An Assessment of The Key Drivers of Global Polyester and Raw Material Markets

Transcription

1 An Assessment of The Key Drivers of Global Polyester and Raw Material Markets IOCL Petrochem Conclave 2012 Philip Gibbs PCI Xylenes & Polyesters Ltd March 2012

2 POLYESTERS & DOWNSTREAM

3 Regional/Country Polyester GDP-Based Model Assumptions GDP and Population Growth Assumptions have been developed for each region/key country Recent economic data points to weaker growth in the Western Hemisphere which is currently being assessed Real GDP Growth Global 2.7% 2.5% 3.0% 3.2% 3.3% China 9.4% 8.2% 8.5% 8.5% 8.7% NAFTA 1.8% 1.6% 1.9% 2.2% 2.5% Europe 1.6% 0.5% 1.3% 1.5% 1.8% Source: World Bank, IMF, HIS Global Insight, and Oxford Economic Forecasting thru USDA Economics Research Population Growth Global 1.1% 1.1% 1.1% 1.1% 1.1% China 0.5% 0.5% 0.5% 0.5% 0.4% NAFTA 0.9% 0.9% 0.9% 0.9% 0.9% Europe 0.2% 0.2% 0.2% 0.2% 0.1% Source: US Census Bureau, International Data Base

4 World Polyester Production by End Product

5 World Polyester Production (includes recycled) Significant overcapacity forecast for

6 Asia Polyester Production (includes recycled) Asia continues to lead the world in polyester growth strong for , led by China. Asia s domestic consumption growth of its own polyester products offsetting loss of exports, supporting regional growth. Due to overcapacity from H onwards, utilisation rates expected to dip towards 70+% by Addition of PET capacities could be most aggressive in next 3-4 years, followed by filament yarn.

7 China Polyester Production (includes recycled) Strong growth seen in , based on development of stronger domestic consumption. Growth slows from 2013 mainly due to overcapacity. Consolidation and M&A likely to happen. Utilisation rates drop rapidly to the more sustainable 70+%, not seen since 2007.

8 India Polyester Production (includes recyclate) Polymer only % growth 4.2 (18.1%) 4.6 (9.0%) 5.3 (14.3%) 6.0 (12.8%) 6.7 (12.4%) 7.5 (11.8%) Note: others shown on chart not included in polymer only growth; absolute numbers include production from recyclates

9 Polyester Production Growth Volume India versus China

10 Polyester Price Trends & Feedstock Costs in China

11 Natural Cotton vs PSF vs POY Price

12 Volume 000's metric tons) PET Business Cycle: Latest Projection Consumption Increment Confirmed Capacity Increment World Utilisation Rate (% - RHS) 55

13 Volume (000's metric tons) Projected Inter-regional Trade Flows Balance between export share between Asia and ME still to be determined N America S America AME W Europe E Europe Asia/Pacific

14 Polyester Overview Global polyester growth remained robust in 2011 and should remain strong into 2012 in Asia, despite a weaker economic outlook Persistent economic problems in Europe continues to impact global market confidence. Signs that US may be on slow road to recovery Asian GDP growth has shown resilience in key countries and has prevented another recession in 2011 although GDP forecasts have been revised lower to reflect weaker export markets in the West Overcapacity in polyester sector a much greater factor for concern than collapse in demand!!

15 PURIFIED TEREPHTHALIC ACID 精对苯二甲酸

16 PTA Overview Global PTA utilisation rates hit record high in 2011, led by Asia which saw rates peaking at 94% PTA utilisation rates in 2012 forecast to drop sharply along with margins for PTA producers as capacity surges Some of the overcapacity may be theoretical and actual supply of PTA could be smaller than forecast, reducing a potential glut in the market As long as demand remains intact, PTA makers can track an expected rise in PX costs and lift PTA prices, thereby maintaining reasonable margins longer than expected China may export only from 2014; imports into China unlikely to end abruptly Rationalisation is forecast, but likely to be selective

17 World PTA Growth

18 World PTA Balance Forecast utilisation rates forecast to be up to 10% lower than anything in recent past

19 Asia PTA Supply Demand Balance The PTA party has ended. The hangover is now being felt Market in month period of adjustment market share/margin Korean and Taiwanese PTA exports forecast to decline by 33% or more in the next 18 months. Uncertainty will remain regarding the capability of new China PTA to operate at sustained high levels of utilization and availability Access to PX feedstock may also reduce China s PTA production for 2012/2013

20 China PTA Supply Demand Balance Stiff competition in China could slash margins, but should avoid losses as long as demand remains intact. China could start significant exports of PTA by Uncertainty remains with regard to growth in domestic demand, sensitivity to export declines and operational capability of new capacity. Imports will still feature heavily as a source of financing for polyester operations.

21 Korea PTA Supply Demand Balance The days of reckoning have finally arrived. The battle for market share has arrived. Operating rates could fall by as much as 25% by 2014 if certain capacity is not idled. Domestic polyester production will remain under severe pressure, but should hold at an equivalent level of 3 million tonnes of PTA. Overall PTA production is forecast to fall by 1 million tonnes by 2015.

