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September 7, 2004 • Seite 3Business Unit PCS
Bayer MaterialScienceA Core Business of Bayer
HealthCare
MaterialScience
CropScience
September 7, 2004 • Seite 4Business Unit PCS
• Butadien- & Butyl Rubber• Rubber Products• Rubber Chemicals• Fibers• Rhein Chemie• Semi Crystalline Products
Bayer MaterialScience & LanxessFormation of Two New Companies
• Polycarbonat• PC Sheets• TDI• MDI• Polyether• Base- und modified
Isocyanates• Thermoplastic
Polyurethanes• Inorganic Base Chemicals
• Basic Chemicals• Functional Chemicals• Fine Chemicals• Inorganic Pigments• Ion Exchange Resins• Leather Chemicals• Material Protection• Paper Chemicals• Textile Processing
Chemicals
• H.C. Starck• Wolff
Walsrode
• PC/ABSBlends
• StyrenicsABS/SAN
Bayer Bayer MaterialScienceMaterialScience LanxessLanxess
Bayer Polymers Bayer Chemicals
September 7, 2004 • Seite 5Business Unit PCS
• New customers• New applications• Regional expansion
• Displacement• Consolidation• Different business
models
• Product and processinnovation
Development Growth “Mature” markets
Growthdriver
Successfactors
Product properties• Technology leadership• Application know-how
Market access• Marketing and fulfillment• Financial muscle
Cost leadership• Processing technology• World-scale plants• Sites / Portfolio
Controlling Profitable growth Capital productivity
Market stage
Time
BayerLanxess
Bayer MaterialScience and LanxessDifferent Business Characteristics
September 7, 2004 • Seite 6Business Unit PCS
Bayer MaterialScienceCurrent Statistics*
Production sitesapprox. 40
Employeesapprox. 17,000
Product salesapprox. 4 milllion tons
Sales by valueapprox. 7.5 billion EUR
CompetitorsDow Chemical, GE Plastics,
BASF / Elastogran
* refers to the business activities remaining with Bayer
September 7, 2004 • Seite 7Business Unit PCS
Bayer MaterialScienceBusiness Units and Sales Share
42%23%
18%2%3%4% 8%
PolyurethanesPolycarbonate
Coating RawMaterialsWolff Walsrode
H.C. StarckThermoplasticPolyurethanes
Umsatz7.5 Mrd. €
InorganicBasic Chemicals
September 7, 2004 • Seite 8Business Unit PCS
Bayer MaterialSciencePortfolio Driven by Growth and Market Leadership
PolycarbonatesPolycarbonates(PCS)(PCS)
VolumeVolumeGrowthGrowth
2004-062004-06
Our Our PositionPosition
EMEAEMEA AmericasAmericas APACAPAC
PolyurethanesPolyurethanes(PUR)(PUR)
Coating RawCoating RawMaterials*Materials*
(CAS)(CAS)
+8% p.a.
+5% p.a.
+5% p.a.
GlobalGlobal
#1(ms > 40%)
#1 #1 #1
#1(ms = 26%)
#1 #1 #1
#2(ms = 30%)
#1 #2 #2
EMEA: Europe, Middle East, AfricaAPAC: Asia Pacific*) arom. and aliph. Isocyanates
September 7, 2004 • Seite 9Business Unit PCS
Bayer MaterialScience Organziation
NoerenbergNoerenbergVV Bayer MaterialScienceVV Bayer MaterialScience
PlumpePlumpeAdministrationAdministration
Van Van OsselaerOsselaerP&TP&T
PatersonPatersonMarketing & InnovationMarketing & Innovation
J. WolffJ. WolffBU BU CoatingsCoatings, , Adhesives Adhesives &&
SealantsSealants
G. HilkenG. HilkenBU PolycarbonatesBU Polycarbonates
P. P. VanackerVanackerBU BU PolyurethanesPolyurethanes
T. T. BielfeldtBielfeldtBU BU ThermoplasticThermoplastic
PolyurethanesPolyurethanes
C. OhmC. OhmBU BU Inorganic Inorganic BasicBasic
ChemicalsChemicals
D. HerzogD. HerzogWolff WalsrodeWolff Walsrode
H. HeumüllerH. HeumüllerH.C. StrackH.C. Strack
Bayer MaterialScienceBoard of Management
BMS ServicesBMS Services
September 7, 2004 • Seite 10Business Unit PCS
Global Leadership Team BU Polycarbonates
Klaus-Patrick MichaelBusiness Planning &
Administration
Dirk Van MeirvenneProduction &Technology
Hartmut LöwerGlobal Innovations &Product Management
Dennis McCulloughMarketing / BD
EMEA & LA
Rainer SchorrMarketing / BD
NAFTA
Jürgen RaabMarketing / BD
APAC
Günter HilkenHead ofBU PCS
Customer Focus with ~3,000 employees world-wide!
