Polyolefins: Drivers and Trends North America and the World Nick Vafiadis Business Director - Polyolefins nvafiadis@cmaiglobal.com February, 2009 Singapore Shanghai Flexible Houston Packaging: New York London February Düsseldorf 2009 Dubai
What a Difference.. Resin prices plummet Economy tanked globally 401K = 201K Fourth quarter demand collapse Resin producer M&A activity Resin producer bankruptcies Plant shut-downs project delays Inventory draw downs Resin price reversal down to up
Energy and Economy Summary PE demand somewhat linked to GDP Global recession (negative GDP) in 09 with recovery in 2010 Mature economies lag developing world in the recovery Annualized energy prices bottom in 09: prices recover in 2010+ but remain below 2008 record highs h Nat Gas remains favored vs Naphtha as an ethylene feedstock
Energy How did high energy impact plastics packaging? Higher cost of plastic raw material Higher cost of converting utilities Higher cost of package contents Higher cost of shipping products = Demand destruction!
What are some ways industry responded to higher energy related packaging costs? Downsize the package Downgauge wall thickness Recycle material added to package Blend in lower cost fillers Innovative packaging
Ethylene
U.S. Ethylene Supply/Demand Outlook Billion Pounds Operating Rate, Percent 17 105% 16 Forecast 100% 15 14 13 12 11 10 9 01 Q3 02 Q3 03 Q3 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 95% 90% 85% 80% 75% 70% 65% Total Demand Effective Operating Rate Nameplate Operating Rate
U.S. Ethylene Market Quarterly Economics Large Buyer Contract Cash Margins Cents Per Pound Dollars Per Metric Ton 80 1764 70 Forecast 1543 60 50 40 30 20 10 0 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 Wtd. Average Cash Cost Wtd. Average Cash Margin Average Spot Price Large Buyer Contract Price 1323 1102 882 661 441 220 0
Global Ethylene Capacity Growth ( -000- Tons ) Major Region 2007 Capacity 2012 Capacity '07 to '12 Delta Middle East / Africa 16,833 35,978 19,145 Asia Pacific 37,940 52,097 14,157 America's 40,393 40,761 368 Europe 30,970 31,854 884 World Total 126,136 136 160,690 690 34,554
Company Arya Sasol The Immediate Issue... Nine Million Tons By 2009 Gulf 2008-2009 Ethylene Projects Jam PC Jubail ChevPhi SEPC TKOC Yansab Petro-Rabigh TKOC SHARQ RLOC Country Capacity (kt) Time Capacity Add., MMT 10 Iran 1000 Online 8 Iran 1320 Online Saudi Arabia 300 Online Saudi Arabia 1000 Online Kuwait 850 Online Saudi Arabia 1300 Q1 09 Saudi Arabia 1300 Q1 09 Kuwait 850 Q4 08 Saudi Arabia 1200 Q3 09 Qatar 1300 Q2 09 0 6 4 2H'09 Q1 09 Q4 '08 2 Online 08
We are on the Brink Ethylene Capacity, MMT 35 30 25 20 15 10 5 Operating Rate, Percent 92 90 88 86 84 82 80 0 2008 2009 2010 2011 2012 2013 78 Total Middle East Capacity Global Operating Rate
Polyethylene l
PE: US Current Status Significant capacity currently shut down or turned down Producer integrated margins have improved Key Producers facing major challenges ie (Dow, LBI, Nova, Ineos, etc..) Inventories have been reduced at producer and converter sites Domestic demand remains weak Export volumes well off 08 averages Price increases announced through March
Film Demand and GDP Change Million Pounds 3400 3200 3000 2800 2600 2400 Percent Change 8 6 4 2 0-2 -4 2200 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08-6 U.S./CAN Film Demand U.S. % Change GDP
Reduced Global Demand Total PE Domestic Demand Comparison, World Million Metric Tons 100 90 80 70 60 6.1 Million Metric Tons 50 40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Updated Forecast Demand Forecast 10/2008
PE Demand Decline Mature Markets Domestic PE Demand, Million Metric Tons 30 25 20 15 10 5 0 2000 2002 2004 2006 2008 2010 2012 West Europe US/C U.S./Canada
China Takes a Hit Million Metric Tons 20 18 16 14 12 10 3.1 Million Metric Tons 8 6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Demand Forecast 10/2008 Updated d Forecast
Recovery Drivers GDP Improvement Demand Bounce following recession: developing world leads recovery Lower prices stimulate base demand Capacity rationalization helps balance supply note: not suggesting or recommending that FPA members or resin producers close capacity individual decision.
