PE / PP Market Review Nick Vafiadis Director Polyolefins and PVC North America Singapore Flexible Packaging Association Flexible Houston Packaging New York Assn. London March, Düsseldorf 211 Shanghai March 211 Dubai
Agenda Updated energy forecast Ethylene impact PE issues and forecast (LDPE) Propylene Polypropylene
WTI Crude Oil Forecast Comparison Dollars Per Barrel 14 12 1 8 6 4 2 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 New Forecast Old Forecast
WTI Crude Oil Forecast Comparison Dollars Per Barrel 12 1 8 6 4 2 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 New Forecast Old Forecast
North America Energy Trend Prices $/MMBtu 2 18 16 14 12 1 8 6 4 2 Gasasa%ofCrude a 12% New Forecast 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 Crude (WTI) Natural Gas Gas as % of Crude 1% 8% 6% 4% 2% %
Cents Per Pound 6 5 4 3 2 1 U.S. Ethylene Cash Costs The Feedstock Effect Dollars Per Ton 1,764 1,543 1,323 1,12 882 661 441 22 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 Wt. Average Propane Butane Lt. Naphtha Purity Ethane
211 Global Ethylene Cash Costs Dollars Per Metric Ton 1,45 Average Feedstock Basis 1,25 Heavy Feed 1,5 85 Light Feed NEA Avg. ISC Avg. WEP Avg. 65 NAM Avg. SEA Avg. 45 MDE Avg. 25 5 2 4 6 8 1 12 14 16 CUMULATIVE ETHYLENE CAPACITY (million tons)
12 Ethylene Capacity & Demand Million Metric Tons 16 8 Forecast 12 Average Annual Demand Change 1-15: 15: 6.5 MMT 4-4 -8 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 North America Middle East Southeast Asia West Europe Northeast ta Asia Others Annual Demand Change
So Why Aren t We Swimming In Middle East Olefin Derivatives? Project delays, especially derivative capacity Strong demand, led by China Capacity closures in North America and West Europe reduce supply- demand imbalance
The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again. Poor Operating Rates % Nameplate Operating Rate, Middle East 12 11 1 Historical Average = 92% Forecast 9 8 7 6 5 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 Middle East Saudi Arabia Iran Kuwait Qatar UAE
U.S Ethylene Supply/Demand Billion Pounds 17 16 15 14 13 12 11 1 Outlook Forecast Operating Rate 15% 1% 95% 9% 85% 8% 75% 7% 9 1 2 3 4 5 6 7 8 9 1 11 12 65% Total Demand Effective Operating Rate Nameplate Operating Rate
U.S. Ethylene Margins Cents Per Pound 25 2 Forecast Dollars Per Ton 551 441 15 331 1 22 5 11 28 29 21 211 212 213 214 US U.S. Wtd. Avg Contract tc Cash hm Margin
Polyethylene
PE Demand Year Over Year U.S./Canada Polyethylene Demand Percent Change, Year over Year %AAGR %AAGR End Use 6 7 8 9 1 '5-1 1-'15 Film & Sheet -1. 4.1-11.4 -.5 6.2-1.4 2.7 Injection Molding -1.4 14-4. 4-12. -4.4 44 75 7.5-4. 4 26 2.6 Pipe & Profile 15.8-6.7-8.6-17.2 19.1-3.1 3.7 Extrusion Coating -6.9-2.6-8.3-11. 17.5-4.9 3.1 Blow Molding.3-2.8-11.5 -.8 6.9-2. 2.9 Wire & Cable 9.1 -.3-3. -2.3 4.3 1.4 2.1 Rotomolding 49 4.9-5. 5-3.8 38-6. 6 18. -1.2 12 39 3.9 Domestic Demand 3.8-1. -12.5-5. 8.5-2.7 2.9
Cents Per Pound 11 1 9 8 7 6 5 4 U S Cost vs. Regional Prices Forecast 1/11 12/12 = +14 cpp 11 v 12 = + 8 cpp 3 Jan-7 Sep-7 May-8 Jan-9 Sep-9 May-1 Jan-11 Sep-11 May-12 NAM Cash Cost, Integrated NAM LLDPE WEP LLDPE CHINA LLDPE (Spot)
Million Metric Tons 6 5 4 3 2 1-1 -2-3 U.S. Trade Trends Forecast Percent 4 35 3 25 2 15 1 5-4 25 26 27 28 29 21 211 212 213 214 215 Imports Exports Production as a % of Exports
Billion Units 7 6 5 4 3 2 1 U.S. Bag Imports Percent 6 5 4 3 2 1 4 Q3 5 Q3 6 Q3 7 Q3 8 Q3 9 Q3 1 Q3 China Share of Total World China
