Polyester Feedstocks Outlook

Wei Ding , Director September, 2014 Singapore

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38,000 42,000 46,000 50,000 54,000 58,000 62,000 66,000GDP (Billion 2005 $)

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2017

2013 2014 2015

2016 2018

Polyester Growth = 2.6 X GDP Growth

Polyester, Million Metric Tons

Polyester Demand Outpace GDP

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2008 2010 2012 2014 2016 2018Americas Europe Africa & Middle East Asia (Exclude China) China

Million Metric Tons

Asia Dominates Demand Growth

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Agenda

• PX • PTA • MEG

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File: Singapore file: \\sin_svr2\Data\GFFR\Charts and Presentations\Polyester Chain\commodities.xlsb \\Houfile1\mas\Aromatics_Fibers\GFFR\MarketReportFiles\GFFR Monthly\Current\Graph Utilities\Recurring Excel Files\commodities.xlsb WS: ASP_POLY_GRAPH (For PPT) Cotton forecast:Source file from GI \\sin_svr2\Data\GFFR\MonthlyReports-Excels\Cotton\Cotton, Cotton A-Index.xlsx Last Update: 9 Nov 2013 Refresh DI Sheets History=Still CMAI Forecast (Jan 2013 onwards)=GI

Using Houston copy Last Update: 31 May 2013

Reformate Hv. Naphtha

• Reformate • Heavy Naphtha • Heavy aromatics • Condensate

Benzene

Aromatics Refinery Toluene P-Xylene

Lt. Naphtha

Gasoline Diesel, Jet, …

Pygas

• Pygas • Mix. Xylenes • Toluene • Coke (coal)

Crude Oil

Condensate

Main Rule: Secure Feedstocks

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Buy octane from gasoline OR Buy different feedstocks

Aromatics Will Need More Reformate

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2006 2011 2016 2021 2026BTX in the Gasoline Pool Aromatics BTX Demand% Aromatics vs. Total BTX

Global BTX Demand for Reformate Million Tons Per Year

Aromatics BTX Ratio

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32% 35% 37% 40% 43%

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Aromatics have highest octane.

Reformate

Lt. HDC

FCC Gasoline

Alkylate LSR Gasoline

Isomerate

Butane

Gasoline Composition

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100Aromatics, %vol Road Octane No.

BOB

Octane & Aromatics of Gasoline Streams

The Real Reason Is… Octane

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Refining

PET

North America & Europe

X

B/T

CCR BTX

HN

Asia CCR BTX B

HN

Gas Oil Condensate

Refining

PET

X

CCR BTX

Crude Crude S

u

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C

a

n

a

l

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Feedstock Diversification

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Splitter

Fuel Gas 5%

650F+ 10 %

Condensate

Lt. Naphtha 15%

Hv. Naphtha 45%

Kero &

Distillate 25%

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2006 2010 2014 2018 Other Demand Fuels Capacity Field Process. Capacity Olefins Capacity Aromatics Capacity East of Suez Supply

East of Suez Condensate Demand

Million Barrels Per Day

Asia Quest for Condensate Intensifies

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2008 2013 2018China NE Asia (ex-China) SE AsiaIndian Subc. N. America S. AmericaEurope Middle East

Million Metric Tons

China 75% of PX Growth

Healthy Demand Growth

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File: X:\Supply Demand Balances\LFORM\Xylenes\Graphs\PX MX graphs.xlsb WS: PX Cap gr_book Last Update: 9 Sep 2013 14T Balance (once every half yr) – 14T

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2008 2010 2012 2014 2016 2018World Demand Growth AmericasEurope Africa / MDEChina Asia (exclude China)

Million Metric Tons

Who’s Adding New Capacities?

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Cumulative Capacity, Million Metric Tons

Cash Costs, Dollars Per Metric Ton

Non-integrated and Small Producers

Older/Smaller NE Asia

Producers

Integrated Middle East

and US producers

New Integrated

Asia Producers

Europe Producers

2013 PX Demand

Diversification of Costs

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File: \\sin_svr2\data\GFFR\Charts and Presentations\Polyester Chain\HANDOUTS\Excel & Charts\SD-Growth-OP_Margins 15 Aug 2011.xlsx WS: PX_Eff_CapsRates Last Update: 9 Sep 2013 14T Balance (once every half yr) – 14T

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Nameplate Capacity Effective CapacityDemand Operating RateEffective Operating Rate

Million Metric Tons Operating Rate, %

World Supply Versus Demand

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Middle East Northeast Asia Southeast Asia Indian Subc.N. America S. America W. Europe C. EuropeCIS & Baltics Africa

Million Metric Tons

Net Importers

Net Exporters

Trade Flow to Increase Significantly

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File:

