Impact of a changing global landscape

Transcription

1 Impact of a changing global landscape David Lines - Principal

2 Agenda Global Polyolefin Business: Challenges and Prospects Petrochemical & Polymer Market Overview Investment Landscape Growth Opportunities Competitive Outlook Conclusions

3 Petrochemical & Polymer Market Overview

4 What does low oil mean for the petrochemicals and polymers sector? Crude Oil, US dollars per ton Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Mine-Mouth Thermal Coal, CNY per ton Issues for Global Chemicals 140 Feedstock Prices 500 Investment slowdown in the Middle East and in other geographies Shifts in industry competitiveness; naphtha cracking more competitive relative to other feedstocks Bio-chemicals and recycle less attractive Strong polyolefins markets and low feedstock prices have seen value move from olefins to polyolefins Brent Crude Oil ($/ton) Ordos Thermal Coal (CNY/ton)

5 Petrochemicals feedstock spreads have narrowed Current dollars per ton Issues for Global Petrochemicals Prior to 2014, oil at more than $100/bbl Naphtha at a premium to NGLs as petrochemical feedstock Saudi and U.S. ethane at low prices giving competitive advantage to crackers in those regions Fall in crude oil price since mid-2014 has shifted industry competitiveness Naphtha cracking has regained some competitiveness versus lighter feedstocks European producers regained some competitiveness comparative to US and Middle East producers This has impacted on investments across regions Shifts in cracker feedstock slates has implications for downstream markets Feedstock Prices Naphtha FOB Med Ethane - KSA Contract Ethane - US Brent Crude Oil

6 Middle East Petrochemical profitability has been eroded by low oil prices NexantThinking Cash Margin Profitability Index (1995=100) Global Petrochemical Profitability has improved, particularly in Europe, whereas Middle East advantage eroded by low oil prices Source: NexantThinking Petroleum & Petrochemical Economics (PPE) Program Western Europe United States Middle East South Korea Global

7 Demand growth for polyolefins has varied over time yet the trend remains linked to GDP percent Global Polyolefins Demand Growth and Economic Growth Polymer consumption growth driven by economic growth Asia expected to continue to be global GDP growth engine Short-term global GDP forecasts (to 2020) recently reduced by almost 0.5% due to uncertainty about China and other economic factors Some oil exporting regions in trouble Polyolefins demand VS GDP Average Global GDP LDPE LLDPE HDPE Polypropylene

8 China faces challenges on both domestic consumption and production for export Percent CAGR Global Polyolefins Demand* 2015 (150 million tons) US Rest of World Western Europe *includes polyethylene and polypropylene Global US Western Europe GDP Polyolefins Demand* China China Source: NexantThinking Petroleum & Petrochemical Economics (PPE) Program

9 US, ME & China are leading the global expansion of olefins & polyolefins capacity Million tons Firm Capacity Expansions (announced ) US China Middle East Eastern Europe Western Europe Ethylene Propylene HDPE LDPE LLDPE PP

10 Investment Landscape

11 Regional Petrochemical Feedstock Sources and Trends A number of new petrochemical projects are expected to be delayed US due to the impact of low oil prices Increased O&G production resulting in lower energy prices Increased production of coproduct ethane and other NGLs Low NGL prices leading to new olefin capacity but NGL exports will lift prices Questions over sustainability of supply at low oil & gas prices Middle East Growth restricted by shortage of additional advantaged NGLs outside Iran/Iraq New refinery investment with focus on petchem integration Declining competitive position offset by mixed feeds, integration, scale and higher value products China Increased focus on coal to chemicals Surge in imports of NGLs for cracking and PDH Refinery/chemicals investment much reduced Variable competitive position depending on feedstock but access to markets is key

12 Naphtha remains a major feedstock for ethylene, but ethane is driving investments Million tons per year of total capacity Percent of total capacity Global Ethylene Capacity Development & Ethylene Capacity Profile Naphtha/Liquids Cracking NGLs Cracking CTO/MTO Others Global growth in NGLs cracking is driven by US and Middle East where low-cost NGLs are available CTO projects in China are supported by cheap inland coal, ease of financing, and deficit polyolefin markets Naphtha/heavy liquids cracking elsewhere in Asia will make up most of the balance of supply, aided by refinery integration. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Naphtha/Liquids Cracking NGLs Cracking CTO/MTO Others

13 Naphtha remains a major feedstock for ethylene, but ethane is driving investments Percent of total capacity Steam Cracker Products: Naphtha vs. Ethane 4 Global Propylene Capacity Profile 100% 80% 3 60% 2 40% 1 20% 0 Naphtha Feedstock Ethane Feedstock Ethylene Propylene Others On-purpose propylene required by market since co-produced sources limited PDH margins are still strong despite low propylene prices, more capacity will come in N America, ME, Asia & possibly Europe Firm CTO projects are limited to China supported by local low-cost mine-mouth coal Metathesis has become the swing supply source. 0% Steam Cracker Refinery PDH CTO/MTO Others

14 Net polyethylene capacity additions set to ramp up over the next 5 years Regional PE Incremental Capacity Additions (Mio MT) Incremental Changes LL HD LD Source: NexantThinking Petroleum & Petrochemical Economics (PPE) Program

15 PP mainly in China, strong emphasis around new refinery & on-purpose propylene Regional PP Incremental Capacity Additions (Mio MT) Incremental Changes Source: NexantThinking Petroleum & Petrochemical Economics (PPE) Program