1Q-1 Polyethylene Capacity Changes NAM WEP MDE NEA / SEA / ISC Company kta Company kta Company kta Company kta Borealis BEL HD (2) Yansab Borealis SWE SABIC UK HD/ LL (9) Sharq LD 4 Qatofin KSA HD 4 Sinopec/SABIC JV KSA HD 4 PTT Chem QAT LL 45 Bangkok PE Panjin Eth. Haldia CHI THA THA CHI IND HD/ LL 6 LD 3 Net Increase HD 25 HD 3 HD/ LL x 125 2935 LBI GFR HD 25 Zhenghai Ref. CC CHI LL 45 Borealis SWE LD 35 MOC THA LL 3 3Q Q-1 2Q-1 SABIC NET LD (12) TPE CNOOC & Shell Indian Oil Borouge UAE Indian Oil HD/ LL 6 Baotou Shenhua CNOOC & Shell Gail THA CHI IND IND CHI CHI IND HD 4 LD 75 HD 3 HD/ LL 35 2355 HD/ LL 3 HD 75 LL 5 4Q Q-1 Nova CAN LD x 6 Polimeri Eur. FRA LD 26 26 Q-Chem II QAT HD 35 Amir Kabir IRN LD 3 LG Chem KOS HD 4 165 97
1 1Q-1 Company Kayan Polyethylene Capacity Changes MDE SAR kta HD 4 Company NEA / SEA / ISC kta Net Increase 4 2Q-11 3Q-11 ExxonMobil ExxonMobil SIN SIN HD/LL 65 LL 65 13 4Q Q-11 Zhongyuan Evolue Japan CHI JAP LL 6 LL 5 11 Company MDE kta Company NEA / SEA / ISC kta Net Increase 1Q-1 12 2Q-12 QAPCO Llam PC Saudi Polymers QAT IRN SAR LD 25 Hanwa Chem. HD 3 Sichuan PC HD 11 Qilu PC Fushun PC Fushun PC KOS CHI CHI CHI CHI LD 3 HD/LL 6 HD 25 253 HD/LL 45 HD 35 8 3Q-12 Honam PC KOS HD 21 21 4Q-1 12
Global Total PE Operating Rates Operating Rate, Percent 95 Forecast Forecast 9 85 8 75 7 25 26 27 28 29 21 211 212 213 214 215 World WEP MDE NEA NAM
LDPE = New Life Then Obsolete, replaced by LLDPE High cost, low volume plants Minimal investment in new capacity Now Specialty status Tight Supply globally Expanding margins EVA driving demand Limited capacity build
LDPE Capacity: Autoclave vs. Tubular % Process 's 1% 7 9% 8% 7% 6% 5% 4% 3% 2% 1% % NAM AUTOCLAVE WEP TUBULAR MDE ASIA LDPE CAPACITY 6 5 4 3 2 1
North America LDPE Capacity Total LDPE Autoclave Tubular EVA EVA % Capacity Capacity Capacity Capacity (MM Lbs) (MM Lbs) (MM Lbs) (MM Lbs) Westlake 1,526 1,222 34 165 1.8 ExxonMobil 1,468 79 1,389 4 27.2 Dow 1,442 51 941 25 17.3 LyondellBasell 1,431 58 851 195 13.6 DuPont 765 765 33 43.1 PEMEX 728 728. Chevron Phillips 619 619. AT Plastics 322 322 23 71.5 Nova Chemical 276 276. Total 8,576 4,816 3,761 1,57 18.3
NAM: LDPE ISSUES Structurally: short in N. Am and the world. Most units: old and running hard Price delta: developed (is it sustainable)? Current premium : expected to erode (LDPE LLDPE +) (LDPE or Metallocene: now competitive / converters blending more LLDPE New capacity in Canada: Nova 6 Ktons: Strong margins provide incentive for additional capacity.others contemplating Autoclave premium: can it happen? Supply / Demand: eases in 211 and beyond
Cents Per Pound 1 9 8 7 6 5 4 Price Differentiation (NAM Discounted Prices) Dollars Per Metric Ton 225 Forecast 1984 1764 1543 1323 112 882 3 Jan-7 Oct-7 Jul-8 Apr-9 Jan-1 Oct-1 Jul-11 Apr-12 661 LDPE GP HDPE BM LLDPE C4
U.S. Polyethylene Chain Margins Cents Per Pound Polyethylene 6 5 Dollars Per Metric Ton 7 Forecast 6 4 3 2 1 5 6 7 8 9 1 11 12 13 14 15 5 4 3 2 1 Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs PE Margin - Contract HDPE Blow Molding Non-Int. Including Discounts Ethane Margin - Ethane Price Minus Shrinkage & 5.5 cpg Extraction Costs
PE Take-Aways Hindsight: Energy shift, start up delays, export options, and unplanned outages transform would-be trough to record profits for US resin producers US producers: sitting on cash expansions likely Price: increasingly tied to global naphtha price trends, and export options unplanned outages remain the wildcard New capacity: in MDE and China will be absorbed less dramatic impact on pricing and margins Export market: remains attractive for US resin producers resin imports minimized Imports: Reduced incentive to import resin and film and bags Domestic packaging and film market: continues recovery although at moderating pace Watch out: Too rapid, and too high crude increase could kill demand and resin prices could fall as in 28