September 7, 2004 • Seite 12Business Unit PCS
Consumption World: approx. 13 Mio.t (Value: > 25 Mrd. Euro)
Growth: approx. +6% p.a. (2003-2007)
* w/o PC for blends
PBT4%
PA 6.68%
PET eng.1%
Blends7%
PMMA9%
POM5%
H T Polymers2% ABS, ASA
38%
SAN3%
PC straight *14%
PA 69%
World Market Engineering Thermoplastics2003
September 7, 2004 • Seite 13Business Unit PCS
Europa incl. ME / AF
27%
other A/P19%
China19%
Japan11%
Latin America1%
North America
23%
Consumption World: 2.200 Tsd.t (Value: approx. 4,0 Mrd.Euro)
Growth: approx. +9% (2000 – 2007)
Worldwide Polycarbonate – Consumption includingPolycarbonate (PC) for Blends by Regions 2003
September 7, 2004 • Seite 14Business Unit PCS
PC - Blends15%
Others1%
Electro / Electronics
25%
Medical3%
Packaging5%
Automotive9%
Construction15%
Optical Disc27%
Consumption World: 2.200 Tsd.t (Value: approx. 4,0 Mrd. Euro)
Growth: approx. +9% (2000 – 2007)
Worldwide Polycarbonate - Consumptionincluding Blends by Applications 2003
September 7, 2004 • Seite 15Business Unit PCS
610 660865
1.000
1.300
1.900 2.0502.200
2.400
0
500
1000
1500
2000
2500
1990 1992 1994 1996 1998 2000 2002 2003 2004
World Consumption Polycarbonate (PC) includingPolycarbonate for Blends from 1990 to 2003 (Tsd.t)
September 7, 2004 • Seite 16Business Unit PCS
-10%
0%
10%
20%
30%
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Market Growth
Economic Cycles: 7 to 10 years
Polycarbonate Market Growth versusPrevious Year
September 7, 2004 • Seite 17Business Unit PCS
• Europe (incl. ME/AF) ~ + 6% p.a.
• North America ~ + 6% p.a.
• Latin America ~ + 7% p.a.
• Japan ~ + 3% p.a.
• China ~ + 18% p.a.
• other Asia / Pacific ~ + 8% p.a.
• World (average) ~ + 8-9% p.a.*) forecast
Polycarbonate (PC) – Average MarketGrowth 2003 – 2007 *
September 7, 2004 • Seite 18Business Unit PCS
930
830
320
300
360
125
50
340
460
105
545
200
95
45
170
120
300
360
125
Σ 2.930 905 840 1.170 15
World Europe North America Far East Latin America
GEP
Bayer
Dow
Teijin
MEP/Sam Yang
Idemitsu/FIPC
Asahi/Chimei 50
Polycarbonate (PC) - NameplateCapacities 2003 World (TSD.t)
September 7, 2004 • Seite 19Business Unit PCS
Polycarbonate Capacity Shares
Bayer Sites
GE Sites
DOW Sites
Mitsubishi Sites
Teijin Sites
Idemitsu / FPIP Sites
Chimei Sites
Polycarbonatos do Brasil
Bayer 29%
GE31%
Dow10%
Teijin10%
others1%
Chimei2%
MEP/Samyang12%
Idemitsu5%
2003
September 7, 2004 • Seite 20Business Unit PCS
Total: 830 kt/a
Plan 2006: 930 kt/a
Baytown, TX200 kt/a
Uerdingen,Germany260 kt/a
Map Ta Phut,Thailand170 kt/a
Shanghai, China200kt/a
(1. Phase 100 kt/a Start 2Q./2006)
Antwerp, Belgium200 kt/a
PCS wet side facilities
Baytown, USA
Map Ta Phut, Thailand
Uerdingen, GermanyAntwerp, Belgium
.........The Heritage after 50 Years of Makrolon
PCS dry side & blends facilities
Newark, OHFilago, IT
Uerdingen, D
Map Ta Phut, TH
Caojing, China
September 7, 2004 • Seite 21Business Unit PCS
InnovativeApplications
Electrically Insulated Components
Twin-wall sheetCrystal-clear Solid Sheet
Water Bottles
CD, DVD,Blu Ray Disc
GlazingSystems
Blends for Automotive Applications and Computer Housings
Time
The Future has a Name....
