4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene

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Page 1

Review of Industry,Energy/Feedstocksand Polypropylene

Bob Dennett, Senior Principal Analyst,

Commodity Plastics

May 2012

Paul Blanchard, Senior Principal Analyst,

Engineering Resins

May 2012

Page 2

Energy & PolymerFeedstocks

4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene

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Where do Feedstocks come from?

Natural Gas Oil

Primarily Two Sources

Page 4

How Much Oil Goes Into Plastics?

93%

Refining

Gasoline

& Distillates

Heating or

Transportation Fuels

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7%

Crude Oil Demand

> 84.0 Million BPD

(Global)

LPGNaphthaGas Oil

Petrochemical

Industry

< 3% of Crude ends up inPlastics Industry

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How Much Natural Gas Goes Into Plastics?

92%

Methane

Ethane

(Fuel Gas)

8%

Petrochemical

Industry (25%)

Gas Demand

>285 Trillion Cubic

Feet/day (Global)

GasProcessing

Ethane, PropaneButane, Light

Naphtha

(NGL)

< 2% of Gas ends up in

Plastics Industry

Page 6

Crude - Expensive Relatively And Absolutely

50%

60%

70%

14

16

18

20

Dollars Per MMBtu Gas as a% of Crude, BTU Basis

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0%

10%

20%

30%

40%

0

2

4

6

8

1012

06 07 08 09 10 11 12 13 14 15 16

Crude (WTI) Natural Gas Gas as % of Crude

Page 7

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FeedstocksEnergy Petrochemicals

Naphtha

Gas Oil

Ethane

Propane

Butanes

Field

Condensates

PropyleneEthylene

PygasBenzene

Toluene

XylenesC 5/C 6 Non Aromatics

Heavy Aromatics

Crude C 4ButadieneMixed Butylenes

Fuel Oil

Methane/Hydrogen

Natural Gas

Crude Oil

Refinery

GasSeparation

Unit

Ethylene

Unit

Olefins Flow Diagram

Page 8

2012 Global Ethylene Cost Curve

NE Asia Avg.1,250

1,450

1,650

Dollars Per Metric Ton

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SE Asia Avg.

West EuropeAvg.

Middle East

Avg.

U.S. Avg.

50

250

450

650

850

1,050

0 20 40 60 80 100 120 140 160

Cumulative Ethylene Capacity (Million Tons)

U.S. Ethane

SAM Avg.

Page 9

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Polymer Ethylene Propylene Benzene Butadiene Chlorine Xylene

PE X - - - - -

PP X X - - - -

PS/EPS X X X X - -

PVC X - - - X -

PET X - - - - X

ABS X X X X -

PC - X X - - -

Nylon - X X X - -

Major Polymer Feedstocks

Page 10

Chemicals that can leverage low cost Btus either throughfeedstock or processing costs when the predominant

alternative production is based on crude oil / naphtha

Low Gas Benefits Certain Chemicals

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HighlyAdvantaged

Ethylene

Polyethylene

EthyleneOxide

Derivatives

MEG,Amines,

Alpha OlefinsMo

derateAdvantage

Chlorine &Caustic

Soda

VinylsEDC /VCM

Styrenics

Methanol

NoAdvantage

RefineryProducts

BTX

Propylene

Butadiene

Relative Cost Advantage gain from Natural Gas

A comparisonof some of the

products

impacted by

the difference

in natural gasvalues vs. oil

prices.

Page 11

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Global Plastics Consumption 2011

HDPE17%

LLDPE

11%

LDPE9%

PP25%

PS5%

ABS4%

PVC18%

PET7%

PC

1%

Nylon

3%

2011 World Polymer Demand => 205 Million Metric Tons

Page 12Average Plastics/Composites in LightVehicles by Region in 2010

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0 10 20 30 40 50 60 70 80 90 100

Other

Polyvinyl

Other Engr

Polycarbonate

Polyethylenes

Polyvinyl

ABS

Nylon

Polyurethanes

Polypropylene

Source: American Chemistry Council

Page 13

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Growth of Plastics in Light Vehicles