Million Pounds 3500 3000 U.S./Canada PE Film Resin Quarterly Demand Forecast 2500 2000 1500 1000 03 Q3 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 Source: ACC,, Plastics Division; Gov t Trade Data Film Resin Demand
Global PE Film Resin: Demand Bounce Accelerated Recovery vs Pre-Recession. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Global PE Film & Sheet 2.2 5.9 2.7 5.3 6.0-2.3 0.6 2.2 5.1 6.7 7.5 U.S. & Canada Film & Sheet -1.7 5.9-5.4-1.0 4.3-9.8-3.5 0.1 1.2 2.3 2.4 Note: Values = percent change
HDPE Film Resin Demand 2007-2008 HDPE Percent Change Film 12 Mils and Below -13.7 Packaging Film 0.7 Food Packaging Film -4.1 Non-Food Packaging Film 5.9 Non-Packaging Film -19.1 1 Retail Bags -24.4 Trash and Can Liners -12.1 1 Other Non-Packaging Film -2.0 Source: ACC,, Plastics Division; Gov t Trade Data
LLDPE Film Resin Demand 2007-2008 LLDPE Film (12 Mils and Below) Packaging Film Food Packaging Film Non-Food Packaging Film Non-Packaging Film Percent Change -11.6-9.1-1.3-15.0-15.4 Source: ACC,, Plastics Division; Gov t Trade Data
LDPE Film Resin Demand 2007-20082008 LDPE Percent Change Film (12 Mils and Below) Packaging Film -11.4-13.2 Food Packaging Film -7.7 Non-Food Packaging g Film -19.7 Non-Packaging Film -5.9 Source: ACC,, Plastics Division; Gov t Trade Data
Global PE Film and Sheet Resin Demand Growth By Region 2008 versus 2013 N America 0.9% 2008 SA America 51% 5.1% 2013 W Europe C Europe CIS & Africa 2.0% 4.4% 5.7% M East 6.7% NE Asia SE Asia Indian SC % AAGR 2008-13 10.4% 6.0% 2.1% 5.7% 0 2 4 6 8 10 12 Million Metric Tons
4 th Quarter: Turmoil Regional LLDPE Price Comparison (Discounted & Spot Prices) Cents Per Pound 110 100 90 80 70 60 50 40 Dollars Per Metric Ton 2425 2205 1984 1764 1543 1323 1102 882 30 661 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 NAM LLDPE WEP LLDPE CHINA LLDPE (Spot) NAM Cash Cost, Integrated NAM Cash Cost, Non Integrated
Limited Competitiveness for NAM Regional HDPE comparison (Discounted & Spot Prices) Cents Per Pound 110 Dollars Per Metric Ton 2425 100 90 80 70 60 50 40 CMAI Forecast 2205 1984 1764 1543 1323 1102 882 30 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 NAM HDPE WEP HDPE CHINA HDPE (Spot) NAM Cash Cost, Integrated NAM Cash Cost, Non Integrated 661
Thousand Metric Tons 500 450 400 350 300 250 200 150 100 50 0 U.S. PE Export Decline 06 M M J S N 07 M M J S N 08 M M J S N Total Selected Regions N.America S.America Europe Far East Other
Billion Pounds 3.0 U.S./Canada Quarterly PE Exports 2.5 Forecast 2.0 1.5 10 1.0 0.5 0.0 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 HDPE Exports LLDPE Exports LDPE Exports
Billion Units 70 U.S. Bag Imports Percent 100 60 90 80 50 70 40 30 60 50 40 20 30 10 20 10 0 1st/02 4th/02 3rd/03 2nd/04 1st/05 4th/05 3rd/06 2nd/07 1st/08 0 China Share of Total World China
2008 U.S. Film & Bag Imports (PE Resin Volume Equivalent) Other 27% Canada 26% Taiwan 7% Korea South 2% Israel Mexico 1% 4% Germany 1% France 1% China 31% 2.0 Billion Pounds of PE Resin
