A snapshot of today s (low oil) petrochemical industry.

A snapshot of today s (low oil) petrochemical industry. Will changes in global oil Industry affect tank container movements? @tco Asia General Meeting Singapore 5 th July 2016 www.icis.com 1

Agenda ICIS Analytics & Consulting Changing upstream scenes at oil & basic chemicals Chemical Value chain connecting to the feedstock Focus on Isocyanates- MDI & TDI Focus on Methyl Methacrylates (MMA & PMMA) Summary www.icis.com 2

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Crude prices are highly sensitive to myriad factors Events impacting oil 1. OPEC production 2. US production 3. Iran sanction lift 4. Financial crisis 5. Demand concerns 6. Supply / inventory 7. Currency 8. Political events 9. And more Source: EIA; historical data from ICIS Pricing Brent $/bbl 160 140 120 100 80 60 40 20 0 Jan-1992 Jan-1993 Jan-1994 Asia financial crisis Jan-1995 Jan-1996 Jan-1997 Jan-1998 Jan-1999 Jan-2000 9-11 Iraq war OPEC reduces production targets Jan-2001 Jan-2002 Jan-2003 Global financial crisis Katrina Jan-2004 Jan-2005 Jan-2006 OPEC reduces production targets Jan-2007 Jan-2008 Jan-2009 Jan-2010 Shale oil boom Jan-2011 OPEC moves away from price targets; spigots are open Libya turmoil Jan-2012 Jan-2013 Jan-2014 Jan-2015 OPEC keeps production targets Demand worries Iran sanction lifting China currency devaluation Jan-2016 www.icis.com 6

Crude supply is expected to remain long through the year with or without Iran OPEC continues its strategy to fight for market share and at the same time continues to try to cap oil production to help oil prices. Lifting of sanctions on Iran may add considerably to the global supply IEA forecasts up to 600kb/d increase in June. Iran is expected to seek to increase sales to Asia and recapture market share in Europe. That said, uncertainty still clouds around the volume of Iranian supply coming back to the market. Lifting of US crude export ban is unlikely to result in significant volumes of crude exports from US with narrowing WTI-Brent differential Source: IEA December Oil Market Report www.icis.com 7

Crude outlook in a few words Shale / Tight oil via Fracking has transformed oil availability Uncontrollable at best, driven equally by sentiments and fundamentals. Continue to expect volatility Brexit is a good example OPEC remains influential US has ability to react & take center stage Iran will be in the market China continues to look for self sufficiency (& will explore shale gas / oil amidst a fine balance between reform & control) www.icis.com 8

Three Major Pivots in the Petrochemical World Resurgent US Availability of very competitive tight oil and shale gas tilts the world supply scene Attract investments into ethylene derivatives capacity Swing producers for oil Emergent Middle East Clear intent to integrate downstream, leveraging its vast feedstock resources to capture as much value-adds This is however currently weighed down by low oil environment Iran likely resurfaces as a major player Divergent China Frantic building of integrated value chains & capacities Moving towards increasing self-sufficiency with noticeably Intermediates exports Continue attesting new feedstock options Current slowdown and accompanied economic reform is part of development progress and likely will make China stronger www.icis.com 9

Changing Scenes of Rests of Asia Petrochemical World India Among the fastest growing Asian petrochemical markets Surplus Naphtha but high import dependency for petrochemicals mainly due to lack of olefins feedstock Make In India intended to drive investment, however is marred by inward looking fiscal policies China Southeast Asia Growth initiatives impeded by domestic issues Relatively small market size with most, if not, all capacities requiring export markets to optimize cost of production Buzz at Indonesia continues albeit skepticism Japan and South Korea (ex-china) Matured markets with majors looking for growth in overseas markets Domestic capacities continue on their consolidation path Price setting region due higher cost of production www.icis.com 10