22 Taiwan PTA Supply Demand Balance PTA exports forecasts to drop by approximately 1.2 million tonnes by Planned capacity expansion will force utilisation rates down to almost 60% without rationalisation. Domestic demand remains steady, but main adjustment is to loss of China exports.

23 India PTA Supply Demand Balance Indian PTA market characterised by the perennial MCC Haldia production issues. India is set to remain a net PTA importer. Utilisation rates may recover, assuming MCC Haldia problems are solved adequately in Domestic consumption growth unlikely to break 5% level as high interest rates and weak economic performance hampers wider economic growth.

24 India PTA Trade Balance Post 2009 Indian PTA market characterised by the perennial MCC Haldia production issues. India is a net PTA importer instead of earlier expectations of a net exporter. Utilisation rates are thus low, only 75% in 2010 and 79% in Assuming the Haldia problems are solved adequately by 2012, rates can rise significantly and hit 89% ( normal rates) by If Haldia problems are not solved, India can suck in more than 740,000 tonnes of imports and this can have a major impact on spot pricing in Asia.

25 SE Asia PTA Supply Demand Balance Regional producers not immune from wider PTA market battles. Focus on domestic consumers and markets may help prop up utilisation rates. Overall consumption growth will be flat however, with little new capacity justified.

26 PTA Summary PTA margins now under severe pressure from the triple threat of strong PX, PTA overcapacity and subsequent battle for export market share. Question mark over sustainable floor margin: $130-$140?? Surplus polyester capacity in 2012 may temporarily pull through extra PTA demand in China. PX availability may limit PTA production for some producers. Capacity and capability of new China plants still questionable. End of 2012 will be much weaker than the beginning. Although PTA plant closures are forecast, they will not be widespread. Slower demand growth may worsen a deteriorating situation.

27 PARAXYLENE

28 World Paraxylene Supply-Demand

29 World Paraxylene Capacity Asian PX capacity remains constant. Middle East gains increasing market share

30 World Paraxylene Consumption Asian PX demand continues to grow, outstripping its ability to produce feedstock

31 Asia PX Supply Demand Balance Asia s PX capacity fails to keep pace with growth in demand in longer term. Should be (just) sufficient capacity available to meet projected demand in 2012 but system vulnerable to reliability issues. Utilisation rates set to peak in The next downturn is almost inevitable as new capacity in Korea and Middle East target China. Issues to resolve between growth of refined products and petrochemicals.

32 China PX Supply Demand Balance China PX consumption vastly greater than ability to produce. Trade gap growing to almost 10 million by 2015 with major refinery investments needed to supply feedstock. Trade gap has encouraged suppliers in Korea and Middle East to move forward investment plans. Ability to achieve 90%+ rates consistently a downside factor China s influence on PX pricing should be increasing.

33 Middle East PX Supply Demand Balance SATORP JV in 2013 first new PX unit in the region for 4 years leading massive growth by Regional utilisation rates held down in 2012 by uncertainty over Iranian PX units ability to produce/export. Oman Oil resolved feedstock issues in New PTA Investment not likely until 2015.

34 North America PX Supply Demand Balance Switches from import to export region in 2012 as PQS PTA unit comes on line in Brazil and Europe goes short. Capacity idled since 2008 unlikely to be on line in 2011/12 to meet global peak demand years to 2013 when margins expected to be strong. Retains export capability, but showing little sign of ramping up shipments.

35 Europe PX Supply Demand Balance Structurally short from 2012 as Artlant PTA comes on line. Scale of imports exceeds traditional import sources (Russia/Israel) capability. Region remains gasoline long, retaining competitive PX economics.

36 Regional PX Net Trade

37 PX/PTA Price Outlook

38 PX/PTA Margin Outlook

39 PX Summary PX supply is tight H and set to be tighter with the new PTA capacities coming onstream; this will pose a challenge for PTA makers, especially the newer ones. To feed the growing PTA sector, PX units will have to run harder but the relatively high utilisation rates might not be realistic. Global economic slowdown may impact refinery operations and reduce availability of feed/increase cost to aromatics units. There is a large build-up in fresh PX capacity in Korea and the Middle East, that should come , but which will push down global operating rates to typical cyclical lows of 82%. Margins for PTA makers in 2012 might be at mercy of PX suppliers, with the end result being a de facto tug-of-war between PX and polyester.

40 EO/MEG

41 World MEG Capacity vs Demand Increase

42 World MEG Surplus at 90% EO Rate Short term new capacities will all be on by More capacities then due in Up turn on MEG demand despite slower growth is coming forwards as future plants slip. Is coal oxalate viable before 2015 or later? MEG surpluses limited in to 1% on global capacity, in realms of error.

43 China takes MEG leadership in 2014

44 EO/MEG Summary New MEG capacity at all time low, long dry spell lead by lack of Middle East. Unreliable and unpredictable new MEG plants in China. Usually big booms followed by big busts so expect major surplus in 2016 but US lower costs and thus not at risk as was the case in the past. Great for integrated producers. US PEO at capacity and must compete with MEG margins to maintain supply.

45 Thank You