Million Metric Tons 8 7 6 5 4 3 2 1 0-1 World Polyethylene Net Capacity Additions 2008 2009 2010 2011 2012 2013 N. America S. America W. Europe C. Europe/CIS & Baltic States Africa/M. East Asia/Pacific
PE Projects And Debottlenecks (Project Changes From Oct.08 to Jan.09) Thousand Metric Tons View as of January October 2009 2008 5000 Main Changes: 4500 Reduction of 1.3 MMT in 4Q-08 4000 Reduction of 2.0 MMT in 1Q-09 3500 Addition of 1.8 MMT starting up in 3Q-09 3000 Net loss of 465 thousand metric 2500 tons in the period. 2000 1500 1000 500 0 1Q-08 1Q-09 1Q-10 10 1Q-11 11 1Q-12 12 1Q-13 13 AFR CEP CIS ISC MDE NAM NEA SAM SEA WEP
Unprecedented Excess Capacity Driving PE, Million Metric Tons 28 24 20 16 12 8 4 0-4 -8 Low Operating Rates Operating Rate, Percent 100 Forecast 95 1997 1999 2001 2003 2005 2007 2009 2011 2013 Excess Capacity Cumulative Operating Rate 90 85 80 75 70
North America PE Chain Margins Cents Per Pound 100 90 80 70 60 50 40 30 20 10 0-10 Dollars Per Metric Ton 2205 CMAI Forecast Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-1010 Ethylene Cash Margin Weighted Avg Non-Integrated PE Margin NAM LLDPE Disc. Price 1984 1764 1543 1323 1102 882 661 441 220 0-220
PE Take-Aways NAM Industry enjoyed competitive cost position through most of 2008. Advantage reduced in 09 Global recession accelerates capacity shutdowns and results in project delays Despite delays and shutdowns, unprecedented oversupply conditions drive down operating rates and margins. The cycle trough is expected in 2009-2010, global recovery evident by 2011
Polypropylene py
No Surprises in PP Weaker economy leads to lower demand worldwide Short term projects WILL come on line with minor delays Numerous shut-downs of existing capacity expected (still lower operating rates)
Reduced Global PP Demand Total PP Domestic Demand Comparison, World Thousand Metric Tons 70,000 60,000 50,000 40,000 30,000 6.1 MM tons =10% reduction 20,000 10,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 World_Total 08 World_Total 08t
Mature Markets: Demand Goes Negative PP Domestic Demand Comparison, North America Thousand Metric Tons 8500 8000 Balances, August 2008 7500 7000 6500 Balances, January 2009 6000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Region_NAM 08 Region_NAM 08t
Developing Markets: Demand Growth From Double Digits To Marginal Thousand Metric Tons 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 PP Domestic Demand Comparison, China 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 China 08 China 08t
PP Demand Recovers At Accelerated Rate vs Pre-Recession. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Global PP Film & Sheet 8.0 9.6 6.1 5.1 5.2 0.4 5 2.8 6.4 7.5 7.3 U.S. & Canada Film & Sheet 0.8 10.8-6.6-7.6 0.5-3.3-1.2 2.7 1.7 1.6 1.5 Note: Values = percent change
World Polypropylene Demand by Region N America S America 5.5% 1.5% 2008 2013 W Europe 18% 1.8% C Europe CIS & Baltic Africa 4.6% 71% 7.1% 2008 Total Demand = 44.1 Million Metric Tons World AAGR % 2008-2013 2013 = 4.5% 8.5% M East 6.3% NE Asia SE Asia 5.0% Indian SC 8.7% 5.3% % AAGR, 08-13 0 5 10 15 20 Million Metric Tons
