Global Fibres Overview

(Michelle) Yang Qin

Synthetic Fibres Raw Materials Committee Meeting at APIC 2014

Pattaya, 16 May 2014

• Historical and Forecast Man Made Fibre Production

• Cotton Market Trends

• Impact of Polyester Over-Capacity

• Expected Fibre Market Trends

• Conclusions

Source: Tecnon OrbiChem

APIC 2014

AGENDA

Source: Tecnon OrbiChem

R2 = 0.974

R2 = 0.977

15

25

35

45

55

65

75

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

Demand (Million Tons)

GDP (Billion 2000 $)

APIC 2014

WORLD FIBRE DEMAND vs GDP

0

20

40

60

80

100

120

140

160

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Million Metric Tons

Source: Tecnon OrbiChem

Polyester Fibre

Polyamide Fibre

Acrylic Fibre

PolypropyleneFibre

Cellulosic Fibres

Cotton

Wool

APIC 2014

WORLD FIBRE PRODUCTION 1980-2025

• World fibre production has excellent correlation with GDP which we use as basis for projections to 2025

• Total fibre production expected to grow 3.7% per annum to 2025

• Global 2013 fibre production estimated at 85.5 million tons

• Global 2013 synthetic fibre production estimated at 55.8 million tons (i.e. excluding cotton, cellulosics and wool)

• Global synthetic fibre volume growth is 98%+ of future total fibreproduction increases

• Polyester (filament and staple) makes up 95%+ of future global synthetic fibre production growth

APIC 2014

WORLD FIBRE PRODUCTION TRENDS

Source: Tecnon OrbiChem

0

8

16

24

32

40

48

56

64

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Million Metric Tons

North America

South America

West Europe

East Europe

ME & Africa

S & SE Asia

Northeast Asia

China

Source: Tecnon OrbiChem

APIC 2014

WORLD POLYESTER FILAMENT PRODUCTION

• Polyester filament growth nearly three times the average of all fibres during the last five years (7.9% vs. 3.1%)

• Global 2013 filament production just under 29 million tons (7% growth over 2012)

• Major production increases forecast for China, India and the US

• Production increase in US due to share gains in carpet industry by polyester BCF

• Production decreased in essentially all other developed countries

• Future production growth (through 2025) expected to moderate to 6% per annum (still almost twice all other fibre growth)

Source: Tecnon OrbiChem

APIC 2014

WORLD POLYESTER FILAMENT PRODUCTION TRENDS

0

4

8

12

16

20

24

28

32

36

40

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Million Metric Tons

North America

South America

West Europe

East Europe

ME & Africa

S & SE Asia

Northeast Asia

China

Source: Tecnon OrbiChem

APIC 2014

WORLD POLYESTER STAPLE PRODUCTION

• Global polyester staple production growth during last five years 6.4%

• Production increases in 2012/13 for polyester staple production slowed significantly after above trend growth in 2010/11 due to cotton substitution

• As with polyester filament, China dominates with 65% of global production

• Future production growth 4-5% through 2025 with China and India dominating

• Limited cotton production growth through 2025 will be primary driver for polyester staple

Source: Tecnon OrbiChem

APIC 2014

WORLD POLYESTER STAPLE PRODUCTION TRENDS

0.0

1.0

2.0

3.0

4.0

5.0

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Million Metric Tons

North America

South America

West Europe

East Europe

ME & Africa

S & SE Asia

Northeast Asia

China

Source: Tecnon OrbiChem

APIC 2014WORLD POLYAMIDE FILAMENT PRODUCTION

• Although production growth for polyamide fibre from 2007 to 2012 was flat, sharply higher volumes (~10%) were experienced in 2013, due to textile and industrial growth in China and improved carpet and automotive markets in the US

• Recent increases in polyamide production are expected to moderate to 1-2% per annum growth through 2025, despite 5% growth expected in China

• Future growth limited by additional polyester substitution expected in carpet and some industrial applications including side air-curtains

Source: Tecnon OrbiChem

APIC 2014

WORLD POLYAMIDE FILAMENT PRODUCTION TRENDS

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Million Metric Tons

North America

South America

West Europe

East Europe

ME & Africa

S & SE Asia

Northeast Asia

China

Source: Tecnon OrbiChem

APIC 2014WORLD ACRYLIC FIBRE PRODUCTION

Source: Tecnon OrbiChem

• Global acrylic fibre production has fallen 30% since its high point in 2004

• Production in 2013 (slightly under 2 million tons) was flat compared with 2012

• Acrylic fibre costs continue to suffer from propylene availability and high acrylonitrile conversion costs

• Despite a sharp fall in production over the past 10 years, more modest declines of 1-2% are forecast due to weak supplies of wool and cotton and continuing technical advantages for acrylic fibre in certain markets

APIC 2014

WORLD ACRYLIC FIBRE PRODUCTION TRENDS

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Million Metric Tons

North America

South America

West Europe

East Europe

ME & Africa

S & SE Asia

Northeast Asia

China

Source: Tecnon OrbiChem

APIC 2014

WORLD POLYPROPYLENE FIBRE PRODUCTION

Source: Tecnon OrbiChem

• Global polypropylene fibre production has fallen 1% per annum in the last five years due to volatile propylene costs which has facilitated polyester substitution in some markets