16 Growth Opportunities

17 Global PE demand was 87 million tons in 2015, an increase of over 3% from 2014 Global PE Demand, 2015 (Total = 87 million tons) Global Polyethylene Growth by Resin (percentage volume growth) LDPE LLDPE HDPE HDPE Total PE LDPE LLDPE HDPE will continue to be the largest volume polyethylene, followed by LLDPE. LDPE will continue to lose market share, despite a relatively high short-term growth rate

18 Global PP demand was 60 million tons in 2015, an increase of over 4% from 2014 Global PP Demand by End Use, 2015 Other Extrusion Others Film Regional PP Demand, 2015 Asia (ex China) North America South America Western Europe Injection Moulding Fibre Film applications are expected to have the highest growth rate, but almost all applications are forecast to have good growth China Africa CEE Middle East

19 Investment is either in advantaged feedstock or high market growth regions 2000 (Total Capacity = 96 million tons per year) Polyolefins Capacity Growth by Region 2015 (Total Capacity = 174 million tons per year) 2020 (Total Capacity = 222 million tons per year) Asia (ex China) North America Asia (ex China) North America South America Asia (ex China) North America South America China Africa Middle East Eastern Europe Central Europe Western Europe South America China Africa Middle East Eastern Europe Western Europe Central Europe China Africa Middle East Western Europe Central Europe Eastern Europe Capacity additions have focused in China, the Middle East, and now in North America

20 Investment is either in advantaged feedstock or high market growth regions Demand CAGR in (%) Asia Polypropylene Demand Growth 8% China India Vietnam 6% Malaysia 4% Indonesia 2% High growth potential Thailand Korea 0% Consumption per Capita in 2015 (kg) Polymer consumption growth is associated with substitution of traditional materials, infrastructure development and population demographics (income, urbanisation etc.)

21 Competitive Outlook

22 The Middle East cost advantage has decreased, but not gone away Current dollars per ton 1500 Integrated Ethylene/HDPE Cash Cost Saudi Advantage Western Europe - Naphtha Saudi - Ethane European ethylene costs fell by over 70%, helped by strong pygas credit Saudi Arabian ethane costs have more than doubled Saudi propane prices now linked to propane rather than naphtha, thus bringing seasonal price volatility After logistics and duty costs, there is little advantage selling into Europe

23 Accounting practices underestimate the competitiveness of MTO in China MTO costs H Coal Costs (Thermal coal, RMB per ton) Integrated coalfield operations benefit from coal prices circa half the level of coastal benchmarks Most are fully integrated with coal-based utilities, and consume 6-7 tons of coal per ton polyolefins Even using a fully-loaded cost price, each ton of polyolefins produced provides a margin to the coal business of 1063 RMB, or $170 per ton of polyolefins While fixed costs and depreciation for integrated CTO are high, these do not influence operating decisions, and variable costs are down to ~$200 per ton of polyolefins H Raw materials, fuel and power Maintenance Other Transfer Price, 277 RMB Full Cost, 117 RMB Variable Cost, ~50 RMB Personnel Depreciation Source: Shenhua Group, Nexant estimates.

24 Most regions have excess capacity growth over Million tons Polyolefins* Market Growth N S America America Capacity Growth Europe Middle East Africa China Rest of Asia Consumption Growth Global Polyolefins* Capacity Growth (+49 million tons) Rest of Asia China N America Africa Europe Middle East *Includes both PE & PP - Source: NexantThinking Petroleum & Petrochemical Economics (PPE) Program

25 New Capacity in the US and Middle East is focused on specialities Regional Petrochemical Feedstock Sources and Trends North America ExxonMobil 1.3m tons LLDPE focused on specialties Dow using DOWLEX technology for octene LL grades and building separate elastomers unit CPChem building bimodal HD/LL Formosa to produce LDPE, gasphase LL using B1 and H1 comonomers, and now PP Braskem Idesa and INEOS/Sasol building 2 INNOVENE S plants, focusing on bimodal grades Middle East All Borouge III capacity (>2m tons/yr) aimed at differentiated PE and PP, esp. pipe grades Sadara - first solution plant in KSA will focus on Octene grades Iran capacity will include more commodity grades China Focus on butene-1 LLDPE HDPE plans include some Hostalen and INNOVENE S bimodal technology Massive development of HP and CP PP, including Sinopec, Novolen, UNIPOL, Spherizone licenses

26 Conclusions

27 Conclusions Demand Outlook: Demand fundamentals are expected to remain strong in the outlook Global PP demand was 60 million tons in 2015, up over 4% on 2014 Demand for PE (LD,LL,HD) totalled 87 million tons in 2015, up more than 3% Global growth driver is Asia China forecast to account for 65% of Asia s incremental demand over next 5 years Low oil prices, uncertainty about China & other economic factors have reduced short-term global GDP Success of Chinese consumption-led economic model key to global polyolefin markets Per capita demand, lower labour costs favour growth in places such as Vietnam over China Supply Developments and Net Trade: Demand fundamentals are expected to remain strong in the outlook Most new US and Middle Eastern plants target value-added grades Chinese capacity developments include both speciality and commodity grades Existing Middle Eastern operators face tough challenges to 2020, selling commodity products into an increasingly oversupplied market with less competitive advantage European exporters of speciality grades will face increased competition from US and ME Will converters unable to utilise higher performance polymers come under pressure? Source: Shenhua Group, Nexant estimates.

28 Thank you