Polyethylene Market Review Esteban Sagel Director Polyolefins and Polystyrene North America ESagel@cmaiglobal.com Pemex June 2010 Singapore Shanghai Houston New York London Düsseldorf Dubai
The PE Story Strategic Issues 2008-2009: Demand turned down(with a notable exception) Asia (or better China): The bright spot in global markets Middle East: Failing to Deliver North America: The advantage of the feedstock Even with demand recovering from 2010 on, overcapacity to ensue
The PE Story Tactic Issues Prices in North America: from high to higher and back down to just high Supply tightness trumping low cost structure Mexico: competitive prices from a regional perspective Etileno XXI a positive development for the country
Total PE Global Demand Growth Million Metric Tons World, Million Metric Tons 30 90 25 %AAGR 2009-14 World = 5.5 80 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 North America West Europe Northeast Asia World %AAGR 2009-14 NAM = 3.1 WEP = 3.3 NEA = 7.2 70 60 50 40
World PE Demand Year Over Year World Polyethylene Demand Percent Change, Year over Year %AAGR %AAGR End Use 05 06 07 08 09 '04-'09 '09-'14 Film & Sheet 2.7 5.1 6.0-3.9 2.8 2.5 5.7 Injection Molding 2.9 4.2 6.0-4.8 4.3 2.5 5.4 Pipe & Profile 6.5 8.8 4.6-2.7 0.6 3.5 5.9 Extrusion Coating 1.5 1.3 0.9-2.0-4.1-0.5 4.2 Blow Molding -0.5 3.5 3.4-5.4 3.8 0.9 5.7 Wire & Cable 3.7 4.5 2.2-0.6 0.5 2.0 4.0 Rotomolding 0.8 5.7 1.7 0.8-0.1 1.8 5.2 Demand 2.1 5.1 4.8-4.8 2.0 1.8 5.5
PE Demand Year Over Year Mexico Polyethylene Demand Percent Change, Year over Year %AAGR %AAGR End Use 05 06 07 08 09 '04-'09 '09-'14 Film & Sheet 5.4 3.4 4.2-7.3 1.3 1.3 6.3 Injection Molding 7.0 4.1 4.3-5.6 6.5 3.1 6.7 Pipe & Profile 5.4 4.1 4.3-4.2 2.2 2.3 5.4 Extrusion Coating 2.1 1.7 1.7-7.9 5.4-1.6 2.4 Blow Molding 7.0 5.2 7.0-1.1 3.3 4.2 8.5 Wire & Cable 7.4 4.3 3.1-2.3 1.6 2.8 4.2 Rotomolding 22.6 7.9 7.0-4.3 2.4 6.8 7.2 Domestic Demand 6.1 4.0 4.7-5.6 2.4 2.3 6.6
China Stimulus Plan Worked! $586 billion for 2009 & 10 roughly 7 percent of its gross domestic product each year
China: Record PE Imports in 2009 Thousand Metric Tons 1,000 900 800 700 600 500 400 300 200 100 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2007 2008 2009 2010
Northeast Asia PE Imports 20% 9% 3% 1% 4% 4% 2% 1% 20% 4% 1% 3% 13% 31% 24% 59% 1% 2009 Total PE Imports = 6.52 MMT 2014 Total PE Imports = 8.25 MMT United States Canada Mexico S. America West Europe Central Europe & CIS Africa Middle East Indian Sub. NE Asia SE Asia
Middle East: Failing to Deliver MDE PE Capacity Additions, Million Metric Tons 9 8 7 6 5 Delays helped keep the market tight in 2009 4 3 2 1 0 mar-08 sep-08 mar-09 sep-09 mar-10 sep-10 2008 View Current View
North America: Relatively Good Operating Rate, % 95 Operating Rates 90 85 80 75 70 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 World WEP MDE NEA NAM
U.S. - The Difference is on the Feedstock Others 9% Naphtha 17% Natural Gas Liquids 74% Others 7% Natural Gas 20% Naphtha 73% Natural Gas Liquids 5% Others 8% Naphtha 87% Naphtha 16% Natural Gas Liquids 84% Naphtha 62% Natural Gas Liquids 38% Natural Gas Liquids 36% Naphtha 61% Others 3%