September 7, 2004 • Seite 22Business Unit PCS
18%44%
38%
1999 2003 2005*
CD prerecorded Recordable media DVD prerecorded
approx. 600.000t
approx. 800.000t
Polycarbonate for Optical Data StorageConsumption by Media Type (1999-2003-2005)
*forecast2%
15%
83%
approx. 300.000t 23%
50%
27%
September 7, 2004 • Seite 23Business Unit PCS
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
0
5.000
10.000
15.000
20.000
Mio Discs
HD-Disc -R,RW DVD-R,RW DVD Prerecorded CD-R,RW CD Prerecorded
* forecast
Optical Data Storage Development
** * * * * *
September 7, 2004 • Seite 24Business Unit PCS
0
10
20
30
40
50
60
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
CD PrerecordedCD-R,RWDVD PrerecordedDVD-R,RWHD-Disc-R,RW
Bn Discs
Year
Polycarbonate Optical Data Storage (ODS)Market development by disk formats
ODS Market to peak in 2007 – 2008 ???ODS Market to peak in 2007 – 2008 ???
September 7, 2004 • Seite 25Business Unit PCS
2000 2004* 2008*
Êurope Americas APAC
Globalization and consolidation in the bottled water industry is accelerating
Global PC demand for water bottle expected to grow to 106 Tsd.t in 2008*
87106
65
Market Development PC for water bottle(Tsd.t)
*) forecast
Water Bottle Market: Trends and Development
September 7, 2004 • Seite 26Business Unit PCS
2000 2004* 2008*
Êurope Americas APAC
295332
402(Tsd.t)
The global sheet market is expected to grow in 2004* to 2008* with an average rate of 5 % p.a.Multi wall sheet growing faster than solid sheet. Multi wall sheet is the major product in Europe, solid sheet is dominating in America andin the Far East.
Market development PC for sheet
*) forecast
Sheet Market: Trends and Development
September 7, 2004 • Seite 28Business Unit PCS
Advantages of Polycarbonatein Automotive Glazing
•Freedom of design•Integration offunctionalities
•Reduction ofmanufacturing cost
•Burglary protection
•Accident safety
•Weight reduction
•Result: lowering ofcenter of gravity
Fuel savings
Recycling
Design Weight
Safety Environment
September 7, 2004 • Seite 29Business Unit PCS *) forecast
1997 2000 2003
Declining margins in a growing marketrequire strategic repositioning of PCbusiness
Declining margins in a growing marketrequire strategic repositioning of PCbusiness
volumevolume
priceprice
profitprofit
70%
75%
80%
85%
90%
95%
100%
1982 1987 1992 1997 2002
Price increases and good profitabilityare only possible at utilization > 85%Price increases and good profitabilityare only possible at utilization > 85%
Polycarbonate – Economic Environment
September 7, 2004 • Seite 30Business Unit PCS
Bayer MaterialScience
Teijin Chemicals
Idemitsu/Formosa
Bayer MaterialScience
Teijin Chemicals
Idemitsu/Formosa
Mitsubishi
Chimei
DOW Chemicals
Mitsubishi
Chimei
DOW Chemicals
GE AdvancedMaterialsGE AdvancedMaterials
Strategic Responses to Current Market Situation
Remain Core BusinessClear Growth StrategyCont. strategic investment
Remain Core BusinessClear Growth StrategyCont. strategic investment
Abandon Core BusinessFocus on cash generationno strategic investment
Abandon Core BusinessFocus on cash generationno strategic investment
„Wait and See“no further investmentno refocuss
„Wait and See“no further investmentno refocuss
??