Polypropylene North America, Percent Change YTD December 2008 Vs. 2007 Production Imports Total Supply Domestic Sales Exports (est.) Total Sales Avg. Op. Rate- YTD 07 Inventory change MM LBS. YTD 2007 Sources: ACC, Plastics Division; Gov t Trade Data PP -13.8-0.2-13.6-8.4-25.9-10.8 80.1-445
Domestic Demand Still In Doldrums Million Pounds 1600 1550 1500 Re-stocking 1450 1400 1350 1300 1250 1200 1150 1100 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 Total Average
Million Pounds 500 450 U.S./Canada PP Film Quarterly Demand Forecast 400 350 300 250 200 03 Q3 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 Film Resin Demand Source: ACC,, Plastics Division; Gov t Trade Data
North America PP Exports Million Pounds 900 800 700 600 500 Forecast Overcapacity Taking Toll 400 300 200 100 0 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3
Million Metric Tons 7 World Polypropylene Net Capacity Additions 6 5 4 3 2 1 0-1 2008 2009 2010 2011 2012 2013 N. America S. America W. Europe C. Europe/CIS & Baltic States Africa/M. East Asia/Pacific
Projects: Delayed, But Not By Much October 2008 3500 PP Projects, Thousand Metric Tons View as of January 2009 3000 2500 2000 1500 1000 500 0 1Q-08 1Q-09 1Q-10 10 1Q-11 11 1Q-12 12 1Q-13 13 AFR CEP CIS ISC MDE NAM NEA SAM SEA WEP
North America PP Capacity Additions & Shutdowns Company Dow - Norco Ineos Choc Bayou FPC Pt Comfort Shutdown Yes Yes - Restart - MM Pounds 500 190 When YE 2007 2007-20092009 Total PC La Porte - - 250-300 H1 2008 Indelpro - Mexico Basell - Bayport Basell - Canada Basell - Canada Basell - Morris - - Yes - - - Yes - 450 880 500 440 YE 2007 Q3 2008 H1 2008 H1 2008 Yes - 400 H1 2008 Yes - 300 Q4 2008 Pasadena Yes - 240 YE 2008 Yes - 120 H1 2009 Bayport Yes - 400 H1 2009 PSPC - Pasadena FHR - Odessa Sunoco - Bayport
Unprecedented Excess Capacity PP, Million Metric Tons 20 15 Driving Low Operating Rates Forecast Operating Rate, Percent 100 95 10 5 0 90 85 80 75-5 2003 2005 2007 2009 2011 2013 Excess Capacity Cumulative Operating Rate 70
U.S. Polypropylene/Propylene Pricing Monthly 2006-2010 2010 Price, Cents Per Pound 120 110 Forecast 100 Peak 90 80 70 60 50 40 30 20 10 0 06 A J O 07 A J O 08 A J O 09 A J O 10 A J O PP - C3 Propylene PP
U.S. PP versus Propylene Cents Per Pound 90 80 70 60 50 40 30 20 10 0-10 CMAI Forecast 90 92 94 96 98 00 02 04 06 08 10 12 Margin over Feedstock Adj PP Domestic PG Propylene - C3 Cash Margin Adjusted PP Price = Estimated Actual Injection Molding Homopolymer Price; PG Propylene = Contract Benchmark Price
PP Take Aways Increasingly gy negative economy affecting PP demand Lower demand magnifies impact of overcapacity Price forecast for 09 is relatively flat and tracking propylene individual negotiations determine outcome Domestic resin demand better than expected in (January), but forecast remains weak Export market to become more competitive Additional shut-downs expected