Simplified Olefins Production Routes Traditional & Non-Traditional FCC Splitter Traditional Routes Oil NGL Refinery Fractionation LPG Naphtha Gas Oil Ethane LPG Steam Cracker Ethylene Propylene Butadiene Metathesis Butenes Non-Traditional Routes (Propane) PDH Coal Gasification Methanol MTO Source: ICIS Consulting www.icis.com 11

CTO and MTO move up the cost curve when oil prices drop Cash Costs, $/tonne 1200 1000 800 600 400 Estimated Cash Costs of Regional Ethylene Supply $100 $50 $40 2014 2015 2016 Asian Ethylene Price 2016 to-date CTO MTO (merchant) CTO MTO (merchant) CTO 2014 2015 MTO (merchant) 2016 200 0 0 30 60 90 120 150 180 Cumulative Capacity, million tonnes/year Source: ICIS Consulting; 2016 to-date www.icis.com 12

Traditional Route (Steam Cracker) Non-Traditional Route (PDH, CTO, MTO) Naphtha-based producers seeing improved margins US ethane-based ethylene derivatives exports still viable albeit narrower spread against Asia market Advantage for Asian (imported) ethane cracker is driven by concurrent strategic reasons PDH remains a viable high-cost route CTO moves to the far right in the ethylene cost curve MTO based on merchant methanol shifts to the top of cost curve Advantage of MTO project integrated to US methanol eroded www.icis.com 13

Condensate splitter/aromatics sits near middle of cost curve Cash costs, Constant 2015 $/tonne 1600 400 Estimated Cash Costs of Regional PX production (Constant 2015 $) NA-MX NEA-MX SEA-STDP-Nap NEA-STDP-Nap NEA-Cond-Nap NA-Cru-Nap SEA-Cru-Nap NEA-Cru-Nap SEA-Cond-Nap EU-cru-Nap 1200 SEA 2015 ME- STDP NEA-MX NEA STDP NA-MX STDP ME-cru-Nap EU-MX 800 SEA-Cond-Nap NEA-Cond-Nap NA-Cru-Nap NEA-MX NEA-STDPSEA-STDP SEA-Cru-Nap NEA-Cru-Nap NA-STDP EU-cru-Nap NA-MX EU-MX 2016 NA-Cru-Nap ME-cru-Nap ME-cru-Nap SEA-Cru-Nap EU-cru-Nap NEA-Cru-Nap NEA-Cond-Nap SEA-Cond-Nap 0 5 10 15 20 25 30 35 40 45 50 Cumulative Capacity, million tonnes/year (overall account for 90% global share) 2014 Global PX Capacity by Source Pygas, 4% TDP, 11% Condensate-Naphtha Reformer, 15% TA, 9% Crude-Naphtha Reformate, 60% ME Middle East, NA North America, EU Europe, NEA North East Asia, SEA South East Asia Cru - Nap Crude Oil based Naphtha Reformer Aromatics Complex ; Cond - Nap Condensate based Naphtha Reformer Aromatics Complex STDP - STDP Complex with toluene feed ; MX - PX Standalone Complex with feed MX Lower crude oil price presents a lower feedstock cost to integrated aromatics production both from crude and condensate PX units fed by condensate splitter sits somewhere in the middle of the cost curve www.icis.com 14

Chemical Value Chain connecting to the Feedstock Oil/Gas Refinery operations Cracker / Reformer operations Commodities Specialties Heavy Naphtha Pygas Catalytic Reformer BTX Extraction Benzene Toluene Isocyanates MDI, TDI FCC Splitter Benzene PMMA ISO Containers Oil Gas/NGL Refinery Fraction ation LPG Naphtha Gas Oil Ethane LPG Methane Steam Cracker Methanol synthesis Propylene Ethylene Cumene i-c4/tba Methanol Acetone 1 2 3 MMA www.icis.com 15

Isocynates MDI & TDI : Essential building block of the Polyurethane Chain Benzene Toluene Propylene PO MDI (PMDI/MMDI) PMDI + rigid polyols Applications in refrigerators, insulation, construction OR TDI MMDI + butanediol (BDO) + adipic acid + methyl ethyl ketone (MEK) Pre-polymer for applications in shoe soles, adhesives, TPU resins, spandex, synthetic leather Polyether Polyols TDI + flexible polyols Foams for furniture, mattresses, automotive seats www.icis.com 16