U.S. PE Exports Raise Thousand Metric Tons 600 500 400 300 200 100 0 07 M M J S N 08 M M J S N 09 M M J S N 10 M Total Selected Regions N.America S.America Europe Far East Other
Compensating for Shrinking Domestic Market Demand and Exports, Million Pounds 3900 Production, Million Pounds 3900 3400 3400 2900 2900 2400 1900 Average Domestic Demand = 2.54 2400 1900 1400 Average Domestic Demand = 2.20 1400 900 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 900 Domestic Demand Exports Production
U.S. Exports Remain Viable Dollars Per Metric Ton 1600 1500 Forecast 1400 1300 1200 1100 1000 900 800 700 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 NAM HD Disc. Price WEP HD Disc. Price NEA HD Spot NAM HD Spot Export
North America Total PE Trade Forecast Million Metric Tons 10.0 8.0 Exports Forecast 6.0 4.0 2.0 0.0-2.0-4.0-6.0 Imports 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total PE Imports Total PE Exports Total PE Net Trade
China Quarterly Production Plus Imports Thousand Metric Tons 5,000 4,500 Forecast 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 Production Imports Total Demand (7.8 %AAGR 2009-11)
PE Capacity Being Built In The Middle East & Asia Will Outstrip Demand Growth Million Metric Tons 9 8 7 6 5 4 3 2 1 0-1 2008 2009 2010 2011 2012 2013 2014 North America West Europe Africa/M. East Avg. Demand Growth: 3.2 Million Metric Tons Per Year South America Central Europe/CIS & Baltic States Asia/Pacific
Polyethylene Capacity Changes NAM WEP MDE NEA / SEA / ISC Net Increase Company kta Company kta Company kta Company kta 1Q-10 2Q-10 3Q-10 Borealis BEL HD (200) Yansab KSA HD 400 Tianjin PC CHI HD/LL 600 Borealis SWE HD/LL (90) Sharq KSA HD 400 PTT Chem THA LD 300 SABIC UK LD 400 Qatofin QAT LL 450 Bangkok PE THA HD 250 2510 LBI GFR HD 250 Zhenghai Ref. CC CHI HD/LL 450 Borealis SWE LD 350 MOC THA LL 300 SABIC NET LD (120) TPE THA HD 400 1630 Borouge UAE HD/LL 540 Gail IND LL 50 Q-Chem II QAT HD/LL 350 Haldia IND HD/LL x 120 Amir Kabir IRN LD 300 Baotou Shenhua CHI HD/LL 300 CNOOC & Shell CHI LD 75 CNOOC & Shell CHI HD 75 Indian Oil IND HD 300 Indian Oil IND HD/LL 350 2460 4Q-10 x = capacity/expansion 0
20 Middle East Exports Will Need A Home Million Metric Tons 25 Average Annual Excess Of Middle East Net Exports In 2009-14 = 3.7 Million Metric Tons 15 10 5 0 2000 2002 2004 2006 2008 2010 2012 2014 Domestic Demand Production Capacity MDE Net Exports Asia Net Imports
Polyethylene Exports & Imports 439-1585 -450-690 -3945-6904 3306 1661 4514 10830-1311 -1409-1327 -1825-394 1801-832 -1879 2009 2014 Thousand Metric Tons
Excess PE Capacity Reaching Peak Levels Million Metric Tons Operating Rate, Percent 24 100 20 16 12 8 4 0-4 95 90 85 80 75 70 65-8 60 1997 1999 2001 2003 2005 2007 2009 2011 2013 Capacity Increase - Demand Increase Cummulative Delta Caps-Delta Dem Operating Rate
Not All Regional Margins Affected Equally Wtd. Avg. PE Margins, Dollars Per Ton 1400 1200 1000 800 600 400 200 0-200 2004 2006 2008 2010 2012 2014 NAM WEP SEA MDE (Sales to China) (Discounted Price, Integrated Producer,