0

50

100

150

200

250

300

350

400

1999 2010

Polyolefins Polyurethane Polyvinyl Chloride Engineering Resins Other Plastics

Volume, Pounds per

Vehicle

Source: American Chemistry Council

Page 14

2010 Automotive Plastics Breakdown

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Polypropylene

25%

Polyethylenes

5%

Polyurethane

15%

PVC

8%

Acrylics

1%

Phenolics3%

Unsat. Polyester3% Other

3%

Nylon

12%

ABS

7%

Polyester ETP

6%

Polycarbonate

5%

Polyphenylene Ether

4%

Polyacetal

2%Other Engr

1%

Engineering Resins

38%

Source: American Chemistry

Council

Plastic Pounds / Vehicles 2010= 378

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Polypropylene

Page 16

4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene

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The Good Old Days

Cheap MaterialAvenue to move excess

propylene

VersatileAble to replace other

products

Poor mans engineeringpolymer

Low price and versatilitydrove growth

PP one of the polymerswith the highest demandgrowth rate

Page 17

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In Last Two Years, Cost Position Changed

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

PP/HDPE North America PP/HDPE West Europe PP/HDPE China

Price Ratio

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0 1 2 3 4 5

PP

ABS

PET

LDPE

LLDPE

HDPE

PS

PVC2002

2011

Molding grade resins

Cost, Cents Per Cubic Inch

U.S. Comparative Costs of ThermoplasticPolymers

Page 19

Direct RG chemical consumption

Alkylation

Unit

High Octane

Motor Gasoline

Other Fuel Uses

Motor

Gasoline

Purification

Splitter Unit

Other Propylene

consumers

Crude

Oil

Steam Cracker

(Olefins Plant)Ethane

Propane

Naphtha

Ethylene

& Olefins

Refining Industry

Crude

Unit

Motor

Gasoline

Chemical Industry

Injection

Molding,

Fibers,

FilmsPolypropylene

On-Purpose

FCC

Unit

Whats Changing in Polypropylene

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Ethane Cracking Chemistry Reduces Co-

Product Volumes

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Ethane Naphtha

Million Tons, Production Yield for World Scale 1 Million Ton Cracker

Other

Benzene

Butadiene

Propylene

Ethylene

Page 21

0

5

10

15

20

25

0

5

10

15

20

25

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Percent, %

Propane Dehydro Metathesis Olefin Cracking

Methanol-to-Olefins HS FCC Others

Million Metric Tons

Global On-Purpose Propylene Production

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% Total Production

21

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30

40

50

60

70

80

90

100

Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013 Jul-2013

PGP Contract PGP Spot Alky Values

Cents Per Pound

Propylene Prices Volatile

22

Page 23Consequence: Per Capita Demand

To Grow at Slower Pace Than Expected

4.0

5.0

6.0

7.0

8.0

9.0

10.0

0.0

5.0

10.0

15.0

20.0

25.0

2000 2002 2004 2006 2008 2010 2012 2014 2016

Regional Per Capita Demand, kg/person Global Per Capita Demand, kg/person

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World United States West Europe

Northeast Asia South America

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Some Applications Growing Faster Than Others

0.0 3.0 6.0 9.0 12.0 15.0 18.0 21.0 24.0

Extrusion

Coating

Blow

Molding

Pipe &

Extrusion

Other

Fiber

Raffia

Film & Sheet

Injection

Molding

2011

2016

Global Demand Million Metric Tons

4.7%

5.4%

7.0%

4.3%

2.6%

4.1%

4.0%

6.2%

AAGR Global

Demand 11-16 = 5.0%

Page 25

New Leaders in PP Demand To Emerge

0

3

6

9

12

15

18

21

Per Capita, kg/person

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-3-3 0 3 6 9 12

2006-2011 Average Annual Growth RateNorth America Europe Northeast Asia Southeast Asia South America

Middle East/Africa Indian Subcontinent*Bubble size represents size ofregional demand in 2011*Bubble size represents size of

regional demand in 2016

2011-2016 Average Annual Growth Rate

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Global Polypropylene Capacity by Region