Propylene Polypropylene
World 21 PG/CG Propylene Supply/Demand HS FCC Olefin Cracking Others Gas-to-.3%.7% Olefins Stm..2% Crackers Metathesis 58.1% 3.3% Oxo Alc. Dehydro 8% 3.4% 34% Cumene 4% Polypropylene 67% FCC Splitters 31.4% Production 75.5 MMT Acrylonitrile 7% Acrylic Acid Others Propylene 4% 2% Oxide 8% Demand 74.6 MMT
Billion Pounds 1 9 8 7 6 5 4 3 2 1 Propylene Production 6 Billion Pounds Lost Lowest production since before 199 86 87 88 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 Co-Product Propylene Refinery Sourced Propylene
North America 21 PG/CG Propylene Demand by End Use Propylene Oxide 11% Others 5% Acrylic Acid 6% Acrylonitrile 1% Cumene 1% Isopropanol 2% Polypropylene py 58% 2-Ethyl Hexanol 2% Butanols 5% Domestic Demand = 13.5 Million Metric Tons
ACN and Production Impact PGP Price ACN, $/Ton C3, Cents per Pound 3, 9 2,5 Cracker Turnarounds 8 7 2, Extreme TX December Weather + C3 1,5 Refinery Production Turnarounds Issues + + High ACN High Cotton 1, Pi Prices Prices + High ACN Prices 5 6 5 4 3 2 1 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 ACN Asia PGP NAM
Regional Propylene Prices Cents Per Pound 9 8 7 6 5 4 3 2 Dollars Per Metric Ton 198 176 154 132 11 88 66 44 1 Forecast 22 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 WE Contract Net Transaction CFR SEA Spot US Contract Net Transaction
NAM Moving to Top of PP Price Dollars Per Metric Ton 2,2 2, 1,8 1,6 1,4 1,2 1, 8 Chain Forecast 6 Jan-9 Jun-9 Nov-9 Apr-1 Sep-1 Feb-11 Jul-11 Dec-11 May-12 Oct-12 NAM PP Disc. Price NEA PP Spot WEP PP Disc. Price NAM PP Spot Export
Capacity: How Much is too Much? PP, Million Metric Tons 9 8 7 6 5 4 3 2 1-1 Forecast 29-211211 17 Million Metric Tons 29 21 211 212 213 214 North America Asia/Pacific South America West Europe C. Europe/CIS Africa/Middle East
12 Investment Excess PP, Million Metric Tons 14 1 8 6 4 2-2 -4 + Demand Drop = Oversupply! Operating Rate, Percent 1 Forecast 25 27 29 211 213 215 Capacity Increase - Demand Increase Operating Rate 95 9 85 8 75 7 Cummulative Delta Caps-Delta Dem
PP Film and Sheet Demand 21 demand: +3 million lbs above 7 Imports of Film and Sheet: (US only and from outside N.Am) decreased from 253 million lbs in 7 to 196 million lbs in 1-28 demand = -1.8% - 29 = 3.1% - 21 = 116% 11.6
PP Demand 29-21 PP Percent Change Film 1 Mils and Below 6. Oriented Film 7. Non-Oriented Film 2.3 Sheet (Over 1 Mils) 19.2 Packaging 16.2 Non-Packaging 28. Source: ACC,, Plastics Division; Gov t Trade Data
North America PP Industry Demand 21-215 215 Injection Molding Blow Molding Film and Sheet Fiber and Filament 3.% 2.6% 1.6% 16% 2.4% Total Domestic Demand 21: 6.9 MMT Total Domestic Demand 215: 7.7 7 MMT Total Percentage Growth Rate 21-215: 215: 2. % 2.4 % Other 2.3% 5 1, 1,5 2, 2,5 3, 3,5 Million Metric Tons 215 21
Trade Patterns Changing Polypropylene Trade 263-135 -1747-267 556-38 -57-54 -489 1788-469 4927-75 -399-239 79 21 215 Thousand Metric Tons
PP Summary Propylene remains scarce keeping propylene and PP prices high Volatility in N. Am here to stay. PP less competitive Film and sheet continues modest growth Through propylene capacity investments, imports, and replacement by other polymers US PP prices will ultimately align with rest of the world (within five years).