Will Asia see a flood of PX in 2017? Gustav Holmvik, Team Leader Petrochemicals

Will Asia see a flood of PX in 2017? Gustav Holmvik, Team Leader Petrochemicals

Overview 2016 a strong year for PX margins in Asia PX additions in 2017 could change the game Rationalization of Asian PTA market in 2016; was it enough? What can be expected in China? What can be expected in India? What can be expected in US/EU? Private & Confidential 2

2016: Strong year for PX margins - More PTA added, some PX plants idle, PX TA s, PTA run rates. 900 800 700 600 500 Drawn out term nego + RIL buying PX TA season + start-up new PTA unit. G20 uncertainty + Strategies of buyers and sellers PX CFR Taiwan/China PX-naphtha 400 300 Private & Confidential 3

Asian PX ACP settles more frequent in 2016 - Mostly to the benefit of PTA producers. Five settlements so far in 2016 versus three in 2015: Feb, Mar, Apr, July and August. Price stability gives confidence to settle. ACP typically settles well below spot prices. Five producers: Japan's Idemitsu Kosan and JX Nippon Oil & Energy, ExxonMobil, and South Korea's S-Oil and SK Global Chemical. Six buyers: BP, Taiwan's Capco and Oriental Petrochemical (Taiwan) Corp., Japan's Mitsui Chemicals and Mitsubishi Chemical, and China's Yisheng Petrochemical. Interest from others to join the club. Private & Confidential 4

Increased PX supply in 2017 Country Company Capacity (kt/yr) Start-up Singapore Jurong Aromatics 800 Aug-16 India Reliance 2200 Oct-16 Indonesia TPPI 550 Unclear Saudi Arabia Petro Rabigh 1340 Q1-Q2 2017 Vietnam Nghi Son 700 Mid-2017 Private & Confidential 5

More long-haul PX cargoes to arrive in China Up to two thirds of PX flowing to China comes from Northeast Asia. NEA producers can ship on smaller vessels. Typically end-users prefer to buy near-sea. PX capacity additions in India, Middle East, Southeast Asia in 2017. So, more PX coming to China on larger, long-haul vessels. Almost all Chinese PX ports can receive MR-size vessels Notable exclusions are Yisheng s berths at Dalian and Hainan. Private & Confidential 6

3/24/2014 4/24/2014 5/24/2014 6/24/2014 7/24/2014 8/24/2014 9/24/2014 10/24/2014 11/24/2014 12/24/2014 1/24/2015 2/24/2015 3/24/2015 4/24/2015 5/24/2015 6/24/2015 7/24/2015 8/24/2015 9/24/2015 10/24/2015 11/24/2015 12/24/2015 1/24/2016 2/24/2016 3/24/2016 4/24/2016 5/24/2016 6/24/2016 7/24/2016 Petrochemicals Mixed margins for China s PTA producers - New, large plants operate with lower cost. 400 200 0-200 Y/mt -400-600 -800-1000 -1200 China PTA (cost Y 500/mt) vs. breakeven China PTA (cost Y 800/mt) vs. breakeven Private & Confidential 7

PX imports in kilo tonnes (kt) Petrochemicals and yet China s appetite for PX grows 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Year Private & Confidential 8

Rationalization in Asian PTA market - But is it enough to counter overcapacity? S. Korean producers Hanwha GC and Samnam idle plants in 2016. S. Korean PTA producers introduce cost-based PTA sales contracts. Indonesia's Asia Pacific Fibers idle PTA plant for several years. Taiwan s CAPCO scraps old units. Taiwan s OPTC to idle older unit after new plant starts in 2017. Mitsubishi Chemical sells PTA business in India and China. But in China Yuandong shut since bankruptcy mid-2015 but may restart 2017 after sale? Xianglu potential restart 2017? And the fierce battle for market share rages on Private & Confidential 9

S Korean PTA under pressure - Recent ADD investigations in Europe another blow to the industry 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 Total PTA exports Y-O-Y change (mt) 0 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16-50,000,000-100,000,000-150,000,000 Private & Confidential 10

S. Korea dominates China imports, But India, ME will join the fray soon Europe/US Kuwait Singapore Iran India Saudi Arabia Thailand Oman Taiwan Japan South Korea MT 0 2,000,000 4,000,000 6,000,000 Private & Confidential 11

Other factors impacting 2017 Asian PX market Increased PX production by non-integrated producers in S. Korea after Hyundai Chemical starts new 1 million mt/year MX plant at Daesan in October. New PTA capacity in Asia and the US: OPTC (1.5 mil), JBF (1.25 mil) and M&G Chemicals (1.3 mil) Restart of Portugal s Artlant (0.7 mil) PTA plant? Upstream prices Private & Confidential 12

A brief mention of the MOC process - The pillar of Platts methodology Private & Confidential 13

The unique MOC process - Asian PX is a liquid spot market. Information from seller/buyer/broker Verify with buyer/seller Heard goes out on PCA Private & Confidential 14

Recent increase in participation from China Heard 317: PX offer summary ON CLOSE: 3 offers Heard 310: PX offer summary FINAL :3 offers Heard 307: PX s3) : Yisheng offers H2 Sep at $809/mt CFR Dalian, 5kt, LC 30 Heard 306: PX s1) : Yisheng offers H2 Sep at $807/mt CFR Ningbo, 5kt, LC 30/45/60 days (MR) Heard 300: PX s2) : Wanxiang offers Oct at $813/mt CFR TND, 5kt, LC 30/45/60 days, open origin (MR) Private & Confidential 15

Conclusion Shift in balance to a buyer s market for PX in 2017. More shipments on a long-haul basis, meaning larger vessels. More competition not only in PTA, but also in PX. US and EU markets expecting little change, but some new PTA capacity could draw Asian cargoes to the US. ACP likely to settle in stable market conditions, may include new members. Private & Confidential 16

Thank you! Gustav Holmvik Team Leader Asian Petrochemicals Tel: +65 6530 6523 Email: gustav.holmvik@spglobal.com 17