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

North America

South America

West Europe

Central Europe

Former Soviet

Union

Africa

Middle East

India Subcontinent

Northeast Asia

Southeast Asia

2016

2011

(78 Million MT)

(63 Million MT)

Million Metric Tons

Page 27

2002

Capacity ShareCompany (000's MT) %Basell 6207 16.70BP Chemical 2242 6.03Sinopec Group 2106 5.67ExxonMobil 1772 4.77ATOFINA 1712 4.61Borealis 1400 3.77Reliance Industries 1200 3.23

(Based on Estimate of Marketed Capacity)

2016Capacity Share

Company (000's MT) %LyondellBasell 6521 8.49Sinopec Group 6458 8.41

SABIC

3715 4.84PetroChina Group 4613 6.01

3455 4.50

ExxonMobil

30503050

3.97

Borealis/Borouge

2790 3.63Braskem Group

Top Global Polypropylene Producers/Marketers

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DSM 985 2.65Formosa Plastics 980 2.64PetroChina 880 2.37

Total 19484 52.43

Total Capacity 37159

Reliance IndustriesTotal PC

2750 3.582715 3.53

Formosa Plastics 2273 2.96

Total 38340 49.92

Total Capacity 76809

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Demand Not Expected to Catch Up,

Oversupply Conditions to Ensue

76.0

78.0

80.0

82.0

84.0

86.0

88.0

90.0

92.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2000 2002 2004 2006 2008 2010 2012 2014 2016

Global Excess Capacity GrowthCumulative Global Excess Capacity GrowthGlobal Operating Rate

Excess Capacity, Million Metric Tons Global Operating Rate, %

Page 29China Will Become IncreasinglySelf Sufficient

20

30

40

50

10

15

20

25

Domestic Demand, Million Metric Tons Imports as a % of Domestic Demand

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0

10

0

5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

China Domestic Demand Imports as a % of Domestic Demand

Page 30

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Trade Flows to Change

2011 Net Trade

-702-663

2016 Net Trade

3622

-690

-1302

575

53

-893

-154

-524

2346

-1803

-38

-392

444

121

(Thousand Metric Tons)

Page 31

North American Prices Still Highest

1,764

1,984

2,205

2,425

80

90

100

110

Price, Dollars Per Metric TonPrice, Cents Per Pound

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661

882

1,102

1,3231,543

30

40

50

6070

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

North America Discounted West Europe Discounted China Spot

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-20

-15

-10

-5

0

5

10

15

20

Jan-2010 Jul-2010 Jan-2011 Jul-2011 Jan-2012 Jul-2012

Monthly Price Change, Cents Per Pound

PP Homopolymer Discounted Contract

Average = 5.7

Average = -6.6

North America: Price Volatility At All TimeHigh Level

Page 33

10

20

30

80

100

120

Price, Cents Per Pound Surcharge/Discount, Cents Per Pound

Surcharge

Arbitrage Windows Will Open & Close

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-30

-20

-10

0

0

20

40

60

Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13

Surcharge/Discount, Imported Resins NAM Discounted Price, CMAI Estimate

Imported Resin Price Estimate*

* China PP Spot CFR + freight + tariff + transfer to bulk + domestictransportation

Discount

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Prices to Converge, But Remain Expensive

441

661

882

1,102

1,323

1,543

1,764

1,984

20

30

40

50

60

70

80

90

1995 1998 2001 2004 2007 2010 2013 2016

North America Discounted West Europe Discounted China spot

Price, Dollars Per Metric TonPrice, Cents Per Pound

Page 35

Change in Resin Producer Strategy

Historically

Try to maintain high

Today

Keep inventories lower

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operating ratesStrive for market position

or share

Lack of discipline in selling

Over investment

and supply tighterMaintain or grow margins

Discipline in selling

Controlled investment

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Versatility Vs. Price Which Will Win?

VERSATILITY

Page 37

PP to remain expensive

Developing economies will enjoy

Conclusions

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most of the growth

Consumer products/packaging todrive growth

Oversupply conditions expected innext two years; benefits Asia

Trade to become competitive; tradeflows to change

Regional price disparities will ease,longer term

Short term price to affect demand;versatility to help long term

Page 38

Thank You!