013 2016
China PE Imports
Virgin Scrap
KT
Sources: ITC, ChemPMC Estimates
Polypropylene: A Different Story…
Limited Investment
Propylene Volatility
High P/E Ratio
0
20
40
60
80
100
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Global PP and North American Propylene Prices
US Domestic Discounted US Domestic Spot China CFR PGP Spot Domestic
CPP
0
0.5
1
1.5
2
2.5
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
Sep
-16
No
v-1
6
Jan
-17
Mar
-17
May
-17
Jul-
17
Sep
-17
No
v-1
7
Jan
-18
P/E Ratios
USA ASIA
Sources: ChemOrbis (China Prices, Olefins), ITC & ChemPMC Estimates
Self-Sufficient China
0
1000
2000
3000
4000
5000
6000
2001 2004 2007 2010 2013 2016
China PP ImportsKT
Sources: ITC, ChemPMC Estimates
And now: Lets Finish Where We Started!
• What you should be following/checking/keeping up to date with?
• North American projects timing, delays & cancellations – showcase producers’ expectations
• Asian projects delays & cancellations – can improve imports into Asia, delaying impact of new capacity in prices
• China demand or China imports – how much is that market coming to the rescue
• China prices, North American spot prices & your prices – question your contracts… are you getting the best deal possible? Invest in pricing information, particularly overseas data.
• Who’s moving materials for producers? Become their best friends
• Check the weather; in active hurricane seasons, inventories will be your best friend. Cover your basic needs, and don’t follow the panic.
See you at the International Petrochemical Conference in San AntonioQuestions? Comments? [email protected]
Detailed white paper available at www.chempmc.com
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