Are Asian Prices An Indication of Things To Come? China Spot, Cents Per Pound 90 80 Middle East Plants Start Up On HDPE Dollars Per Metric Ton 1984 1764 70 60 50 40 30 ene-07 ene-08 ene-09 ene-10 ene-11 1543 1323 1102 882 661 LLDPE C4 HDPE BM LDPE GP
Ethylene Availability Pushing NAM Costs Higher Ethylene Price, Dollars Per Metric Ton 1,700 1,500 Forecast 1,300 1,100 900 700 500 25 300 08 A J O 09 A J O 10 A J O 11 A J O U.S. Large Buyer Contract Price
Cents Per Pound 100 Regional LLDPE Butene Prices (Discounted & Spot Prices) Dollars Per Metric Ton 2205 90 80 70 60 50 40 30 ene-07 sep-07 may-08 ene-09 sep-09 may-10 ene-11 sep-11 NAM LLDPE WEP LLDPE CHINA LLDPE (Spot) 1984 1764 1543 1323 1102 882 661
U.S. Polyethylene Chain Margins Cents Per Pound Polyethylene Dollars Per Metric Ton 35 772 30 661 25 551 20 441 15 331 10 220 5 110 0 0-5 -110 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ethane Margin - Ethane Price Minus Shrinkage & 5.5 cpg Extraction Costs PE Margin - Contract HDPE Blow Molding Non-Int. Including Discounts Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs
Mexico Relatively Better Prices Dollars Per Metric Ton 2300 Forecast 2100 1900 1700 1500 1300 1100 900 700 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 NAM HD Disc. Price WEP HD Disc. Price NEA HD Spot Mexico HD Spot Export
Relative Competitive Advantage May Remain LD/LLDPE Bags Cost of Production, Dollars Per Metric Ton (2009) 2,500 2,000 1,500 1,000 500 0 United States China Mexico Total Raw Materials Total Utilities Labor, Labor Related Overheads & Maint. General Overheads, Taxes & Ins. Transport to USGC
Mexico Attractive Polyolefins Thousand Metric Tons 1000 800 600 400 200 0 HDPE LDPE LLDPE 2010 Total Demand Market Imports No barriers to trade Sizable market Proximity to US consumers Reversal of trade patterns
Etileno XXI Mexico net importer of PE; Project will help reduce reliance on imports, keeping value added in Mexico Use of light feedstocks to provide cost advantage
Current $ $ / MM Btu 18 N. America Nat. Gas to Crude Ratio Gas as % of Crude BTU Basis 100% 16 90% 14 80% 12 70% 60% 10 50% 8 40% 6 30% 4 20% 2 10% 0 0% 04 05 06 07 08 09 10 11 12 13 14 Crude (WTI) Natural Gas Gas as % of Crude
900 800 700 600 500 400 300 200 100 0 World Ethylene Cash Cost Comparison Dollars Per Metric Ton 2010 1,000 *MDE cash costs are average values of Iran and Saudi Arabia U.S. Ethane at Fuel Value + 5 Cents per gallon Canada Ethane NAM Ethane MDE LPG MDE Naphtha NEA LPG WEP Naphtha NAM Naphtha NEA Naphtha SEA Naphtha 33
PE Take-Aways Ethylene shortage drove PE price increases: April = price peak Price / margin correction begins in May Export volumes expected to increase through Q2: should coincide with increasing domestic demand to keep supplies somewhat tight US resin and film imports should be minimized in 2010-11 due to relatively low NAM production costs New capacity in MDE and China will keep pressure on resin producer prices and margins in 2 nd half 2010 and 2011.
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