MDI Supply-Demand Overview 9000 Global MDI Supply Demand (2010-2020) 100 SOUTH & SE ASIA 4% Thousand Tonnes 8000 7000 6000 5000 90 80 70 60 50 % Utilization NORTH EAST ASIA 42% NORTH AMERICA 22% EUROPE 26% SOUTH & CENTRAL AMERICA 2% 4000 3000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 40 30 MIDDLE EAST 1% AFRICA 2% FORMER USSR 1% CAPACITY CONSUMPTION PRODUCTION UTILIZATION RATE 2016 Demand : 5.58 million tonnes Global MDI Industry is slightly oversupplied with average plant utilization close to 75% China accounts for about 33% of global MDI demand MDI demand to grow at about an average rate of 4.1% over the period 2016-2020. Source: ICIS Supply-Demand Database www.icis.com 17

MDI Trade Flow Outlook Emerging Middle East in future (Sadara) MDI Key Trade Flows in Thousand Tonnes (2015 vs 2020) North America (2015) 36 (2020) 65 (2015) - 18 (2020) 45 +940 (2015) 76 (2020) 25 Africa Europe (2015) -32 (2020) 55 (2015) 0 (2020) 60 (2015) 46 (2020) 35 Middle East (2015) -1 (2020) 100 Former USSR (2015) - 45 (2020) 35 NE Asia South & Southeast Asia (2015) 18 (2020) 25 (2015) - 44 (2020) 5 (2015) 195 (2020) 150 from NA South & Central America *Volumes in 000 tonnes Middle East to emerge as a key exporter to Africa, SA & SE Asia (Sadara) Europe exports from Europe to Asia to reduce over the next 5 years NE Asia exports to reduce over time and consolidate to fewer markets Source: ICIS Supply and Demand Database www.icis.com 18

MDI Recent Pricing Trends Isocynates MDI Prices and Spreads (2011-2016) 3000 3000 2500 Slump in MDI late-2014 following feedstock 2500 Price $/tonne 2000 1500 1000 500 Downtrend curbed in Nov 2015 2000 1500 1000 500 Spread $/tonne Improving MDI-benzene spread since Apr 2016 0 Polymeric MDI - Benzene Spread Benzene FOB Korea Polymeric MDI CFR SE Asia Polymeric MDI CFR China 0 Price Correlation MDI - Benzene 75% MDI-Naphtha 63% MDI-Crude 61% Benzene prices correlate highly with naphtha price changes in Asia MDI-Benzene spread have remained fairly robust even in a lower feedstock price regime However new capacity addition poses a risk on an already oversupplied industry operating at 75% utilization www.icis.com 19

TDI Supply-Demand Overview TDI Supply Demand (2010-2020) 3500 3000 100 90 80 SOUTH & SE ASIA 10% NORTH AMERICA 13% SOUTH & CENTRAL AMERICA 8% Thousand Tonnes 2500 2000 1500 1000 70 60 50 40 30 % Utilization NORTH EAST ASIA 41% EUROPE 19% 500-2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CAPACITY CONSUMPTION PRODUCTION UTILIZATION RATE 20 10 - MIDDLE EAST 3% AFRICA 4% FORMER USSR 2% 2016 Demand: 1.95 million tonnes Global TDI Industry is also oversupplied with average plant utilization below 70% Recent capacity additions in China has resulted in lower operating rates globally TDI demand to grow at about an average rate of 3.4% over the period 2016-2020. www.icis.com 20