Profitable Growth Long term exitUndecided
September 7, 2004 • Seite 31Business Unit PCS
50%
60%
70%
80%
90%
100%
110%
1Q 2
001
3Q 2
001
1Q 2
002
3Q 2
002
1Q 2
003
3Q 2
003
Jan
04
Mrz
04
EMEANAFTAAPAC
Market Prices PolycarbonateIndex 1Q2001 = 100%
86%83%
81%
87%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
2001 2002 2003 2004
GlobalCapacity Utilization (%)
Turn-Around in Polycarbonate on the Horizon
September 7, 2004 • Seite 32Business Unit PCS
0
20
40
60
80
100
120
140
2002 2003 2004 2005
Bayer GE-P Teijin DOW MEP Chimei Formosa PRC Kosan
Published Capacity Expansion Plans
252 kt
290 kt
200 kt
162 kt
September 7, 2004 • Seite 33Business Unit PCS
Capacity Demand Balance World
91 kt 128 kt - 15 kt - 61 kt
Global Capacity Surplus:
Cartagena Effekt
Delta to previous year
0
50
100
150
200
250
300
350
2002 2003 2004 2005
Europe Cap. Europe Dem. America Cap. America Dem.Asia Cap. Asia Dem. World Cap. World Dem.
September 7, 2004 • Seite 35Business Unit PCS
We are Experiencing a Crisis Situation
Raw material costs have escalated to unprecedented high levels andare affecting margins drastically in the Plastics Industry
Benzene contract prices in September have reached levels of $ 1185/tin the US and € 950/t in Europe!
– Demand is strong and supply will remain tight due to limitedcapacity
– Strong demand in Asia and Europe for polycarbonate and otherplastics derived from benzene has put intense pressure on supply
– Although high crude oil prices have an influence on the price ofbenzene, there is not a direct linked
– Unfortunately, there is no end in sight for price relief in the nearfuture
This is a severe problem that has resulted in drastic pricing measuresin the plastics industry globally..........This not just a Polycarbonate or aBayer problem!
September 7, 2004 • Seite 36Business Unit PCS
Raw Material Flow for Polycarbonate
Propylene
BenzeneCumene
Acetone
PhenolBPA
Chlorine
COPhosgene
PCCaustic
Soda
Solution
(NaBPA)
September 7, 2004 • Seite 37Business Unit PCS
Quart 4 Quart 1 Quart 2 Quart 3 Quart 4 20052003 2004 2004 2004 2004 Forecast
Benzene 376 467 667 882 776 662
Phenol 700 780 923 1186 1140 986
Acetone 483 578 613 660 661 622
Toluene 363 396 462 506 439 452
prices in €/t
source - CMAI WEU Spot Market prices
Raw Material Pricing Overview
September 7, 2004 • Seite 38Business Unit PCS
Benzene Price History by Quarter (WEU)
Source: ICIS NWE Contract Price
0
100
200
300
400
500
600
700
800
900
1000
86/Q1 88/Q1 90/Q1 92/Q1 94/Q1 96/Q1 98/Q1 00/Q1 02/Q1 04/Q1
Euro
/T
Benzene
Q3 Av. = 872 €
September 7, 2004 • Seite 39Business Unit PCS
Benzene Price History (WEU)
BENZENE WEU C.P. Average
313
365
185
595
213
415
521
0 100 200 300 400 500 600 700
1986 YTD
1999 YTD
lowest Q
highest Q
lowest Yr
highest Yr
Average 1H 2004
high
est &
low
est s
ince
198
6
EURO/T
F2005662!
September 7, 2004 • Seite 40Business Unit PCS
Bayer‘s Response in the Industry
PC margins have been severely impacted and are unacceptable
PC price increases need to be fully realized in the market in order torestore margins to a level to achieve reinvestment economics and tocontinue to meet the current and future needs of our customers
Bayer’s polycarbonate supply is tight and will remain tight in theforeseeable future
Bayer’s announced price increases in 2004:May 10 August 9 September 6€ 0,20/kg € 0,40/kg € 0,20/kgAll Markets All Markets All Markets
Bayer’s management fully understands the impact this has on ourcustomers and we are willing to work with them to achieve anunderstanding of this crisis at the end user