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Jan '12 Jul '12 Jan '13 Jul '13 Jan '14 Jul '14 Jan '15 Jul '15

Naphtha Mixed Xylenes Paraxylene PX-Naphtha

Dollars Per Metric Ton

Asia PX Economics

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Agenda

• PX • PTA • MEG

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2008 2013 2018 20230

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China Asia-China EMEA Americas Operating Rate

Cap

acity

Dem

and

Million Metric Tons Operating Rate

World PTA Demand Versus Capacity

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2008 2010 2012 2014 2016 2018Global Demand Growth China India SubcontinentNEA net China SEA EuropeMiddle East & Africa N. America S. AmericaOperating Rate

Million Metric Tons Operating Rate (%)

PQS 640 KTA M&G 1.2 MMT

Lotte UK DAK US

Global PTA Capacity Growth

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MEA

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China 01234567

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ISC

2010/2013/2018 NET IMPORT/EXPORT MILLION METRIC TONS

Diminishing PTA Trade

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2008 2010 2012 2014 2016 2018

PTA Spread Over PX PTA Global Operating Rate

Dollars Per Metric Ton Operating Rate, %

85% OR

$125 Per Ton Spread

Asia PTA Spreads

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2013 2018 Capacity (MMT): 67 95

Number of Plants: 117 140 Average Plant Size (KMT):

567 675

To Achieve 85% Industry Utilization Capacity to Rationalize (MMT): 9 20

Plant Size (KMT): <= 380 <= 520 Plants to Rationalize (#): 31 55

Demand (MMT): 49 64

Demand

Rationalize

Excess Capacity

Is Realistic Rationalization Possible?

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Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

Capacity Lost PTA(contract)-PX

Thousand Metric Tons CNY

Changes in Pricing—A Salvation?

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Agenda

• PX • PTA • MEG

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2008 2010 2012 2014 2016 2018Global Net Annual Capacity Change Global Demand Change

Million Metric Tons

Capacity In Sync With Demand?

The Pioneer: Tongliao GEM 1,100KTA On-stream

Polyester Clusters

2,800KTA under Construction Over 4,000KTA in the works

Booming Coal Based MEG In China

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2008 2010 2012 2014 2016 2018Conventional Selective EO HydrationMETEOR (Dow Trademark) OMEGA (Shell Trademark)Bio Ethanol – Ethylene – EO Glycerine/Sorbitol HydrogenolysisCoal-Based Oxalate Ester Methanol - Ethylene - EO

An Emerging Dark Horse

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Production

• 2013 production less than 300KT.

• 70-80% or higher run rate achievable, but in most cases, not sustainable.

• Frequent outages happed to most units.

Quality • Only products from Tianye are

regarded as acceptable and stable for polyester manufacture.

• Blend with conventional MEG remains the predominant way.

Nameplate Capacity Can Mislead

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2,000

4,000

6,000

8,000

Xinjiang InnerMongalia

Henan

FD Cost VC(Exclude FD) TFC

Evident cost competitiveness in terms of ideal conditions.

2013 Spot Average: 7800

CNY Reality was far less that inspiring:

Producer Revenue Cost Margin GEM 507.2 523 -15.8 TIANYE 232.3 172 60.3

2013 Performance Unit: Million CNY

Drawbacks: • Investment of demo units are

relatively high. • Run rate matters enormously! • Logistic costs

Potential Risks: • Carbon Tax

Profitability of Coal Based MEG

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Saudi Operations issues are expected to reduce available capacity

• Multiple extended (10–12 week) shutdowns in 2014–2015 for reactor replacement

• Rumored to be running at reduced rates at 4–5 units, very high rates at the rest to fill the gap

• They have managed the situation effectively

We assume 400–600 KTA lost production each year in 2014–2015. Increased risk of unplanned shutdowns should not be ignored.

Global Supply Chain May Raise Concerns

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2008 2010 2012 2014 2016 2018

Global Net Annual Capacity Change Global Demand Change

Net Capacity, Million Metric Tons

Adjusted Capacity Growth

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2008 2010 2012 2014 2016 2018Demand Total Capacity Operating Rate

Million Metric Tons Operating Rate (%)

89%

Stressful World MEG Operating Rate

PX • Significant over

capacity is set to come up.

• Feedstock availability not as much a constraint as costs.

• Potential downside for both prices and margins.

PTA • A tough cycle

remains on track until after expansions slow down.

• Proactive operating management better than forced shutdowns.

Conclusions

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MEG • Next wave of new

EO-EG capacity online 2016-2018

• The rise of unconventional MEG still takes time and efforts.

• Prepare for a tightening market.

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