TDI Trade Flow Outlook Middle East to substitute EU export to Asia TDI Key Trade Flows in Thousand Tonnes (2015 vs 2020) (2015) 36 (2020) 40 North America (2015) 72 (2020) 50 (2015) 15 (2020) 20 (2015) 11 (2020) 25 +940 (2015) 29 (2020) 20 Europe (2015) -13 (2020) 20 (2015) 0 (2020) 40 Middle East (2015) -4 (2020) 20 Former USSR (2015) 44 (2020) 0 NE Asia South & Southeast Asia (2015) 216 (2020) 180 (2015) 14 (2020) 20 to NA South & Central America (2015) 58 (2020) 45 *Volumes in 000 tonnes Source: ICIS Supply and Demand Database Europe exports from Europe to ME & Asia to reduce over the next 5 years Middle East to emerge as a key exporter to Africa & SE Asia (Sadara) NE Asia Exports from Japan & Korea remain with China to self-sufficiency www.icis.com 21

TDI Recent Pricing Trends 3500 3000 2500 Isocynates TDI Prices and Spreads (2011-2016) Slump in TDI late-2014 following feedstock 3000 Surge in TDI since Apr 2016 amid tight supply in Asia outside China 2500 Price $/tonne 2000 1500 2000 1500 Spread $/tonne 1000 500 1000 Widening toluene-tdi spread since Apr 2016 0 TDI-Toluene Spread Toluene FOB Korea TDI CFR China TDI CFR SE Asia 500 Price Correlation TDI Toluene 77% TDI-Naphtha 66% TDI-Crude 64% Toluene prices are more related to gasoline as blend stock and benzene as feedstock Relatively higher price of toluene due to gasoline demand has squeezed TDI-Toluene spread in 2015 China s self sufficiency and planned capacities add to the concern of industry utilization already below 70% www.icis.com 22

In Summary - MDI Key Drivers MDI demand growth in emerging markets of India and SE Asia spandex and shoe MDI-Benzene spreads have remained fairly robust even in a lower feedstock price regime However, Middle East new capacity may potentially add to oversupply & change in trade flows With China also planning new capacity, will plants continue to run at low rates? In Summary - TDI Key Drivers Weaker furniture sector demand and dwindling automotive sales to weigh on prices With Middle East upcoming capacity, Chinese capacity expansions likely to be on hold With China increasingly exporting TDI, European supply to rest of Asia may be curtailed www.icis.com 23

MMA & PMMA Growing importance among acrylic polymers MBS (MethylMethacrylate Butadiene Styrene) PVC modifier MMA (Methyl Methacrylate) PMMA (PolyMethyl Methacrylate) Acrylic Glass Aquarium glass Bone Cement Acrylic Furniture & Glassware Bone Cement www.icis.com 24

MMA Supply-Demand Overview MMA Global Supply Demand (2010-2020) Thousand Tonnes 5500 5000 4500 4000 3500 3000 2500 100 90 80 70 60 50 40 % Utilization NORTH EAST ASIA 44% SOUTH & SE ASIA 11% NORTH AMERICA 21% EUROPE 20% SOUTH & CENTRAL AMERICA 1% 2000 1500 1000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CAPACITY CONSUMPTION PRODUCTION UTILIZATION RATE 30 20 10 MIDDLE EAST 1% AFRICA 1% 2016 Demand: 1.98 million tonnes FORMER USSR 1% Global MMA Industry is slightly oversupplied with global capacity utilization slightly lower than 80% More than 60% of MMA demand is consumed primarily for PMMA in Asia Faster MMA capacity growth relative to consumption poses a risk for lower capacity utilization in the future www.icis.com 25

MMA Global Trade Flow Middle East looks to export to Asia & Europe MMA Key Trade Flows in Thousand Tonnes (2015 vs 2020) To NEA (2015) 28 (2020) 30 North America (2015) 11 (2020) 15 (2015) 52 (2020) 50 (2015) 14 (2020) 15 Europe (2015) - 1 (2020) 20 Middle East (2015) 5 (2020) 0 (2015) - 3 (2020) 20 (2015) - 2 (2020) 20 China South & Southeast Asia (2015) 73 (2020) 40 (2015) 79 (2020) 80 Other NE Asia from NA South & Central America *Volumes in 000 tonnes Source: ICIS Supply and Demand Database Middle East may emerge as a key exporter to Europe and India beyond 2017 with limited supply to China Singapore - to continue to export to China while exports to Europe may be curtailed US to face competition from ME exporting to Europe Other NEA Exports to China on downward trend www.icis.com 26