• More stable propylene costs as a result of increased propane dehydrogenation and growing nonwovens’ markets are expected to reverse recent trends and result in a1-2% growth in fibre production growth during forecast period

APIC 2014WORLD POLYPROPYLENE FIBRE PRODUCTION TRENDS

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Million Metric Tons

North America

South America

West Europe

East Europe

ME & Africa

S & SE Asia

Northeast Asia

China

Source: Tecnon OrbiChem

APIC 2014

WORLD CELLULOSIC FIBRE PRODUCTION

Source: Tecnon OrbiChem

• Global production of cellulosic fibre has grown 5.8% per annum during the previous five years, driven primarily by China

• 2013 production increased to 4 million ton (5.5% above 2012)

• Projected growth of 5% per annum is expected for the forecast period, due to strong production growth in China and Southeast Asia as cellulosic fibre substitutes for cotton and new market opportunities, particularly in nonwovens, are developed

APIC 2014

WORLD CELLULOSIC FIBRE PRODUCTION TRENDS

Million Metric Tons

10

12

14

16

18

20

22

24

26

28

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: ICAC

Historical

Forecast

APIC 2014

WORLD COTTON PRODUCTION

Dollars per Ton

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Polyester Staple1.4 den China

Cotton OutlookAsia ‘A’ Index

Source: Tecnon OrbiChem & Cotton Outlook

APIC 2014

COTTON vs POLYESTER STAPLE PRICES

• Cotton production has limited upside due to competition for landand water resources and limited potential for yield improvement

• Cotton production in 2012/13 season was 26 million tons and is expected to remain in the 25-27 million ton range for forecast period

• Cotton price volatility pushed retailers and brand houses to polyester substitution in the past 2-3 years

• Limited production growth and higher costs are expected to put upwards on pressure cotton prices in the longer term

• China’s state policy of stockpiling cotton has changed and is being replaced by direct subsidiaries to farmers

• Management of Chinese state reserves of cotton will play a significant role in prices over the next year or two

APIC 2014

COTTON TRENDS

Source: Tecnon OrbiChem

APIC 2014NEW CHINESE POLYESTER FIBRE CAPACITY 2011-2014

Producer Capacity(1,000 ktpa)

Start-Up2014

Product

Zhejiang Guxiandao 500 Mar PIY

Tongkun 400 Q2 PFY

Zhejiang Xinfengming 400 Q2 PFY

Jiangsu Shenghong 250 Q2 PFY

Sanfangxiang 200 Q2 PFY

Zhejiang Hongjian 200 H2 PFY

Fujian Jinxing 200 H2 PFY

Jiangsu Zhangjiagang Xinxin 180 H2 PFY

Zhejiang Huaxin 400 H2 PFY

Jiangsu Haixin 500 H2 PFY

Hebei Baoyi 200 Q4 PFY

Fujian Changle Shanli 200 Q3 PSF

Fujian Jinxing 200 Q3 PSF

Nameplate Capacity Total 3,830

Source: Tecnon OrbiChem

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2011 2012 2013 2014

Effective Capacity Increment, Million Metric Tons

0

5

10

15

20

25

30

35

40

45

50

2012 2013 2014 2015 2016

60

62

64

66

68

70

72

74

76

78

Million Metric Tons

Source: Tecnon OrbiChem

APIC 2014

WORLD POLYESTER OVERCAPACITY (Virgin Only)

Production

Capacity

Capacity Utilisation

Polyester Filament

Production

Capacity

Capacity Utilisation

Polyester Staple

Utilisation %

0

5

10

15

20

25

30

35

40

45

50

2012 2013 2014 2015 2016

62

64

66

68

70

72

74

76

78

80

Million Metric Tons

Source: Tecnon OrbiChem

APIC 2014

CHINESE POLYESTER OVERCAPACITY (Virgin Only)

Production

Capacity

Capacity Utilisation

Polyester Filament

Production

Capacity

Capacity Utilisation

Polyester Staple

Utilisation %

APIC 2014THE IMPACT OF POLYESTER OVERCAPACITY

• Polyester overcapacity (fibre and intermediates) for the next five years indicates limited opportunity for margin improvement in the polyester chain, regardless of end-use demand

• Decreasing margins with limited upside will continue to improve polyester’s competitive position compared to other fibres

• Despite slower overall fibre growth, continuing gains in market share for polyester translate to steady or only modestly slower growth for polyester fibre during the forecast period

Source: Tecnon OrbiChem

APIC 2014EXPECTED FIBRE MARKET TRENDS

Market Trending To… Share Reduction

Carpets Polyester Filament Polyamide and Polypropylene Filament

Nonwovens Cellulosic and Polypropylene Staple

Cotton

Apparel Polyester and Cellulosic Filament and Staple

Cotton

Air Bags (Side Curtains)

Polyester Filament Polyamide Filament

Tailored Clothing Polyester Wool

Source: Tecnon OrbiChem

APIC 2014CONCLUSIONS

• Overall fibre production growth slows in forecast period

• Limited cotton growth has dramatic impact on synthetic fibre markets

• Polyester domination in fibre markets accelerates as overcapacity limits margin expansion throughout the chain

• Despite growing cost advantages, polyester is technically limited in some markets allowing more modest growth in polyamide, polypropylene and cellulosic fibre, coupled with modest declines in acrylic and cotton production

Source: Tecnon OrbiChem

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