PMMA Supply-Demand Overview Thousand Tonnes 2800 2600 2400 2200 2000 1800 1600 1400 PMMA Supply Demand (2010-2020) 100 90 80 70 60 50 % Utilization SOUTH & SE ASIA 8% NORTH EAST ASIA 46% NORTH AMERICA 22% EUROPE 19% SOUTH & CENTRAL AMERICA 1% 1200 1000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CAPACITY CONSUMPTION PRODUCTION UTILIZATION RATE 40 30 MIDDLE EAST 1% FORMER USSR 2% AFRICA 1% 2016 Demand: 1.98 million tonnes Global PMMA Industry is adequately supplied with average plant utilization close to 80% Asia accounts for more than 55% of world PMMA demand used primarily for acrylic glass www.icis.com 27

PMMA Global Trade Flow Middle East looks to export to rest of Asia competing with Japan, Korea and Singapore PMMA Key Trade Flows in Thousand Tonnes (2015 vs 2020) (2015) 8 (2020) 8 North America (2015) 2 (2020) 4 (2015) 1 (2020) 2 (2015) 6 (2020) 10 Europe (2015) 4 (2020) 0 Middle East Former USSR (2015) - 12 (2020) 20 China (2015) 120 (2020) 100 Other NE Asia (2015) 42 (2020) 35 (2015) 4 (2020) 5 South & Southeast Asia South & Central America *Volumes in 000 tonnes Source: ICIS Supply and Demand Database Europe Exports to Asia on a decline Middle East May emerge as an important exporter to China Rest of Asia Singapore and Other NEA continue to be a key exporter to China www.icis.com 28

MMA & PMMA Recent Pricing Trends 3500 MMA & PMMA Prices and Spreads (2011-2016) 3500 3000 2500 Feedstock effect on MMA prices 3000 More Supply in China 2500 Price $/Tonne 2000 1500 2000 1500 Spread $/tonne 1000 1000 Improving spreads 500 500 0 MMA-Acetone Spread MMA-Ethylene Spread Acetone CFR China Ethylene CFR SE Asia MMA CFR SE Asia PMMA CFR SE Asia 0 Price Correlation PMMA-MMA 90% MMA Acetone 80% MMA - Naphtha 65% MMA - Crude 64% PMMA prices although correlated to feedstock MMA prices, remain fairly shielded from energy price fluctuations Spot MMA prices have been under downward pressure due to supply overhang from China & feedstock volatility Ethylene based MMA production margins squeezed since the fall in crude prices and tightness in Ethylene supply in Asia www.icis.com 29

In Summary - MMA & PMMA Key Drivers Spot MMA prices have been under downward pressure due to supply overhang from China & feedstock volatility Ethylene based MMA production margins squeezed since the fall in crude prices and tightness in Asian Ethylene supply. Imposing Anti dumping duties - China s attempt to increase domestic MMA capacity utilization European PMMA trade to Asia on a decline and Middle East may emerge as a key exporter into Asia www.icis.com 30

Key messages Crude prices is at best uncontrollable Fundamental shifts in world trades due shales that led to low oil outlook with China moving towards self sufficiency in some intermediates and Middle East moving downstream. Alternate routes to make basic chemicals (Olefins & Aromatics) come good or bad times Consumer demands will drive performance & specialty chemicals Upstream feedstock prices affect but not as significant as product supply/demand balance Anticipate future (trade flow) trends help to strategically position ISO-container business www.icis.com 31

THANK YOU & QUESTIONS? Contact ICIS today for a confidential discussion about how we can help to address your business challenges and support your decision-making. Ee Foong Ewe Vice President +65 6780 4322 eefoong.ewe@icis.com ICIS Consulting: Powered by Data. Driven by Insight. www.icis.com 32